The New Transfer of Business Provisions

Tuesday, 25 August 2009

Transfer of business rules have always been a contentious and much litigated component of employment law. The Fair Work Act 2009 (Cth) made significant changes to the transmission of business provisions that had been introduced under Work Choices. These changes took effect on 1 July 2009.

New Test for Transfer of Business

The Fair Work Act 2009 introduced a new test to determine whether a transfer of business has occurred and will likely significantly increase the circumstances in which a transfer of business will take place. The new test focuses on whether the work performed by an employee for each employer is substantially the same.

Under the test, there are four basic requirements to establish a transfer of business:
• the employment of an employee of the old employer must be terminated;
• the employee must become employed by the new employer within three months of the termination;
• the work performed by the employee for the new employer must be substantially the same as the work performed for the old employer; and
• there must be a connection between the old employer and the new employer.

A connection between the old employer and the new employer can be established by any one of the following:
• a transfer of the ownership or beneficial use of assets,
• outsourcing or insourcing work from or to the new employer, or
• the old employer and new employer being "associated entities" pursuant to the Corporations Act 2001 (Cth).

Effect of Transfer of Business

Where there is a transfer of business, the transferring employees will remain covered by certain workplace instruments including enterprise agreements, workplace determinations or named awards. The existing workplace instrument will continue to cover the transferring employee indefinitely until terminated or replaced in accordance with its terms.

The new employer will be bound to recognise the transferring employee's service with the old employer when calculating entitlements such as personal/carer's leave, parental leave and the right to request flexible work arrangements. Where the new employer is an associated entity of the previous employer, service with the previous employer will be deemed to be continuous for all service-related National Employment Standards entitlements including annual leave and redundancy pay.

In addition, the Fair Work Act 2009 also provides that new employees of the employer who are directed to perform work that was previously performed by the employees for the old employer will also be covered by the old employer's enterprise agreements or named awards, if the new employer does not have an enterprise agreement or named award applicable to those employees. One interesting result is that the new employer could potentially be bound by different enterprise agreements in relation to employees performing the same work.

Conclusion

The Act's transfer of business provisions represent a significant change to the current law governing transmission of business arrangements. It is vital that all companies are aware of these provisions as they will apply to all transfers of business from 1 July 2009.

These changes may affect any employer that:
• purchases or acquires another business;
• is involved in a commercial transaction with another business/employer that involves the transfer of any type of asset;
• is involved in outsourcing; or
• changes outsourcing providers

Applications can now be made more easily to clarify the rights and entitlements of employees in a transfer scenario.