When you sell your business, one of the biggest questions is what will happen to your employees. This depends on a number of things, such as whether the purchaser is a ‘non-associated entity’ and the nature of your staff’s employment. 

You’ll need to officially let your employees go when you sell your business. From there, they can choose to either accept or reject the offer of new employment with the buyers of your business. Either way, you’ll need to formally terminate their employment with you. 

Terminating Employment

During a transfer of business, there are a few things to go over before you officially terminate your staff’s employment with you. Some of these steps will require you to speak with the new employer, so it’s important to understand what’s required of you. 

Step 1: Written Notice 

Before you let them go, you need to give your employee written notice of their termination of employment. The minimum notice period usually depends on how long they’ve been employed by you: you can read more about this here

Generally, the notice should include:

  • The reason you’re terminating their employment (so, in this situation, you’d talk about the business being sold to a new employer)
  • The date their employment ends
  • The notice period
  • Whether the employee will be paid in lieu of notice

Step 2: Employment Termination Payment 

You might need to pay your employees some form of compensation for losing their job, or their redundancy payment.

A lump-sum paid to an employee because of termination of employment is known as an Employment Termination Payment (ETP), and may include payments for: 

  • Unused sick leave or unused rostered days off
  • Payments in lieu of notice
  • Gratuity 
  • Loss of job compensation
  • Redundancy 
  • Early retirement schemes (that exceed the tax-free limit)
  • Market value of transfer of property

An ETP doesn’t include:

  • Unused annual or long service leave
  • Superannuation benefits
  • Tax-free part of a genuine redundancy payment 
  • Foreign termination payments

Terminating an employee isn’t always easy, so we’ve got a team of lawyers ready to chat if you ever need help. 

Will Your Employees Be Working For The Buyer Of Your Business? 

So, what happens if your employees do accept the offer of new employment and decide to work for the buyer of your business? You’ll need to have the below points sorted.  

Documents To Give To The New Employer

Before your employee starts working for their new employer, you need to provide all the relevant documentation to the buyer of your business. 

  • Up to date employee records: You’ll need to give the new employer your employees’ records, such as their name, nature of their employment (e.g. part time), their commencement date and their ABN (if any). 
  • Notice of termination: As we mentioned before, you still need to terminate employees’ employment with you. This means you’ll need to provide notice in writing of this termination, as well as any necessary payments.

The payments you’ll need to make depends on the new employer, as they can choose to recognise or not recognise the employee’s service with you for some entitlements. 

Pay Entitlements When Transferring Employment 

Generally, the employee’s service with the old employer counts as service with the new employer for the purpose of pay entitlements, unless the new employer decides not to recognise it.  

If this is the case, the old employer is obligated to pay the employees certain accrued entitlements, such as redundancy or annual leave. We’ll talk more about this shortly. 

It’s important to note that, if you already gave your employee their entitlements, this service isn’t counted again with the new employer. 

If you’re a new employer and you’re not too sure about how these entitlements will transfer, don’t stress too much—we’ll cover your obligations shortly. 

Transferable Instruments

In some situations, employees can claim certain rights to be carried over from their old to new employer. This is known as a transferable instrument. 

A transferable instrument is basically a group of rights and can be in the form of:

  • An agreement
  • A workplace determination
  • A named employer award

You can also transfer flexibility arrangements and guarantee of annual earnings.

Put simply, a transferable instrument will cover a transferring employee until their old employment is terminated or until a new instrument can cover your employee. It ensures that the process of carrying over their entitlements is simple. 

What Does The New Employer Need To Do?

If you’re the new employer, your obligations will look a little different. You also have a variety of choices, so you can control what these responsibilities will look like. 

If you’re the new employer and you are not an associated entity, you have a few options. You can choose to not offer the existing employees employment at all, which means they’ll be terminated through redundancy with their old employer rather than transferring. 

If you do offer employment, you can choose to either:

  • Recognise service with the old employer
  • Not recognise service with the old employer regarding some forms of entitlements

Recognition Of Service

If you decide not to recognise employees’ service with the old employer, then the old employer is obligated to pay employees their accrued entitlements, such as annual leave and redundancy. Usually, this will be paid when their old employment is terminated. 

However, even if you choose this option, you still need to recognise the following:

  • Sick and carer’s leave
  • Parental leave
  • Right to request flexible working arrangements

Alternatively, you could choose to recognise employees’ service with their old employer. This means that their accrued entitlements will carry over to you, and you’ll be responsible for these payments instead of the old employer.

In addition to the payments you’re already recognising (personal leave, termination notice pay), you’d also be responsible for:

  • Annual leave
  • Redundancy
  • Long service leave
  • Unfair dismissal
  • Notice of termination

Put simply, if the new employer recognises these entitlements, they will be carried over during the transfer—so the old employer won’t need to worry about paying the employees when they terminate their employment. 

Entitlements are usually recognised where the T&Cs of the new employer are similar to those of the old employer. However, if you’re a non-associated entity, then it might be safer to not recognise these entitlements. 

Either way, the new employer will need to provide their new employees with the Fair Work Information Statement. It essentially sets out the employees’ rights and the National Employment Standards. It needs to be given to staff before they start work, or as soon as possible after they begin. 

Next Steps

Managing your employees during a transfer of business comes with many obligations, but it doesn’t have to be difficult or stressful. Feel free to contact our friendly team of lawyers who are ready to help you with your next steps. 
We can be reached for a free consultation on 1800 730 617 or at team@sprintlaw.com.au.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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