09. Transfer of Undertakings

Employees’ Rights in Case of a Transfer of Undertaking

The Fair Work Act sets out a range of provisions that deal with the rights of employees where their employment changes as a result of a transfer of business.

These provisions govern situations where a business is transferred from one employer (e.g., a company) to another. Typically, a transfer of business takes place when an employer buys or sells a business, and not merely when there is a sale of the shares in the business.

Section 22(5) of the Fair Work Act states that where a transfer of employment occurs, the transferred employee’s service with their original employer will be counted as continuous service with their new employer. As such, any benefits acquired under the National Employment Standards (such as annual leave) will be retained through the transfer of business and the employee’s service will remain continuous in the eyes of the law (even in circumstances where there has been a substantial period of inactivity).

However, should the new employer fail to recognise these accrued rights, section 91 of the Fair Work Act holds that the original employer must pay out all entitlements accrued under the National Employment Standards. This may only occur in the case of non-associated entities. The same entitlements exist in relation to redundancy in s 122.

In addition to the above, Part 2-8 of the Act outlines the rules for transfers of business in scenarios where the original employees were covered by a modern award or enterprise agreement. Should the employees perform largely the same work following the transfer, and the businesses have sufficient connection to each other as outlined by section 311(3)-(6), then the workplace instrument that covered them will be transferred to the new employer.

It is worth noting that there are a number of complexities to this process. However, the underlying notion is to preserve the rights held under a bargained enterprise agreement where the work done is largely the same as it was under the previous employer. On this basis, the instrument is also transferred so as to cover the new employer as well.

Requirements for Predecessor and Successor Parties

For the entitlements to successfully transfer with the employee, the employee must have their employment first terminated with the old employer. Then, within three months following the termination, the employee is reemployed by the incoming business owner.

The usual practice is for the new employer to issue, at the time of purchasing the business, a list that sets out those persons whom the business intends to reemploy.

It is also a requirement that the work performed by the transferring employee is the same or substantially the same as the work previously performed.