Q. Our company is planning to acquire another company that operates in the same industry. 

The company has fewer than 15 employees and is not associated with this company. Once the employees of the purchased company are transferred across to us, is the original start date they had with their previous employer used for calculating redundancy pay should they be made redundant at some point in the future?

What other employee entitlements are affected by a transfer of business? 

 

A. It depends on the entitlement being considered. Under the Fair Work Act, an employee's service with their previous employer will generally be recognised for many employment-related purposes following a transfer of business. However, special rules apply to annual leave, redundancy pay and long service leave

 

Redundancy pay & annual leave 

Service with the first employer does not apply with respect to redundancy pay or annual leave under the National Employment Standard where the transfer is between non-associated entities, if the second employer decides not to recognise the employee’s service with the first employer. 

Unless the first and second employers are associated entities, the second employer is not obliged to recognise prior service with the first employer for calculating the employee’s minimum employment period. The transferring employees should be advised in writing by the second employer that prior service will not be recognised before they commence employment. If the employee has already had the benefit of the entitlement the amount which was calculated on the period of service with the first employer is not counted when calculating service with the second employer. 

If the new employer does not agree to recognise an employee's service in relation to redundancy pay, the old employer will be required to pay out that employee's redundancy pay. 

 

Previous service & entitlements. 

The Fair Work Act (s.22(5)) provides that if there is a transfer of business, any period of service of the employee with the first employer counts as service with the second employer; and the period between the termination of the employment with the first employer and the start of employment with the second employer does not break the employee’s continuous service with the second employer, but does not count towards the length of the employee’s continuous service with the second employer. 

 

Which entitlement carry over?

With the exception of redundancy pay and annual leave (see above), prior service with the first employer is counted for:

  • the amount of personal leave (sick leave and carer’s leave) the transferring employee has with the second employer (less the service for any sick leave or carer’s leave taken with the first employer or paid out by the first employer) 

  • the amount of notice of termination the transferring employee is entitled to from the second employer (less the service for any period of notice given by the first employer or paid out in lieu by the first employer) 

  • the amount of service that the employer has with the second employer for determining eligibility for unpaid parental leave, or an employee’s right to request flexible working arrangements under the NES 

  • the amount of service that the transferring employee has with the second employer for determining when the employee’s minimum employment period ends (for access to unfair dismissal rights) 

The recognition of service rules also apply to a transfer of employment where an employee takes up employment with an associated entity within three months. In a transfer of employment, it does not matter whether the employee performs the same or substantially the same work for the new employer. 

 

Long service leave 

Each state and territory has long service leave legislation which contains a provision regarding transmission of business. The statutes normally provide for continuity of service where a business or part of a business has been transferred as a going concern from one employer to another and a person who, at that time, was an employee of the transmittor and became the employee of the transmittee without any break in service, then service with the first employer is regarded as service with the second employer in calculating leave due to the employee. 

 

Bottom line 

In a transfer of business, an employee's prior service will generally be recognised for most Fair Work Act entitlements, including personal/carer's leave, notice of termination, parental leave, flexible work requests and unfair dismissal eligibility. However, where the transfer occurs between non-associated entities, the new employer may choose not to recognise prior service for annual leave and redundancy pay purposes. Long service leave should be assessed separately under the applicable state or territory legislation.