Terminate or Transfer Employees in a Sale of Business?
It is critical for all parties to a sale of business transaction to understand their legal rights and obligations in relation to existing employees of the business and the financial cost of termination and/or transferring of employment.
A purchaser in a sale of business has three (3) options for dealing with each employee:
- not to offer them employment;
- to offer employment, but without recognition of their prior service (although see below certain prior services that must be recognised); or
- to offer employment with recognition of their prior service.
Obligations of the Purchaser
Under the relevant legislation, upon the sale of a business the purchaser:
- must recognise the period of service for each employee with the vendor for the purpose of:
- long service leave;
- personal / carer’s leave;
- notice of termination;
- superannuation; and
- determining entitlements to parental leave and flexible working arrangements, and
- can make a choice about whether to recognise for each employee the period of service with the Vendor for the purpose of:
- annual leave;
- redundancy pay; and
- unfair dismissal.
Certain notices will need to be given by both the vendor and purchaser depending upon the purchaser’s decision on the above.
Regardless of whether the purchaser decides to recognise prior service, if an employee’s employment is transferring to the purchaser, the purchaser and the vendor will typically negotiate adjustments to the sale price based on the value of any entitlements being transferred with the employee.
Not Offering Employment
If the purchaser decides not to offer employment to an employee, or an employee decides not to accept an offer from the purchaser, the vendor will need to pay out all entitlements to that employee as if it were an ordinary redundancy. Whether the vendor can avoid paying additional redundancy pay will depend on whether the transaction meets the relevant legislative requirements.
Strict Guidelines Apply
There are strict legislative guidelines about what payments, offers and notices are required to be made by the vendor/purchaser of a sale of business to employees of the business, including certain notice periods for termination and certain terms for continued employment. It is essential that both a purchaser and vendor of a sale of business seek legal advice to make sure they satisfy their legal obligations.