M+A: Transfer of enterprise agreement

Where a business is sold by way of sale of shares in a company, whatever industrial arrangements (including enterprise agreement) that applied prior to the sale will also apply after the sale because there is no change to the employer.  However, where a sale of business takes place by way of a sale of assets, the purchaser will need to know whether there is an enterprise agreement which applies to the employment of the vendor’s employees and whether that enterprise agreement will continue to apply after the sale.

Transfer of business in these situations is dealt with under Part 2-8 of the Fair Work Act 2009 (Cth).  Section 311(1) of the Act provides that there is a transfer of business from an old employer to a new employer if the following requirements are satisfied:

  1. The employment of an employee of the old employer has terminated;
  2. Within 3 months after the termination, the employee becomes employed by the new employer;
  3. The work (the transferring work) the employee performs for the new employer is the same, or substantially the same, as the work the employee performed for the old employer;
  4. There is a connection between the old employer and the new employer as described in any of s.311(3) to (6).

It is be noted here that under subsection 311(2) an employee in relation to whom the requirements in paragraphs (1)(a), (b) and (c) are satisfied is known as a “transferring employee” in relation to the transfer of a business.

The connections in ss.311(3) to (6) between the old employer and the new employer necessary to satisfy s.311(1)(d) are as follows:

  • s.311(3) – there is a connection if in accordance with an arrangement between the old employer (or an associated entity of the old employer) and the new employer (or an associated entity of the new employer) the new employer or the associated entity of the new employer owns or has the beneficial use or some or all of the assets (whether tangible or intangible) that the old employer or the associated entity of the old employer owned or had the beneficial use of; and that relate to or are used in connection with the transferring work.
  • s.311(4) – there is also a connection between the old and the new employers if the transferring work is performed by one or more transferring employees because the old employer (or an associated entity) has outsourced the transferring work to the new employer (or an associated entity).
  • s.311(5) – there is also a connection between the old and new employers if the new employer ceases to outsource work to the old employer (this is often known as “insourcing”).
  • S.311(6) – there is also a connection between the old and new employers if the new employer is an associated entity of the old employer when the transferring employee becomes employed by the new employer.

Under s.313 of the Act, where an enterprise agreement that has been approved by Fair Work Australia covered the old employer and the transferring employee immediately before termination of the transferring employee’s employment with the old employer, then:

  • the enterprise agreement covers the new employer and the transferring employee in relation to the transferring work after the time (the transfer time) the transferring employee becomes employed by the new employer; and
  • while the enterprise agreement covers the new employer and the transferring employee in relation to the transferring work, no other enterprise agreement or named employer award that covers the new employer at the transfer time covers the transferring employee in relation to that work.
Page: 1 2Full Article