There are a number of considerations in relation to the treatment of employees when buying or selling a business. This will generally be subject to the negotiation between the parties and the terms of the Contract. Both parties should be aware of their rights and obligations to ensure the smooth transition of the business and minimal interruption to employees whose service will be continuing with the Buyer.
The information below relates to the Standard Conditions of Sale – Business Sale (Third Edition).
Offer of employment by the Buyer
Under the Standard Condition, a Buyer is not obliged to offer employment to all existing employees of the business. Clause 18.2 provides that the Buyer must notify the Seller in writing prior to Settlement of the employees that the Buyer proposes to employ. The Buyer must then offer each of these employees a position on the following terms:
- The offer must be conditional on Settlement taking place;
- The employment will commence on the day of Settlement;
- The employee must resign with the Seller;
- The employment will be on terms no less favourable overall than the current terms of employment; and
- The offer will provide for continuity for all purposes and benefits.
Adjustments on Settlement
As the offer to employees requires continuity for all purposes and benefits, adjustment of the employee’s entitlements will be required on Settlement, including the following:
- Annual leave;
- Sick leave;
- Long service leave; and
- Redundancy payments.
The employee entitlements may vary depending on the relevant employment agreement, award or enterprise agreement. For example, employees may also have a bonus or commission structure payable in their employment agreement. For this reason, it is important to consider all terms of the employment during negotiations and/or due diligence period.
Where the relevant employees accept the Buyers offer, Clause 18.9(a) provides that the Buyer must treat each transferring employee as if the transferring employee had been continuously employed by the Buyer from the time of commencement with the Seller (or any predecessor of the Seller). For the period prior to Settlement, the Buyer is able to rely on the Sellers indemnity. However following Settlement, the Buyer will be responsible for the employees and will be required to indemnify the Seller for all claims arising after Settlement.
The Seller is responsible for all employees that the Buyer does not offer employment. This will involve the Seller ending the employment of the relevant employees as at the date of Settlement. The Seller will need to ensure that the employees are dealt with in accordance with their relevant award or enterprise agreement and the Fair Work Act. This includes the employees right to any redundancy/severance pay and the required notice period. The Seller will also be required to indemnify the Buyer from any claims by these employees.
In relation to the transferring employees, the Seller is required to provide in writing all employee entitlements to the Buyer to enable the relevant adjustments as discussed above.