When a business changes hands, employers have limited options when it comes to their employees. They must either end the employment relationship or if the new business owner chooses to offer ongoing employment, a transfer of employment can occur. Either way, the Fair Work Act requires employers to provide their employees with written notice.
A transfer of employment may happen in two different circumstances - where the transfer is between associated entities or non-associated entities. Whether or not an employee's service (and entitlements) with the first employer will count towards the new employer will depend on the relationship between the two employers.
In this regard, it is important to know whether the employers are associated entities.
What is an associated entity?
Associated entities are businesses or other bodies connected in some way, for example, if they are members of the same corporate group.
Two companies are associated entities if one controls the operations, resources, and affairs of the other, if one has a qualifying investment in the other, or if a third entity controls both of the other entities.
The full definition of what constitutes associated entities can be found in the Corporations Act 2001.
When is employment transferred between associated entities?
An employee's service with one employer may count as service with another employer if two conditions are met. That is, the second or new employer must be an associated entity of the first employer, and the employee must become employed by the second employer within three months of their employment being terminated by the first employer.
When is employment transferred between non-associated entities?
For an employee's previous service to transfer between non-associated entities, they must be transferring as part of a transfer of business. A transfer of business requires that the transferring employee was dismissed from the first employer and employed by the new employer within three months to perform work substantially the same as the work performed for the first employer.
A transfer of business also requires one of the following connections between the employers:
- The business assets of the first employer are transferred or sold to the new employer
- The first employer outsources its work to the new employer
- Work previously outsourced is insourced by the new employer