Are you purchasing a business with employees?

 

Qualifying period re-starts

 

Are you purchasing a business with employees?  Is the purchasing entity you are using a Corporation?  If so, a recent decision of the Full Bench of the Australian Industrial Relations Commission provides guidance regarding the statutory qualifying period with respect to those employees.

 

Under Section 643 of the Workplace Relations Act 1996, an employee whose employment has been terminated by an employer may apply for relief on the grounds that the termination was harsh, unjust or unreasonable.

 

However, the application cannot be made if the employee has not completed a qualifying period.

 

The qualifying period is six months (but it can be shortened or lengthened by written agreement between the employee and the employer before the commencement of the employment^#).

 

The statutory qualifying period is separate to any “probationary” period. 

 

In the decision of Ziday, Clarke, Tan, Paskins, Walker v Aged Care Services Australia Group Pty Ltd  [2008] AIRCFB, the Full Bench of the Australian Industrial Relations Commission considered the qualifying period for employees of a purchased business. Could they have their pre-sale service counted when determining the qualifying period?

 

In this matter, the employees had thier employment terminated within 6 months of commencing employment with the purchaser of the business. Could the purchaser rely upon the qualifying period in defending any claim for harsh, unjust or unreasonable termination of their employment?

 

The Majority concluded that the qualifying period is determined by reference to the period of employment with the purchaser of the business, and that any prior period of employment with the seller is not counted.  As a result, the qualifying period effectively re-starts on the sale of the business. 

 

The purchaser of the business had provided written notification to each future employee, in which the purchaser undertook to “recognise your prior service for the purpose of calculating your employee entitlements in the future, including long service leave and assume responsibility for your wages, salary or remuneration from the business transfer date.  Aged Care Services Australia Group Pty Ltd will assume responsibility for entitlements which may have accrued to you during your employment prior to the business transfer date but remain unpaid or untaken and will continue to apply any entitlements or obligations contained in any applicable instrument.”

 

The Majority did not consider that this statement amounted to an express agreement to shorten or eliminate the qualifying period of employment.  They also did not consider that the undertaking was sufficient to constitute an implied agreement that there would be no qualifying period of employment.  Accordingly, the Majority concluded that the six month qualifying period of employment applied, and that each of the employees were prevented from bringing an application for harsh, unjust or unreasonable termination of employment.

 

What are the implications for me as a purchaser of a business?

 

If you are considering purchasing a business and provided your purchasing entity is a Corporation, this decision provides you with some comfort with respect to the transmission of existing employees in that business.  You will have the ability to assess your transmitting employees performance during the initial six months, and make a decision regarding their ongoing employment during this period.  If you decide to terminate a transmitting employees employment during the qualifying period, that employee will not be able to bring an application that their termination is harsh, unjust or unreasonable. 

 

Of course, the employee could still bring an application for unlawful termination of employment, on the basis that the termination of their employment was unlawful.  This is a separate ground of termination of employment (ie. terminating the employees employment whilst they are on sick leave can be unlawful termination of employment).

 

However, the qualifying period can be reduced or eliminated by written agreement between the employee and employer prior to the commencement of employment.  You should be careful regarding what representations you make to employees in this regard.

 

If there are employees of the existing business that you require after the settlement of the purchase contract, we recommend that you enter into separate employment contracts with each of these employees.  To avoid any possible dispute regarding the existence of the qualifying period, we also recommend to our clients that their written offer to these employees state that the qualifying period of six months (or shorter or longer period that is considered necessary^#) applies.

 

The purchase of a business is usually complex, and contains many nuances, not just those referred to above.  For that reason, we recommend that you take legal advice early in your negotiations with the seller, and involve your lawyers throughout the contract negotiation and settlement process.

 

We are happy to provide further assistance in this regard.  Our Commercial Lawyers are experienced in advising on Sale of Business transactions.  Please contact Andrew Lind, Dave Cheng or Alistair Macpherson on 3252 0011 for further assistance.