One of the most important assets of any business is its employees and it is imperative that when you are buying or selling a business, you appreciate how they are going to be dealt with during the process. It is very important that you get expert legal advice in relation to your obligations with employee entitlements.
Employee entitlements – what to consider?
Consideration must be given to who will be responsible for existing long service leave, annual leave and sick leave entitlement of the employees.
A buyer of a business is not required to re-employ any existing employees.
A seller must consider whether an employee will be retrenched, if the buyer chooses not to re-employ the employee. Some awards, or employment agreements, may consider this to be a retrenchment. There may be obligations under the relevant award or employment agreement to give the employee notice of termination.
The REIQ business sale contract in Queensland has a standard condition which states:
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- EMPLOYEES
See Item Y.
This clause sets out the process for the termination of employees from the seller and the re-employment of employees by the buyer.
This is a complex clause and is very important if the Business has employees. Both the seller and the buyer should obtain legal advice prior to entering into the Contract if they do not understand the implications of this clause.
Any employee of the Business re-employed by the buyer is considered to be a “Transferring Employee” and the buyer will be responsible for all accrued entitlements from the date the Employee commenced employment with the seller (or any previous owner of the Business).
Consequently, the seller must reimburse the buyer at Completion for 70% of such accrued entitlements. The Contract explains in Appendix A that it is only 70% “since the buyer will get a tax deduction when the employee entitlements are paid”. Whilst, the net effect of any tax deduction will vary from buyer to buyer, the 70% apportionment is generally fair. However, if your circumstances warrant a variation, you should obtain legal advice.
If you notify the Seller that you will employ an employee but don’t offer them employment in accordance with standard condition 18.3, you will be responsible for any redundancy payments due to that employee arising from the Seller’s termination of their employment on or within 12 months after Completion. If an offer is properly made but rejected by the employee, or if you did not notify a desire for that employee, the Seller is responsible for their redundancy payments.
The standard condition basically states that in relation to employees that are re-employed by the buyer, the selling price be reduced by 70% of existing employee entitlements consisting of annual leave, sick leave or long service leave (only for employees that are employed for at least five years). Thereafter, the buyer will be solely liable to pay the employee entitlements.
Therefore, you should be very careful when signing a standard REIQ business sale contract and get expert legal advice to consider whether you want to amend this clause or replace it with another clause to adjust your rights and obligations.
Your lawyer should consider if you do amend this clause whether there are any legislative obligations which may make void any amended clause relating to employees.
It is important to note that companies fall under federal jurisdiction. Individuals and partnerships (not involving companies) fall under state jurisdiction.
Trusts will usually be determined on the category of the trustee. Where a company is trustee it is considered federal jurisdiction and an individual as trustee is considered state jurisdiction. If state legislation applies, then the sale of a business is considered a continuation of employment.
If federal legislation applies, it is not automatically a continuation of employment unless the seller and buyer of a business agree to this in writing. The only entitlement that automatically transfers over is the period of service to enable an employee to qualify for unpaid maternity leave.
Regardless of what the contract states, annual leave, sick leave and long service leave transfer to the new buyer of the business. If you are a buyer and do not adjust employee entitlements with the seller, you will be left ultimately responsible.
This is a very complex area of law and it is very important to seek expert legal advice.
At FC Lawyers, we have acted for business large and small in various industries when buying and selling businesses.
Contact our team today to discuss your legal options reagrding employee entitlements when buying or selling a business in Queensland.
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