Don’t get caught out by transmission of business rules when buying a business or internally transferring a business on a restructure. The Work Choices rules introduced on 27 March 2006 can bring existing arrangements unstuck.
The pre-Work Choices rules
Where a transmission of business occurred pre-Work Choices, the purchaser of a business would normally be bound by any industrial instruments which bound the vendor (awards, collective agreements (previously “certified agreements”) or Australian Workplace Agreements (“AWAs”)).
In short, under the pre-Work Choices system:
- collective agreements and awards transmitted to a purchaser even if the purchaser of a business did not hire any transferring employees covered by such instruments, and bound the purchaser until the relevant instrument was either terminated or replaced by another instrument;
- AWAs only transmitted if the purchaser hired transferring employees covered by an AWA.
Transmission of business rules under Work Choices
Work Choices has significantly lessened the effect and duration of transmitted industrial instruments on the purchaser. It has however introduced new notice requirements.
Effect and duration of transmitted industrial instruments
Under Work Choices, awards and workplace agreements (including AWAs and collective agreements) will only transmit to a purchaser if the purchaser hires transferring employees covered by one of those instruments. Any workplace agreements that transmit will only apply to the transferring employees (that is, the workplace agreements will not affect the employment conditions of other employees of the purchaser). The purchaser will only be bound by the transmitted instruments in relation to the transferring employees for a maximum period of 12 months after the transmission occurred i.e. the completion date. This might be seen as an advantage. However, where the transmission rules are triggered on an internal sale/restructure, it could be a disadvantage: the 12 month rule may bring an early end to an existing and desirable agreement.
During the 12 month transmission period, the purchaser may enter into either a collective agreement with transferring employees (or all employees) to replace a transmitted collective agreement or award, or AWAs to replace transmitted AWAs, a collective agreement or award.
If the purchaser does not replace the transmitted instrument, it will cease to apply at the end of the 12 month period. Alternatively, if certain requirements are met, the purchaser may terminate the instruments by agreement with the transferring employees. At the end of the transmission period or upon the termination of the instrument, the following may regulate the employment of the transferring employees.
- an existing collective agreement between the purchaser and its existing employees that is capable of applying;
- a common rule award;
- an award that bound the purchaser prior to the transmission; and/or
- the Australian Fair Pay and Conditions Standard.
Notice requirements
As stated earlier, Work Choices imposes new notice requirements on purchasers.
Within 28 days of a transferring employee becoming an employee of the purchaser, the purchaser must provide the transferring employee(s) with a written notice which:
- identifies the relevant transmitted instrument;
- states that the purchaser is bound by the transmitted instrument;
- specifies the date on which the 12 month period ends;
- states that the purchaser will remain bound by the transmitted instrument until the end of the 12 month period unless the transmitted instrument is terminated, or otherwise ceases to be in operation, before the end of that period;
- specifies the kinds of instruments (if any) that can replace, or exclude the operation of, the transmitted instrument (e.g. an AWA or collective agreement entered into with transferring employees prior to the end of the transmission period);
- sets out the source for the terms and conditions that the purchaser intends to apply to the matters dealt with by the transmitted instrument when the transmitted instrument ceases to bind the purchaser; and
- identifies any award or collective agreement that binds the purchaser and the purchaser’s existing employees that would bind the transferring employees but for the transmission of business provisions.
This written notice must be lodged with the Workplace Authority within 14 days of the date on which the notice was given to all transferring employees (or in the case the notice is provided to employees on different days, within 14 days of the earliest of those dates).
Employee entitlements
Vendors must now notify purchasers of all employees who are taking parental leave or who have requested parental leave, where such employees are likely to be transferring employees.
Vendors and purchasers may otherwise agree on how employee entitlements will be dealt with on completion (that is, who will be liable for employee entitlements that accrued prior to completion).
Due diligence
Due to the specific obligations on purchasers under the transmission of business provisions, prospective purchasers should conduct thorough due diligence into any industrial instruments which may apply to them if they purchase a business. They must also be aware of the new notice requirements, as failure to provide the requisite notices may give rise to penalties of up to $33,000 for each breach.
FURTHER ENQUIRIES
