Testing transfers: Getting the transfer of business right can stop unfair dismissal claims

What happens when you purchase a business, and part of the assets are the employees?

For employees, this can lead to confusion about whether they are continuing their years of service or whether they are starting afresh in a new place of employment.

For employers, this can lead to confusion about whether they can terminate an employee after the transfer of business and be able to defend an unfair dismissal claim.

In the recent decision of Banda –v– OCN Pty Ltd, the Fair Work Commission dismissed an unfair dismissal claim made by Banda as an employee in such a situation.

In that case, OCN as employer was able to demonstrate that even though:

1. the employee had worked at the same location for 4.5 years;
2. the employee filled a similar role with the new employer; and
3. the employee used similar tools in the new role as the old role;

the employee was not a transferring employee under the Fair Work Act 2009 (Cth) provisions, because the employer had not given any assurance or undertaking that Banda’s employment was a continuation of the old employment.

In short, the employment of Banda was not treated as a new employment period even though his role was ostensibly the same.

Banda only worked with the “new employer” for 4 months, which meant that it did not meet the minimum employment period in order to make an unfair dismissal claim.

Key points when completing transfer of business

Therefore, the key points for all employers in the case of a purchase of a business, are:

• to ensure that you get the process of transfer of business correct, when purchasing a business; and
• to ensure that you clearly communicate to the employees of the business (you are about to purchase) that they are transferring employees for the purposes of the Fair Work Act.

This will put you in a better position to terminate an employee whose employment you have only just taken on, and/or to defend a claim for unfair dismissal.

In relation to this last point, it would be a prudent first step to get some legal advice, because the legislation regarding transferring employees is complex.

If you are considering purchasing a business and need advice on taking on new employees, or are unsure whether your employees are transferring employees under the Fair Work Act, please contact Adam Foster (Associate, Business Practice Group) on 03 9629 9629. Click here for more information about Business Law.