A new employer in a transfer of business must consider what sort of accrued entitlements (such as leave and other service-related entitlements) the transferring employees have brought with them from the old employer.

Continuous Service

As a general rule, the Fair Work Act 2009 requires that, when there is a transfer of business from one employer (the “old employer”) to another (the “new employer”), the new employer must recognise the period of service that transferring employees had completed with the old employer, as service with the new employer.

There are certain exceptions to this general principle. In circumstances where a new employer is not an associated entity of the old employer, the new employer may decide not to recognise a transferring employee’s previously accumulated service for the purposes of annual leave and/or redundancy pay pursuant to the National Employment Standards (NES). In such a situation, the old employer must pay the transferring employee the amount that would have been payable to the transferring employee had the employee taken that period of annual leave and/or the transferring employee’s entitlement to redundancy pay.

The Fair Work Act also provides that even if a transfer of business hasn’t occurred, a new employer must recognise a transferring employee’s period of service with the old employer if:

  • The employee becomes employed by the new employer no more than 3 months after the termination of employment with the old employer; and
  • The old and new employers are associated entities when the employee becomes employed by the new employer.

Right to Unfair Dismissal

As the new employer is required to recognise a transferring employee’s period of service with the old employer, this service will generally count towards the service required to complete the “minimum employment period” required under the Fair Work Act for protection from unfair dismissal. This minimum employment period is either 6 months or 12 months, depending on the size of the employer’s business.

However, if the new employer informs the employee in writing before the new employment starts that a period of service with the old employer will not be recognised for these purposes, the new employer will not be required to recognise the employee’s service with the old employer as contributing to the minimum employment period. However, this exception will only apply when the new and old employers are not associated entities.

Leave Entitlements

Personal/Carer’s Leave

A new employer must recognise the personal/carer’s leave entitlements a permanent transferring employee has accrued with the old employer. Any accrued entitlements will transfer to the new employer when the transferring employee starts employment. This does not apply to compassionate leave, which does not accrue but is payable on an incident-by-incident basis.

Long Service Leave

While long service leave entitlements can vary from state to state, as a general rule the new employer will also be required to recognise a transferring employee’s period of service with the old employer for the purposes of calculating long service leave.

Annual Leave

In recognising continuous service with the old employer, the new employer will also be recognising the annual leave the transferring employee has accrued in their previous employment. However, the new employer will not be required to recognise the annual leave accrued by a transferring employee with the old employer if the new employer chooses not to do so and the old employer and new employer are not associated entities. This choice should be made before the employee commences employment with the new employer and may constitute a commercial decision made between the old employer and the new employer.

Parental Leave

Continuous service with the old employer must be recognised by the new employer for the purposes of the transferring employee’s entitlement to parental leave. An employee is entitled to parental leave after 12 months continuous service. This means, for example, that if an employee had completed 11 months continuous service with the old employer before the transfer, they will be eligible for parental leave as early as 1 month after commencing employment with the new employer.

Right to Termination & Severance Pay

Generally, because a new employer must recognise a transferring employee’s period of service with the old employer, if and when the employment relationship ends with the new employer, the employee’s period of service with the old employer will count towards the calculation of the employee’s right to notice of termination.

A new employer may also choose to recognise transferring employees’ period of service with the old employer for the purposes of calculating severance pay in circumstances of redundancy, where the old employer and new employer are not associated entities. If the new employer does choose to do this, the transferring employees will not be entitled to severance pay from the old employer.

However, a new employer that is not an associated entity of the old employer may choose not to recognise employees’ service with the old employer for the purposes of calculating an entitlement to severance pay. As with a choice not to recognise service for the purposes of annual leave, this choice should be made before the employee commences employment with the new employer. This exception will only apply when the new and old employers are not associated entities.

No Period of Service Can Be Counted Twice

While generally speaking a new employer must recognise the service that a transferring employee has completed with the old employer, if the employee has already received the benefit of an entitlement based on that service with the old employer, that service cannot be used again to calculate a benefit with the new employer.

For example, if an employee receives notice of termination (or payment in lieu) in relation to a period of service with the old employer, the period of service with the old employer is not counted again in calculating the amount of notice of termination (or payment in lieu) to which the employee is entitled from the new employer.

Similarly, any paid leave a transferring employee has already taken with the old employer must be deducted from the accrued leave the employee becomes entitled to as an employee of the new employer.

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Disclaimer

The information provided in this knowledge base article is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.

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