Business Sales - protecting employees who move to the buyer

Recent case An employee's employment may "restart" if their employer's business is sold and they move to the buyer's business. This can jeopardise the employees' rights to make claims for unfair dismissal.
 

The facts and the issue

Ms Stanfield had worked at a childcare centre since 1990. Her employer sold that childcare business in June 2007. She moved with the sale to the buyer. The sale agreement between the seller and the buyer said that employees' employment conditions were to be "no less favourable than their existing conditions".

Six months after the sale, the buyer dismissed her. She made an unfair dismissal claim against the buyer. To validly make that claim, she needed to have worked for the buyer for a qualifying period. She had not been employed by the buyer for that period.

The question was whether when her employer sold the childcare business in which she was employed:

  • did her employment restart with the new business owner? or
  • did her employment with the seller count to create one period of employment?

The Australian Industrial Relations Commission (Commission) determined that even though she had worked in the childcare business for many years, she had not completed the required qualifying period of employment with the buyer. Therefore, she could not make the unfair dismissal application.

The case is Stanfield v Childcare Services Pty Ltd [2008] AIRC 127 (11 February 2008).

Conditions on Unfair Dismissal Claims

An employee can claim unfair dismissal under the Workplace Relations Act 1996 (Act) only if they have completed a 6 month qualifying period of employment (unless another period is agreed in writing by the employee and employer before the employment starts).

Ms Stanfield asserted that:

  • restarting the qualifying period on completion of the sale from the buyer to the seller would introduce a less favourable condition, contrary to an express provision of the contract of sale (which was a contract between the seller and buyer); and
  • in the alternative, her employment was continuous.

The Decision

The Commission determined that it had no jurisdiction to deal with Ms Stanfield's unfair dismissal application because:

  • the business sale contract did not contain any express reference to qualifying periods;
  • unless a qualifying period is varied or set aside by written agreement between employer and employee a qualifying period will apply 'by default, regardless of the state of knowledge, understanding or agreement of the employee' (interestingly, a written agreement between the seller and buyer of a business is not sufficient);
  • a term in the business sale contract which made the buyer responsible for the accrued employment entitlements of employees, who had accepted employment with it, did not mean Ms Stanfield's employment was continuous;
  • as Ms Stanfield accepted the buyer's offer of employment, her employment with the seller ended by agreement at the date of completion of the sale; and
  • Ms Stanfield's 6 month qualifying period with the buyer had not expired.

Conclusion — Employers and Employees Beware

If a buyer of a business offers employment to employees of the seller, then the employees' rights to make unfair dismissal claims will be subject to a new 6 month qualifying period — unless a written agreement between the new employer and the employee provides otherwise. (The agreement for the sale of the business between the seller and the buyer is not sufficient to be a written agreement between employer and employee, to vary the qualifying period of employment.)

Consequently, if a seller of a business wishes to ensure the interests of its employees are protected, then the seller should require the buyer to enter into a written agreement with each employee to the effect that no qualifying period will apply to their new employment for the purposes of unfair dismissal claims. That requirement can be a settlement obligation under the business sale contract.

Until the buyer enters into that written agreement with the employee, the requirement may still only be enforced by the seller (not the employee). However, this approach has two primary benefits:

  • if the business sale contract compels the buyer to enter into the written agreements with the employees, then the seller will be able to manage the protection of employees up to settlement; and
  • if the employees are protected in this way, then the arrangements regarding each employee's employment are more certain and less likely to lead to disputes in the future.