M&A Alert - New transfer of business rules under the Fair Work Act 2009 (Cth)

Background

On 7 April 2009, the Fair Work Act 2009 (Cth) (Fair Work Act) received Royal Assent. The Fair Work Act will replace the Workplace Relations Act 1996 (Cth) (WR Act) which will be repealed. Under the Fair Work (Transitional Provisions and Consequential Amendments) Bill (Cth), certain sections of the Fair Work Act, including significant new rules regarding transfers of business and the associated transfer of industrial instruments, will come into effect on 1 July 2009.

This article sets out the main changes to the transmission of business rules which are contained in the Fair Work Act. Given the significant nature of the changes, it is important that companies seeking to acquire a business or conduct a corporate restructure be aware of these new rules.

“One-stop-shop”

Fair Work Australia, a newly created independent body, will replace the Australian Industrial Relations Commission, Australian Industrial Registry, Australian Fair Pay Commission, Australian Fair Pay Commission Secretariat and Workplace Authority. It is described as being a “one-stop-shop” for advice and support on workplace relations matters, and is expected to be fully operational by 1 January 2010.

When is there a “transfer of business”?

Under the WR Act, a transfer of business occurred when the whole, or a part, of a business was transferred to another person. The test focused on whether the business of the transmitter was the same as the business of the transmitee, and accordingly, if the two businesses were not the same, there was no transmission of business.

The Fair Work Act introduces a wider definition of a “transfer of business”, which focuses on the nature of the work performed by a transferred employee, rather than the business of the employer. Accordingly, there will be a transfer of business if, within 3 months of the termination of an employee’s employment, the employee becomes employed by a new employer and performs the same or substantially the same work (Transferring Work) and there is a connection between the old and the new employer.

A connection exists between two employers in the following circumstances:

1. where an employer has title to, or the beneficial use of, some or all of the assets of the old employer;
2. where there has been an outsourcing or insourcing of work; or
3. where the old employer and the new employer are associated entities as defined in section 50AAA of the Corporations Act 2001 (Cth).

How long will a new employer be bound by transmitted industrial instruments?

Prior to 1 July 2009, an employer was bound by a transmitted industrial instrument for a maximum period of 12 months. However, from 1 July 2009, new employers will be bound by a transmitted industrial instrument until Fair Work Australia makes an order that the instrument no longer applies, or the employer reaches a new agreement with the employees covered by the relevant instrument. This abolishes one of the changes made by the Work Choices amendments to the WR Act, returning the duration of the agreement to the pre-Work Choices position.

Wider application of transmitted industrial instruments

Under the WR Act, a new employer was bound by a transmitted industrial award only in relation to the employment of transferring employees.

The Fair Work Act now provides that if an employer is bound by a transferred industrial instrument and employs a non-transferring employee who performs the Transferring Work and is not covered by any other industrial instrument, the transferred instrument will also apply to this employee.

Variations to transmitted instruments

The circumstances in which transmitted instruments could be varied under the WR Act are very narrow. In contrast, the Fair Work Act provides that Fair Work Australia will be entitled to vary a transmitted instrument or make an order that a transferable instrument will not cover a new employer after consideration of, amongst other things:

1. any negative impact of the transferable instrument on the new employer’s workplace;
2. any significant economic disadvantage that would be suffered by a new employer as a result of the application of the transferable instrument;
3. the degree of business synergy between the transferable instrument and any industrial instrument that already covers the new employer; and
4. whether any employees would be disadvantaged by a variation to the instrument or an order that the instrument does not apply.

The Fair Work Act also provides that Fair Work Australia may vary a transferable instrument if it is necessary to ensure that the instrument will be better aligned to the working arrangements already in place in the new employer’s business.

Summary

From 1 July 2009, after a transfer of business:

1. new employers will be bound by transmitted industrial instruments until Fair Work Australia makes an order that the instrument no longer applies, or a new agreement is reached with the relevant employees; and
2. if a new (i.e. non-transferring) employee commences employment with the business and performs the same work as that performed by a transferred employee, the new employee will be covered by the instrument that applies to the relevant transferred employee.

Practical points for purchasers

• The first step is to identify all of the industrial instruments which will be transmitted. The interaction of pre-Work Choices, Work Choices, and post-Work Choices instruments can be very complex and you may not always get the correct answer from the vendor. If the vendor says “there are no applicable industrial instruments”, that is almost certainly not the case!
• The second step is to compare the transmitting industrial instruments and any industrial instruments which currently apply to your business. In particular, are there disparities between the current terms of employment in your business and the terms of any transmitting industrial instruments?
• If there are significant disparities, the third step is to consider applying to Fair Work Australia for an order that a transferable instrument will not apply or for a variation to a transferable instrument if, among other things, you believe that:
  

• the transferable instrument will negatively impact on your workplace;
• the transferable instrument will cause a significant economic disadvantage; or
• the terms of the transferable instrument are not aligned to the working arrangements already implemented in your business.

• Keep in mind that a transferred industrial instrument may not apply only to the transferred employees, as it may also apply to a new employee who performs the same work.