Make sure you are aware of your obligations when buying a business.

Avoiding an unfair dismissal case when you buy a business and keep the employees

There is a common theme in many of the cases we read now, about getting the process right and following often simple steps, to avoid employee relations issues such as unfair dismissal cases.  This applies to many situations, but more so with a transfer of employment situation.

Transfer of business obligations

Buying a business is hard enough, with all of the due diligence obligations a business has to meet. However, it is crucial to make sure the employment aspects are also dealt with, to avoid potential unfair dismissal cases.

This is so because the transfer of employment obligations under the Fair Work Act 2009 may mean that the previous service with the old employer is continuous and therefore counted in relation to whether an employee’s previous service qualifies them to lodge an unfair dismissal claim, being either 6 months, or alternatively 12 months if the employer is classed as a ‘small business’.

Avoiding an unfair dismissal case

A recent case highlights some of the issues that an employer can face when a sale of a business takes place.  In that case, the employee concerned was engaged in preparing food in a café that was sold.  After the sale of the cafe took place, the employee was terminated and then he was engaged on a casual basis whilst the café was being redeveloped. He then worked shorter hours of work and did catering work, until he was ultimately dismissed for alleged unsatisfactory service.

Section 384(2) of the Fair Work Act 2009 provides an exclusion from the qualifying period for an employee to be eligible to lodge a claim for unfair dismissal, if the new employer had informed the employee in writing that previous service with the old employer will not be recognised.
Unfortunately, the company involved in this case did not follow this simple step.  They tried to argue that the role was substantially different in the hope that the transfer of employment provision was not applicable, but this was rejected.

So, in the end the Commission determined that the employee could make an unfair dismissal application. This highlights how following a simple step could have avoided an unfair dismissal case!

Lessons to learn 

  • The new employer in a transfer of employment situation can seek an exclusion under s384(2), potentially removing the employee(s) right to claim unfair dismissal.
  • The new employer can achieve this exclusion by writing to the employee prior to the employee commencing work, specifying that the employee’s previous service will not count in relation to an unfair dismissal case.
  • The practical effect of this is that it provides the new employer with a new minimum employment period during which the employee cannot claim unfair dismissal

Make sure you get the right advice when drafting letters of appointment and contracts of employment for employees in relation to transfer of employment.

ER Strategies can provide this advice and assistance and has systems to compare and contrast conditions of employment applicable under an EA or a relevant Award and this saves our clients a lot of time and resources.

Need help with employee termination or other employee relations issues? 

Contact us on 1300 55 66 37. 


Free Download: Termination Letter Template

Need to let an employee go? Use our letter of termination template to ensure you are using the correct format. 

termination letter template