Transfer of Business: Part 2-8 of the Fair Work Act Explained

When Part 2-8 applies

Part 2-8 (ss 309-322) of the Fair Work Act 2009 governs the transfer of business between an ‘old employer’ and a ‘new employer’. This section of the Act deals with situations where employees move from one employer to another as part of a business transfer.

The application of Part 2-8 hinges on satisfying four specific elements, as outlined in section 311. These elements relate to the employee’s termination of employment with the old employer, subsequent employment with the new employer within three months, the similarity of work performed, and the existence of a defined ‘connection’ between the two employers.

The ‘connection’ between the old and new employer can take several forms, including a transfer of assets, outsourcing or insourcing of work, or the new employer being an associated entity of the old employer. If all four elements are met, the employee is classified as a ‘transferring employee’ for the purposes of the Act.

Transferring instruments

A ‘transferable instrument’ includes an enterprise agreement, workplace determination or a named employer award. When a business transfers, this instrument continues to cover the new employer and the transferring employee in relation to the transferring work. This provision is outlined in section 313.

Section 314 extends the application of the transferable instrument. If the new employer’s existing employees perform the transferring work and are not already covered by another enterprise agreement, the transferable instrument will also apply to them.

The new employer, or the transferring employees, may seek intervention from the Fair Work Commission (FWC). Section 318 enables an application to the FWC for an order that the transferable instrument not cover the new employer, to vary the coverage, or to terminate the coverage entirely.

Accrued entitlements and continuity

The Fair Work Act provides rules regarding the transfer of employee service and associated entitlements. Generally, service with the outgoing employer counts towards service with the incoming employer for the purposes of annual leave, personal/carer's leave, redundancy and notice. This is underpinned by Section 22(7) and the National Employment Standards 11 entitlements deep dive (NES) (sections 91 and 96). However, if the new employer is not an associated entity, it can choose in writing not to recognise prior service for annual leave, personal/carer's leave or notice. An associated entity cannot make this choice regarding service for unfair dismissal qualifying periods (s 384).

When the new employer recognises prior service, accrued annual leave and personal/carer's leave entitlements automatically transfer. This ensures continuity of entitlements for the employee. The transfer of service also impacts potential redundancy entitlements, although the specifics depend on whether service is recognised.

If the new employer does not recognise service for redundancy purposes, the outgoing employer remains responsible for paying any redundancy entitlements owed to the employee upon termination of employment. This obligation arises even if the employee subsequently receives a redundancy payment from the new employer. Genuine redundancy section 389 consultation duty considerations also apply in these circumstances.

FWC orders and practical steps

The Fair Work Commission (FWC) has the power to intervene in business transfers through orders made under section 318 of the Fair Work Act. These orders can vary or even terminate the effect of transferable instruments. The FWC’s decision to issue such an order is based on considerations including the public interest, the views of the parties involved, the impact on employees, and any potential reduction in productivity.

Employers can proactively seek FWC guidance by applying for an order before a business transfer takes place, as outlined in section 320. This allows for assessment and potential resolution of instrument-related issues prior to the transfer’s commencement.

For employers acquiring a business, certain practical steps are recommended. These include conducting an instrument audit, identifying which employees will transfer, deciding how to recognise service for transfers involving non-associated entities, and considering a formal FWC application if multiple instruments would otherwise apply following the transfer.