By Nanae Yoshiwara, Senior Associate at Argon Law
The sale of a business can be a pivotal moment for both the employer and the employees, with significant legal implications regarding employment entitlements. A common question arises: are employees entitled to redundancy pay if they resign during or after a sale?
This article outlines the key distinctions when employees’ roles are transferred to a new owner. This article outlines the key differences between resignation and redundancy in a business sale scenario, exploring both the employer’s and the employee’s perspectives under the Fair Work Act 2009 (Cth).
Case Study: When Does Redundancy Apply in a Business Sale?
In the landmark case of Svitzer Australia Pty Ltd v MUA [2011], the Fair Work Australia Full Bench ruled that redundancy entitlements did not apply when a business was sold, and employees were offered employment by the new owner. This decision sheds light on an important distinction for employers and employees: redundancy only occurs when a role is genuinely no longer required, not simply when there is a change in ownership. Employees whose jobs remain available, albeit with a new employer, are not considered redundant—even if they choose to resign instead of continuing their employment.
This case illustrates a common scenario in business sales, where employees might wonder whether they are entitled to redundancy pay.
Resignation vs Redundancy: What’s the Difference?
Resignation: Voluntary Departure
If an employee decides to resign rather than work under the new ownership, this is considered a voluntary decision. Under the Fair Work Act 2009 (Cth), redundancy payments do not apply in cases of voluntary resignation. The employee will only be entitled to standard entitlements such as accrued annual leave and long service leave (if applicable).
The employee’s decision to leave does not trigger redundancy entitlements because their role continues to exist under the new employer.
Redundancy: When the Role No Longer Exists
Redundancy applies when an employee’s job is no longer required to be performed by anyone, as outlined in Section 119 of the Fair Work Act 2009. If, following the sale of the business, the new owner does not offer the employee continued employment, their role may be considered redundant.
Redundancy usually results in a larger payout than voluntary resignation. Under the Fair Work Act 2009, redundancy payments are based on the employee's length of service and include a severance payment, notice of termination, and accrued entitlements such as annual leave. Employees are entitled to redundancy pay that ranges from 4 weeks' pay for 1–2 years of service, up to 16 weeks' pay for 9–10 years of service, plus any accrued long service leave. In contrast, resignation typically only entitles the employee to a payout of accrued entitlements like annual leave, without severance or redundancy pay.
The Fair Work Act 2009 provides clear guidelines for handling employee entitlements in business sales. Under Part 2-8, a transfer of business occurs when employees move from the old employer to the new one, and their service continues. However, if employees resign voluntarily or are not offered new employment, the question of redundancy arises. If the new employer offers employment on terms no less favourable than the previous employer, the employee’s refusal to continue is treated as a resignation, not a redundancy.
The Employer’s Perspective: Managing Employee Transitions
For business owners selling their enterprise, careful handling of employee transitions is critical to avoid costly disputes. Employers must ensure that:
- Employees are offered comparable positions with the new owner.
- Redundancy payments are only triggered if the roles are genuinely no longer required.
Continuity of Service
In most cases, the employee’s service with the old employer is recognised by the new owner. This ensures continuity for calculating entitlements such as annual leave and for long service leave. However, if the employee is not offered a role, their employment may be terminated due to redundancy, and redundancy pay may apply based on their service length.
The Employee’s Perspective: Understanding Your Rights
From the employee’s viewpoint, knowing your rights during a business sale is crucial. If your job is offered by the new owner on equivalent terms, you may not be entitled to redundancy pay, even if you choose to resign. However, if the new owner does not offer you employment, you may be entitled to redundancy pay based on years of service.
Employees should seek clarity from both the old and new employer regarding the terms of their continued employment or redundancy entitlements.
How We Can Help
At Argon Law, we recognise that business sales are complex transactions that require not only strategic business planning but also careful consideration of employment law implications. Our experienced team is equipped to guide you through every stage of the sale, ensuring full compliance with the Fair Work Act and avoiding potential disputes. We provide tailored, practical advice on managing employee transitions, redundancy obligations, as well as preserving continuity of service.
By taking a proactive, detail-oriented approach, we help both business owners and employees navigate these transitions smoothly. Our aim is to ensure a seamless transaction that addresses all legal aspects—from employment law to the operational transfer. Contact us today to learn how we can provide comprehensive support tailored to your specific business sale and employment law needs.