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, raising complex questions about employment entitlements under the Fair Work Act 2009 (Cth) and significant legal implications.
A common question arises: are employees entitled to redundancy pay if they resign during or after a sale?
This guide explains the key differences between resignation and redundancy in the context of a business sale and offers clear insights for employers and employees. Drawing on legal precedents, such as Svitzer Australia Pty Ltd v MUA [2011] FWAFB 1022, we’ll outline your rights and obligations and detail best practises to ensure a smooth transition.
When a business is sold, employees may wonder about their job security and entitlements. The distinction between resignation (a voluntary decision to leave) and redundancy (when a role is no longer required) is critical.
Below, we break down these concepts, their legal implications under the Fair Work Act 2009, and how they apply during a business sale.
Resignation occurs when an employee voluntarily chooses to leave their job. In the context of a business sale:
Redundancy occurs when an employee’s role is no longer required to be performed by anyone, as defined in Section 119 of the Fair Work Act 2009. In a business sale, redundancy may apply if:
If redundancy applies, employees are entitled to:
In contrast, resignation typically only entitles the employee to a payout of accrued entitlements like annual leave, without severance or redundancy pay.
Note: Employers with fewer than 15 employees are exempt from redundancy pay obligations under the Fair Work Act (s 121). This is an important exception for small businesses.
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.
Other key takeaways from the case include:
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.
For example, if a café is sold and all staff are offered their same positions with the new owner, any employee who chooses to resign will not be entitled to redundancy pay.
This case illustrates a common scenario in business sales, where employees might wonder whether they are entitled to redundancy pay.
The Fair Work Act 2009 provides clear guidelines for handling employee entitlements in business sales. Key provisions include:
Understanding these provisions ensures both parties can navigate the sale with confidence.
For employers selling a business, managing employee transitions is critical to avoid disputes and ensure compliance with the Fair Work Act 2009. Key responsibilities include:
By proactively addressing these obligations, employers can minimise the risk of costly litigation and ensure a seamless business sale.
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.
Employees facing a business sale should understand their rights to make informed decisions. Key points include:
Consulting with a legal expert can help employees navigate these transitions and protect their rights.
A. No. If employees resign voluntarily, even during a business sale, they are not entitled to redundancy pay. They receive only accrued entitlements like annual leave.
A. Redundancy pay applies if the employee’s role is no longer required, and the new owner does not offer a comparable position. Payments are based on years of service, per the Fair Work Act 2009.
A. If you transfer to the new employer, your continuous service is typically recognised, preserving entitlements like annual leave and long service leave.
A. If the new owner offers a comparable role and you refuse, this is treated as a resignation, not a redundancy. You will not receive redundancy pay.
A. Employers should ensure employees are offered comparable roles, communicate clearly about entitlements, and comply with the Fair Work Act 2009 to avoid disputes.
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 provide you with:
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.
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