Key Points:

Companies taking on employees from the public sector in an outsourcing contract, asset sale or like transaction must take note of the Fair Work (Transfer of Business) Bill 2012 (Cth)

Companies taking on employees from the public sector in an outsourcing contract, asset sale or like transaction must take note of the new Fair Work (Transfer of Business) Bill 2012 (Cth), which was introduced into Parliament on 11 October 2012. The Bill intends to extend the Fair Work Act's transfer of business rules to situations where employees are transferred from public sector employment to another employer.

What are the transfer of business rules and how does the Bill fit in with those rules?

The transfer of business rules under the Fair Work Act protect employee entitlements when their employer has changed but their work has stayed the same. In such circumstances, entitlements accrued by employees are transferred across to their new employer who is obliged to recognise them. This occurs when:

  • the employment of a person with an old employer is terminated;
  • within three months of the termination, the person becomes employed by a new employer;
  • the person performs the same work, or substantially the same work, for the new employer; and
  • there is a "connection" between the old and new employer.

A connection exists when:

  • assets that relate to the transferring work (whether tangible or intangible) are also transferred so that the new employer owns or has the beneficial use of the assets; or
  • the old employer has outsourced work to the new employer; or
  • the old and new employers are associated entities.

The Bill essentially replicates these rules so that they apply beyond transfers between national system employers (who include corporations and public sector bodies in the Commonwealth, Victoria, Australian Capital Territory and Northern Territory jurisdictions). Following the commencement of the Bill, transfers of public sector employees from Queensland, New South Wales, Western Australia, South Australia and Tasmania will also be caught.

There are some unique differences. The Bill establishes "copied State instruments".

What is a copied State instrument?

When the transfer of public sector employees occurs, and they were previously covered by a State‑based award or enterprise agreement, a copy of that award or agreement will be created. The employment of transferring employees will continue to be covered by that copy. Transferring employees will continue to be able to enforce the entitlements within it.

This means that any enterprise agreement that applies at the new employer's premises will not apply to transferring employees covered by a copied State instrument. Any applicable Modern Award will also not apply. However, Fair Work Australia (FWA) can vary a copied State instrument (upon application or on its own initiative) in a number of circumstances to ensure its effective operation. The Bill's explanatory memorandum suggests that FWA will vary copied State instruments when terms and conditions in the copy State instrument are markedly inconsistent or inferior when compared to the new employer's employment practices.

How long will copied State instruments apply to transferring employees?

Copied State instruments apply to transferring employees for five years or such longer period as ordered by FWA. After that time the transferring employees will revert to the ordinary arrangements that apply at the new employer. However, if that results in:

  • the employee becoming covered by a Modern Award; and
  • a reduction of pay;

FWA can make a take home pay order to rectify the reduction. FWA will order payment of a wage that it considers appropriate.

Implications for public sector outsourcing, asset sales and like transactions

Like any other transfer of business, those wishing to contract with Queensland, New South Wales, Western Australian, South Australian and Tasmanian public sector agencies must carefully analyse the Bill if a transfer of employees is associated with the transaction. Pre-existing entitlements may continue to apply to the transferring employees and it is imperative that they are properly accounted for in forecasting.

Strict observance of copied State instruments will be required. The public sector is generally highly unionised (and the Bill preserves representational rights for those unions who were previously entitled to represent the transferring employees), which increases the likelihood of disputes about the application of copied State instruments. A failure to comply could result in underpayment claims and/or the imposition of a number of civil penalties created by the Bill.