Restructuring or re-organising a business is common.  Companies make these changes for a variety of reasons – to change the business model, pursue operational improvements, reduce cost, and/or make optimum use of available resources. It’s also increasingly likely that displaced employees will be given the opportunity to transfer between related group companies.  Employers seeking to rely on the redundancy exemption to the unfair dismissal provisions in the Fair Work Act 2009 (FW Act) will need to consider redeployment options within group companies.

Since 1914, Australia’s federal industrial legislation has contained provisions which apply in the event of a transfer of business. These provisions ensured that employees would not automatically lose the protection of industrial instruments when the business they work for changes ownership but they continue to perform the same work.

When does a transfer of business occur?

Under the FW Act, a “transfer of business” between Company A (the old employer) and Company B (the new employer) occurs when three requirements are met:

  • the employment of an employee of Company A has terminated and within three months the employee becomes employed by Company B;
  • the work the employee performs for Company B is the same, or substantially the same, as the work the employee performed for Company A; and
  • there is a “connection” between Companies A and B. A connection can include a transfer of assets, outsourcing, insourcing or where Company B is an “associated entity” of Company A.

If the above three requirements are met and a transferable instrument (usually an enterprise agreement) covered transferring employees at Company A, that instrument will continue to cover those employees with Company B. Often this will be an unsatisfactory outcome, because the employer wishes to have only one enterprise agreement to cover their workforce, or because the content of the instrument (developed for Company A) does not suit Company B.

Where a transfer of business occurs, the FW Act does allow for a degree of flexibility. Currently, the Fair Work Commission can, in appropriate circumstances, make an order that an instrument not apply to Company B at all or vary an instrument so that it doesn’t create problems. In determining an application, the Commission must consider a broad range of factors including the views of affected employees, whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment and whether the instrument would have a negative effect on the productivity of the new employer. On the other hand, the process of bringing an application for such an order involves some cost and inconvenience for employers. An order will often be opposed if employees will be subject to terms and conditions at Company B which are inferior to those enjoyed at Company A.

The proposed change

The Fair Work Amendment Bill 2014 contains a proposed amendment to section 311 of the FW Act to clarify that when employees voluntarily seek to transfer to a related entity of their current employer, there will not be a transfer of business (so transferring employees will be subject to the terms and conditions of the new employer).  This follows a recommendation of the Fair Work Act Review Panel which found that it is unnecessary to require the parties to apply to the Fair Work Commission for an order in these circumstances.

A win-win outcome if the change passes

If passed, the amendment will be a win-win, reducing the burden on both employers and employees seeking a transfer within a corporate group.  As the Review Panel has pointed out, “such an amendment is unlikely to increase the risks of employees having their terms and conditions of employment diminished…”. The non-voluntary transfer of employees will not be affected by the change and the government policy objective of ensuring appropriate terms and conditions apply to employees will be met.