Buying or selling a business in Australia brings significant employment law implications. Whether the acquisition is structured as a share sale or an asset sale, both buyers and sellers must navigate complex obligations regarding employees. A failure to address these issues can result in costly disputes, unexpected liabilities, or breaches of the Fair Work Act 2009 (Cth) and relevant awards or enterprise agreements.
This comprehensive guide explains essential employment law considerations for business acquisitions in Australia. It covers the differences between share sales and asset sales, outlines practical steps for both buyers and sellers, and provides answers to frequently asked questions. If you are planning a business sale or purchase, understanding your employment law obligations is crucial for a smooth and compliant transition.
Key Takeaways
Sellers must comply with employment laws on terminations, redundancies, and transition arrangements
Buyers should conduct thorough due diligence on employee entitlements and liabilities
The structure of the acquisition (share sale vs asset sale) impacts employee transfers and contract requirements
Accurate record-keeping is vital to prevent and resolve employment disputes
Consultation and communication with employees are essential during the transition
Both parties should document responsibilities in the sale agreement to avoid future conflict
Understanding the Types of Business Sales
Share Sale: Continuity of Employment
In a share sale, the buyer acquires the shares of the target company. The business entity remains the same, so employees continue their employment uninterrupted under existing contracts. The buyer inherits all employment obligations, including accrued entitlements and any ongoing disputes.
Key Points for Sellers
Employees remain employed on current terms
Transfer of entitlements such as long service leave and accrued annual leave
Notice to employees regarding change of ownership may be required
Awards and enterprise agreements continue to apply unless renegotiated
Compliance with the Fair Work Act 2009 (Cth) is mandatory
Key Points for Buyers
Inherit all existing employment obligations and liabilities
Assess costs of benefits and entitlements
Review and potentially update employment policies (consultation may be required)
Ensure compliance with all workplace laws post-sale
Asset Sale: Employee Termination and Rehire
In an asset sale, only selected assets (and sometimes contracts) are transferred to the buyer. Employees are not automatically transferred; instead, they may be terminated by the seller and offered new employment by the buyer.
Key Points for Sellers
May need to terminate employees not transferring to the buyer
Responsible for paying out final entitlements (annual leave, redundancy, long service leave)
Must consult with employees if redundancies are likely
Provide information to the buyer if prior service is to be recognised
Key Points for Buyers
Flexibility to choose which employees to rehire
Issue new contracts with revised terms and conditions
Decide whether to recognise prior service for entitlements
Ensure proper consultation and avoid breaks in service where possible
Due Diligence: Minimising Risk in Business Acquisitions
Thorough due diligence is essential for buyers to understand what employment liabilities they may inherit.
Steps for Effective Due Diligence
Review all employment contracts
Check notice periods, non-compete clauses, termination clauses, and change of control provisions
Assess employee entitlements
Review accrued leave, long service leave, and outstanding benefits
Identify employees on parental leave or other absences
Check legal compliance
Confirm seller’s compliance with all employment laws, awards, and enterprise agreements
Identify any ongoing or unresolved disputes
Document variation requests and consultations
Keep records of all discussions and agreements with employees regarding changes
Maintain payroll and entitlement records
Accurate records help prevent disputes and demonstrate compliance
Transition Planning: Ensuring a Smooth Changeover
A well-planned transition helps retain key staff and maintain business continuity.
Practical Tips for Transition
Develop onboarding processes for new employees
Communicate clearly with staff about changes
Support cultural and organisational change to maintain morale
Document all key decisions and communications
Common Scenarios: Case Study Examples
Scenario | Share Sale | Asset Sale |
Employee continuity | Employees remain with the business | Employees may be terminated and rehired |
Entitlements | Transfer with the business | Seller pays out; buyer may recognise prior service |
Redundancy | Rarely triggered | May be required for non-transferring employees |
Consultation | Notice required | Consultation required if redundancies occur |
Frequently Asked Questions (FAQs)
Should I create new employment contracts when buying a business?
In an asset sale, new employment contracts are usually required for rehired employees
In a share sale, existing contracts continue, but updates can be made through consultation
What are common causes of employment disputes in business acquisitions?
Misunderstandings over entitlements
Discrepancies in contract terms
Lack of communication during transition
How are employee entitlements handled in an asset sale?
Seller pays out accrued entitlements unless otherwise agreed
Buyer decides whether to recognise prior service for future entitlements
Do modern awards or enterprise agreements continue after a business sale?
Yes, these generally continue to apply after both asset and share sales if the business remains similar in nature
Buyers must review applicable awards during due diligence
What happens to redundancy entitlements in an asset sale?
Employees not offered continued employment may be entitled to redundancy pay from the seller
Even if rehired, redundancy may be payable if the new role is substantially different
