Rights & Responsibilities

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Transmission of Business

If you have made a decision to either buy a business or sell a business, employee entitlements are a key financial item for either situation.

All employee entitlements should be seen as a financial liability that needs to be factored into the cost price of either selling the business or when buying the business.  Employees' entitlements are protected on the transfer of the business.

Most business people believe that it is standard practice for the existing owner to terminate the staff on the last day that they own the business and to pay out all entitlements so that the new owner can employ the staff afresh on the first day of owning the business.

This approach is legally wrong. Part 8, sections 101 to 104 of the NSW Industrial Relations Act 1996, prohibit this from occurring. These sections spell out that employee entitlements, on the transfer or sale of a business, transfer to the new owner, and that the employee, when transferred, has full continuity of service.

The NSW Industrial Relations Act 1996 identifies that if an employee is terminated, by their current employer and is then employed by the new owner with the intention of paying out entitlements and avoiding their legal obligation, then for the purposes of the Act, the termination is disregarded, and the employees' continuity of service remain.

It is important to seek advice from either a solicitor or accountant.  Ask them, when the due diligence process is undertaken, for the amount of employee entitlements that need to be considered as either a liability or an asset.

This is important as the new owner will become liable for any entitlement, like sick leave, annual leave or long service leave that employees take once they own the business.

Please refer to owning a business for further information on legal obligations when starting or buying a business.