Purchase of Property and the Fair Work Act

By Ben Schefe

We are currently assisting a client with the purchase of a building that has led to some unintended consequences relating to the transfer of business provisions in the Fair Work Act 2009 (Cth) (“FWA”).

Relevant Background

A brief summary of the relevant background is as follows:

1. Our client has two associated corporate entities pursuant to the Corporations Act 2001 (Cth);
2. One entity, referred to as “the Buyer,” entered into a contract with a party (“the Seller”) for the purchase of a building. The contract included the building and land as well as a selection of chattels including equipment and vehicles. No intellectual property, processes or goodwill were part of the transaction, and it was not contemplated by the parties that any employees of the Seller would form part of the contract.
3. The Seller ran a business from the building (“Seller’s Business”) and employed workers in the Seller’s Business pursuant to an Enterprise Bargaining Agreement (“EBA”).
4. Our client’s other entity, being an associated entity of the Buyer, referred to as “the Business,” intended to run a business from the building upon settlement of the building (“Buyer’s Business”), including to employ a number of employees who had been terminated/made redundant by the Seller.
5. An issue arose because the Buyer’s Business is effectively the same as the Seller’s Business, which meant that the sale of the property to the Buyer potentially triggered the transfer of business provisions of the FWA, as set out below.

Relevant Provisions of FWA

In summary, section 311 of the FWA applies in the following circumstances:

1. the employment of an employee of the old employer has terminated;
2. within 3 months after the termination, the employee becomes employed by the new employer;
3. the work (the transferring work) the employee performs for the new employer is the same, or substantially the same, as the work the employee performed for the old employer;
4. there is a connection between the old employer and the new employer:

a) the new employer, or the associated entity of the new employer, owns or has the beneficial use of some or all of the assets (whether tangible or intangible):

i. that the old employer, or the associated entity of the old employer, owned or had the beneficial use of; and

ii. that relate to, or are used in connection with, the transferring work

Section 312 of the FWA provides that a “transferable instrument” includes an EBA approved the Fair Work Commission.

Section 313 of the FWA provides that if a transferable instrument covered the old employer and a transferring employee immediately before the termination of the transferring employee’s employment with the old employer, then the transferable instrument covers the new employer and the transferring employee in relation to the transferring work after the time the transferring employee becomes employed by the new employer.

Outcome

Based on the above factual matrix, given that the building is likely to be found to be an “asset” for the purposes of section 311 FWA that was used in the Seller’s Business and will be used in the Buyer’s Business, then the purchase is likely to trigger the “transfer of business” provisions of the FWA, meaning that the Seller’s EBA is likely to apply to any employees previously employed by the Seller, that our client has employed with the Buyer’s Business.

This is obviously not an intended outcome of what our client considered was simply the purchase of a building, as the terms of the EBA are very onerous, so our client is considering their options, including considering making an application to the Fair Work Commission to vary the terms of a transferrable instrument, being the Seller’s EBA in this case.

Key Lesson

The key lesson to be learnt from this is to seek advice from both property/commercial and employment lawyers when considering the purchase of any property that is used in respect to an existing business because there can be unintended consequences from that purchase, as was the case here.

Need some more advice in respect to your employment contracts or dealing with employees generally?

If you would like further advice on employment contracts or dealing with your employees generally, MDL’s Employment Law team can help.

To discuss your situation, contact McCarthy Durie Lawyers on 07 3370 5100 or fill out the contact form here.