Are you buying a business and keeping its employees?

When buying a business people tend to concentrate their due diligence on the financial performance of the business. It’s also important to undertake a due diligence with regard to the employees of the business so that you can make an informed decision as to whether you wish to offer employment to the employees.

If you are considering employing the employees, you need to ensure they have been paid correctly and that PAYG and superannuation have been paid. You also need to consider the entitlements to leave that employees have accrued and agree with the vendor on how these entitlements are to be treated.

If accrued entitlements for annual leave and long service leave are to transfer to you with the employees you need to ensure the sale price for the business is adjusted to take the transferring entitlements into account. This should also happen for personal (sick) leave entitlements which generally transfer as they are not an entitlement paid in lieu on termination of employment.

Where an employee transfers to you as the new owner of the business and they are doing the same or similar work; and have not had a break of more than 3 months between their employment with the vendor and being employed by you, their employment is deemed to have transferred to you and their service is generally continuous. This can impact on entitlements in the future.

It is important to note that the Fair Work Act 2009 provides that a new employer may inform transferring employees that their period of service with the old employer will not be recognised in certain circumstances. This can include annual leave, redundancy and minimum periods of employment with regard to unfair dismissal claims.

KEY POINT: If you are purchasing a business and considering offering employment to existing employees of the business, it’s vital that you obtain legal advice in relation to the employment side of the business and what steps you can take to reduce liability with regard to employee entitlements and recognising service with the previous employer.