When a business changes ownership

The transfer of business provisions in the Long Service Leave Act apply to changes of business ownership that occurred on or after 20 June 2022.

When there has been a transfer of business and a new employer buys or takes over a business, and retains the existing employees, subject to certain requirements being met the employer will take on all the long service leave obligations for those employees. This applies regardless of anything written in a sale of business contract.

A transfer of business commonly occurs via the sale of a business, which results in an employee of the old owner/employer becoming an employee of the new owner/employer. A transfer may also occur in other ways, including by succession or assignment, outsourcing and being employed by a related body corporate (see the What is a transfer of business section below for more details).

If there has been a transfer of business:

• a transferring employee’s employment before and after the transfer is considered a single period of continuous employment; and
• the new employer is considered to have been the transferring employee’s sole employer for the entire period.

Therefore, when a business is transferred, an employee’s period of continuous employment with the old employer transfers to the new employer and an employee’s accrued long service leave (if any) is also transferred. The new employer will take on all the long service leave obligations for the employee.

Example

In September 2022, Preeti bought a small fashion boutique from Alex. One of the staff members, Morgan had worked for Alex for 11 years prior to the sale and had not yet taken their long service leave. Morgan continued working for Preeti after the sale of the business.

Morgan subsequently resigned in April 2023, as the change of business ownership met the criteria for a transfer of the business under the Long Service Leave Act, Morgan had an entitlement to be paid long service leave on resignation and Preeti was responsible for paying all of this entitlement.

As Preeti and Alex had made arrangements for long service leave obligations as part of the sale of business, Preeti had funds in reserve to pay out this expected leave entitlement.

On the transfer of a business, the old employer must transfer copies of all transferring employees’ employment records to the new employer. This will enable the new employer to accurately determine an employee’s long service leave entitlement.

What is a transfer of business?

Under the Long Service Leave Act, there is a transfer of business from an old employer to a new employer if the following requirements are satisfied:

• the employment of an employee of the old employer has ended (e.g. by resignation or termination by the employer);
• within three months after the employment ends, the employee becomes employed by the new employer;
• the work (the ‘transferring work’) the employee performs is the same or substantially the same as the work the employee performed for the old employer; and
• there is a connection between the old employer and the new employer.

Connections between an old and new employer

In broad terms, there will be a connection between the old employer and the new employer if the new employer owns or has the beneficial use of some or all of the assets (whether tangible or intangible) that the old employer owned or had the beneficial use of, and that relate to, or are used in connection with, the transferring work.

Regardless of whether there is a transfer of assets, there will also be a connection between the old employer and the new employer if:

• the old employer has outsourced work to the new employer, and that work is performed by one or more transferring employees engaged by the new employer; or
• the new employer previously outsourced work to the old employer, but decides to in-source that work and engages employees of the old employer to continue performing that work; or
• the new employer is a related body corporate of the old employer when the transferring employee becomes employed by the new employer.

The Long Service Leave Act provisions dealing with changes of business ownership changed on 20 June 2022.

For information on changes of business ownership which occurred on or after 20 June 2022, see the ‘Transfer of business’ information above.

Pre-20 June 2022 transmission of business provisions

This information is based on the previous transmission of business provisions in the Long Service Leave Act and applies only to changes of business ownership which occurred prior to 20 June 2022.

A transmission of business can occur when one employer sells their business (or part of its business) to another employer. A transmission may also occur in other ways, including by succession or assignment.

If there has been a transmission of business and an employee of the previous employer becomes an employee of the new employer, the employee’s period of continuous employment with the new employer will include the period of continuous employment they had with their previous employer.

This means, if there has been a transmission of business, the employer who buys or otherwise acquires a business or part of a business will take on the long service leave obligations for any of the employees of the old employer who the new employer then employs in the business. This applies regardless of anything written in a sale of business contract.

Example

On 1 January 2017, Sarah bought a hairdressing salon from Tony. One of the staff members, Kim had worked for Tony for 6 years and then continued working for Sarah after the sale of business. When Kim resigned on 31 December 2021, she had worked a total of 11 years in the business (6 years for Tony and 5 years for Sarah).

As the change of business ownership met the criteria for a transmission of business under the Long Service Leave Act, Kim had an entitlement to be paid long service leave on resignation and Sarah was responsible for paying all of this entitlement. As Sarah and Tony had made arrangements for long service leave obligations as part of the sale of business, Sarah had funds in reserve to pay out this expected leave entitlement.

From 20 June 2022, an employee's service with related body corporates is considered to be a part of the employee's period of continuous employment with the same employer. However, this provision only applies from 20 June 2022, which can affect an employee’s long service leave accrual.

Service with related body corporates prior to 20 June 2022 does not count towards an employee’s continuous employment.

‘Related body corporate’ has the same meaning as defined in section 9 of the Corporations Act 2001 (Cwth). An employee's service with a related body corporate is considered to be a part of the employee's period of continuous employment with the same employer.

Example 1

An employee transfers from ABC Construction to XYZ Construction on 1 July 2019. Both of these businesses are related body corporates. Only the employee’s service with XYZ Construction from 1 July 2019 will count towards long service leave accrual.

Example 2

An employee transfers from AAA People Consulting to ZZZ People Consulting on 1 September 2022. Both of these businesses are related bodies corporate. Only the employee’s service with AAA People Consulting from 20 June 2022 will count towards long service leave accrual.