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06 November 2015

The times, they are a changin’

Employment Law
Federal

Asked

Dear Mentor

My client has a company that is moving to become a franchised organisation.

From one operation there will be two companies made, one the franchisee and the other the franchisor. Accounting have stipulated the new company be the franchisee and the existing company be the franchisor.

The current company that will be the franchisor hold all the current employees. They want to transfer the employees to the new company, transfer their entitlements, but change some of the job description and the pay rates. The employees are paid above the award currently and with the adjustments to the position descriptions will continue to be paid above the award.

Questions:

1. Can my client change the position descriptions of the employees as they transfer to the new company without any repercussions?
2. If there are conditions on the above occurring what could these be?
3. If the employee is unwilling to move to the new company under the conditions set out what are the options available to my client?

Thank you.

Answered

The starting point is to understand that an employment relationship is a personal relationship between the employer and the employee. Under general contract law principles, the employment contract cannot be unilaterally ‘transferred’ from one employer to another. 

The “transfer” of an employee’s employment is implemented through the termination of one employment contract and a new offer of new employment with the new employer - that is, the entity referred to in your query as 'the new company'.

A common procedure is as follows:

  1. Employees with their current (old) employer are notified that their employment will come to an end on a particular date.
  2. Concurrently with the above notification, the employees are provided with an offer of employment by the new employer.

Depending on the circumstances, assurances may be given to the employees about continuity of service and terms and conditions with the new employer.

The Fair Work Act 2009 (Cth) contains provisions about a ‘transfer of business’ that apply in certain circumstances. The FW Act’s transfer of business provisions (Cth) apply in most situations when an employee of the old employer commences employment with the new employer within three months of the employee’s employment with the old employer ending.

You have not mentioned whether the employees affected are covered by an enterprise agreement. This is an important issue because the FW Act recognises that an enterprise agreement covering the ‘transferring’ employees can continue to apply to those employees with their new employer in certain circumstances. Part 2-8 of the Fair Work Act deals with transfer of business situations including ‘transfer of instruments’, such as an enterprise agreement.

For employees only covered by a modern award, the situation is different. The FW Act does not provide for the transfer of modern awards. That is because modern awards have a ‘common rule’ effect. For example, employees covered by the Clerical Employees Award with the old employer would continue to be covered by the same award with the new employer if their new jobs satisfied the coverage provisions in the award.

It should be borne in mind that a ‘transfer’ of an employee will usually trigger a redundancy situation. Section 119 of the FW Act sets out when an employee is entitled to redundancy pay. The FW Act also recognises circumstances when an employer would be relieved of a redundancy pay obligation. Section 122 of the FW Act deals with redundancy pay in transfer of business situations and the circumstances where redundancy pay is not required to be provided.

You have asked what would occur if any employee was 'unwilling to move' to a new employer. I assume you mean whether employees could be ‘forced’ to move and/or whether they would be entitled to particular employee entitlements as a result. Employees are free to accept or reject ‘new’ offers of employment - that is, with the ‘new’ company.

In the event of a ‘transfer’ of employment from the old employing company to the new employing company (in a transfer of business situation), an employee will not be entitled to redundancy pay where:

  • the employee rejects an offer of employment made by the new employing company on terms and conditions substantially similar to, and overall no less favourable than, the employee’s terms and conditions with the old employing company; and
  • the new employer recognises the employee’s service with the old employer (see section 122(3) of the FW Act).

You mention that it would be proposed to 'change some of the job description and the pay rates' of 'transferring' employees with the new employer. It is not clear on the facts provided whether the changes your client proposes would satisfy the above criteria for relief. I recommend that careful reference is made to s 122 of the FW Act.

Regards

Mentor