Question
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16 June 2017

A little fishy??

Employment Law
Federal

Asked

We have a situation where a client has purchased a restaurant business and now wants to replace his head chef.

When the business was transferred to our client all employees were paid out their entitlements by the old owner.

There is no employment contract in place, however I understand that aspects of the relationship are governed by the Restaurant Industry Award.

The basis of our client wanting to terminate the employment is that the menu is changing and he is wanting to hire a chef with specific skills for the new menu.

Can you please tell me what the position is in terms of the purchase of a business and whether our client is entitled to terminate the employment at this point based on the above situation? If so, what are the notice requirements?

Answered

Thank you for the question.

It is beyond the scope of this service to provide detailed advice about particular issues pertaining to a client matter. We will address your query in a general way.

The law about ‘transfer of business’ can be a complicated area. We recommend recourse to the provisions of Part 2-8 of the Fair Work Act 2009 regarding when a transfer of business occurs.

A ‘transfer of employment’ will occur when an employee moves from one employer to another employer within three months of the termination of employment, provided the employee is a transferring employee in relation to a transfer of business from the first employer to the second employer and the employers are not associated entities – see s 22(7).

Employee’s previous service and entitlements

A new employer may elect not to recognise the transferring employee's service with the first employer for the purpose of accruing annual leave or redundancy pay entitlements – see sections 91(1) and 122(1). Based on the background facts where it is stated that ‘all employees were paid out their entitlements by the old owner’ at the date of the business sale, it appears that this has occurred.

Unfair dismissal in a transfer of business situation

Under the Act’s unfair dismissal provisions, employees cannot bring an unfair dismissal claim if they have not yet completed a ‘minimum employment period’ at the time of their dismissal – see sections 382 and 383.

Where there has been a transfer of employment, any service with an old employer is taken into account when determining the employee’s period of employment for the purposes of the minimum employment period exclusion – see s 22(5). What that means is that the prescribed 6 month or 12 month period (the latter applicable to small business employers) will be measured from the commencement of employment with the old employer.

There is an exception to this general rule. In a transfer of business situation, a new employer can elect not to recognise the employee’s prior service with the old employer, however the new employer must have informed the employee of this decision in writing before the new employment begins. In that case, the ‘old’ service would not count when calculating the employee’s minimum employment period – see s 384(2)(b).

Redundancy following a transfer of employment

In the situation described, where the new employer (post-transfer) now wishes to hire a chef with specific skills for the new menu to replace the current chef, consideration of the impact of redundancy may be relevant. 

The starting point is that an unfair dismissal application cannot be made if the employee’s dismissal was a case of genuine redundancy - see sections 385 and 389. However, as a practical issue an employee who loses their job, purportedly on the basis of redundancy shortly after a transfer of employment occurred, may view the bona fides of such a redundancy with suspicion and explore all options to dispute the dismissal.

If in doubt about any issue identified, we recommend specialist legal advice be taken.

Regards

Mentor