Home - When do your employees have redundancy entitlements in a transfer of business situation?

UpdatesFeb 08, 2012

When do your employees have redundancy entitlements in a transfer of business situation?

The outcome of a recent Fair Work Australia full bench decision (Svitzer Aust Pty Ltd v MUA, Northern NSW Branch [2011], FWAFB7947) has suggested that redundancy will be unavailable in certain transfer of business situations.

By Charles Power

The outcome of a recent Fair Work Australia full bench decision (Svitzer Aust Pty Ltd v MUA, Northern NSW Branch [2011], FWAFB7947) has suggested that redundancy will be unavailable in certain transfer of business situations.

In certain circumstances involving a transfer of business from one employer to another, the Fair Work Act provides that service for employees transferring with the business is not broken for the purposes of service-based entitlements such as leave, notice and redundancy. It also provides for enterprise agreements binding the old employer to bind the new employer.

This was the case when a company providing port mooring services (Svitzer) sold part of its business to NMS. About half of Svitzer’s 28 employees were offered employment with NMS performing the same jobs on identical terms under their current enterprise agreement, while others were retrenched.

The Union argued that the employees offered jobs by NMS were redundant and entitled to redundancy payments.

But the Full Bench disagreed, ruling that the situation of the continuing employees could not be characterised as a redundancy.

The decision considered that redundancy arises only where an employee’s job will no longer be done by anyone. In this case the ‘job’ would continue to be done by the employees, despite the change to the employing legal entity.

The Full Bench stated that “the effect of the transfer of business is that references to a nominated employer, or generic references to “the employer” or “the company” will usually refer to a second employer”. In other words, the jobs being performed by the employees were still required, even though they were required by NMS, not Svitzer. Therefore they were not redundant.

Although this decision concerns the interpretation and application of the Svitzer enterprise agreement, it can also be applied to the redundancy pay National Employment Standard (NES) in the Fair Work Act.

That provision affords redundancy pay entitlements to employees whose employer initiates termination of employment because they no longer require the employee’s job to be done by anyone (s 119(1)). Another provision exempts an employer in a transfer of business situation from having to make NES redundancy payments where the new employer offers no less favourable employment and recognises prior service.

However, the FWA Full Bench ruling in Svitzer suggests that in cases where each transferring employee’s job and conditions are not affected by the transfer of business the redundancy NES will not even apply.

For more information on redundancy and transfer of business, be sure to check out your Employment Law Practical Handbook.

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