The Case

Pursuant to section 311 of the Fair Work Act 2009 (Cth) (FW Act), a transfer of business occurs when all of the following occur:

• the employee’s employment with the old employer has terminated;
• the employee became employed by the new employer within 3 months of the termination;
• the work the employee performs for the new employer is the same or substantially the same than that which they performed for the old employer; and
• there is a connection (as defined in the FW Act) between the old employer and the new employer.

The four types of connections prescribed by the FW Act are:

1. The old employer and new employer are associated entities.
2. The old employer is outsourcing the transferred work to the new employer.
3. The new employer is insourcing the transferred work from the old employer.
4. There is an arrangement between the old employer and the new employer by which the new employer owns or has the beneficial use of some or all of the assets (including intangible assets) previously owned or used by the old employer that relate to, or are used in connection with, the transferring work.

If a transfer of business is found to have occurred, the new employer may inherit enterprise agreements and obligations it never intended to incur.

In Zabrdac v Transclean Facilities Pty Ltd, Mr Zabrdac, a supervisor, moved employment from one employer to another when the contract to provide security services was re-tendered. When Mr Zabrdac was dismissed by Transclean Facilities Pty Ltd (Transclean), the new employer, within 3 months. Mr Zabrdac commenced unfair dismissal proceedings. Transclean argued the unfair dismissal claim was not permitted because Mr Zabrdac was employed for less than the 6-month qualifying period.

Mr Zabrdac argued that there had been a transfer of business, so the period of employment with the older employer could be used, meaning he had been employed for more than 6 months.

Mr Zabrdac argued that the connection between the old employer and Transclean was the arrangement for the beneficial use of assets. Transclean had use of the old employer’s procedures manual, uniforms, various appliances (such as a microwave oven, fridge, radio, sandwich-maker and kettle) and stationery.

The Verdict

Commissioner Bissett of the Fair Work Commission (FWC) held that for there to be an ‘arrangement’ there must be:

• communication between the old employer and new employer;
• the reaching of an understanding; and
• an expectation of a particular outcome.

The FWC held that had not occurred in this case and that Transclean had simply used incidental property that the old employer has abandoned. There had been no arrangement reached between the two employers.

The FWC also indicated that these items probably did not constitute assets as they had no real economic value, having been written off by the old employer.

Even if they were assets, the FWC found they did not relate to, or used in connection with, the transferring work. At best they were incidental to the work (i.e. the provision of amenities) and were not used for providing security services.

Lessons

It is important to keep in mind the impact of the transfer of business provisions when buying and selling a business, entering into contracting arrangements, tendering, and insourcing or outsourcing work.

Particular care should be exercised by incoming contractors in making any arrangements to use or buy assets of outgoing contractors in circumstances where the incoming contractor will engage employees of the outgoing contractor.

To avoid any unfavourable consequences of the transfer of business rules:

• don’t engage any former workers of the old employer, or wait at least 3 months before doing so;
• avoid any of the prescribed connection situations if you can; or
• seek an order from the FWC that the old employer’s industrial instruments not apply to the new employer.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.