What happens to Employee Entitlements when a business is sold? – Part 2

business sale employee entitlements

In part two of our series on employee entitlements, we further explore the different ways that employee entitlements are dealt with in the sale of a business.  Click here to read part one of our series.

Scenario 3: Purchaser offers employment with recognition of employees’ prior service

The purchaser of the business can offer employment to the existing employees by recognising the employees’ prior service with the vendor (i.e. the old employer).  If that occurs:

  • All accrued entitlements the employees have not taken prior to the sale of the business will be carried across to the purchaser, e.g. annual leave, personal leave, long service leave etc.
  • The vendor is not required to pay out accrued annual or long service leave. It is likely the purchaser will want to negotiate an adjustment for these entitlements at settlement.

Scenario 4: Existing employee declines an offer of employment with the purchaser

If an existing employee turns down employment with the purchaser, then the vendor has the same obligations to the employee as though the purchaser did not offer employment to the existing employee.  The employees’ employment is terminated, and the vendor must:

  • pay out any accrued annual and long-service leave entitlements; and
  • provide the required notice or make payment in lieu of notice.

If the vendor is a small business (i.e. less than 15 employees), the employees are not entitled to redundancy pay.  If the vendor is not a small business, the employees will not be entitled to redundancy pay, provided that the purchaser’s offer of employment was on terms and conditions similar (and not less favourable) to the existing terms and conditions of employment with the old employer.

In the sale of any business with employees, it is always important that the purchaser and vendor:

  • each obtain legal advice;
  • understand their legal obligations with respect to the employees; and
  • ensure that the contract for the sale of the business sets out the process for how the employees and their entitlements are to be managed at settlement.

For more information, please contact a member of our commercial team at Fox and Thomas.