A café purchase does not make every employee, contract or leave balance automatically move to the buyer on the same terms. The buyer needs advisers to determine whether the transaction creates a transfer of business, which employees will receive offers, which periods of service must or will be recognised, and who bears each accrued or historical liability.

Resolve those questions before settlement documents, employee communications and the purchase-price adjustment are finalised. A spreadsheet headed “staff entitlements” is not enough: the legal treatment, payroll records, employment instrument and commercial allocation must agree for each person.

Start with the proposed employee outcome

Prepare an employee-by-employee transition schedule. Use anonymised data during early due diligence where privacy requires it, but ensure the final process gives authorised advisers the information needed to settle the position accurately. For each worker, record:

  • role, actual duties, commencement date and employment status;
  • applicable award, registered agreement or other instrument and classification;
  • ordinary hours, guaranteed hours, pay rate and any written flexibility or annualised-wage arrangement;
  • annual leave, personal/carer’s leave, long service leave and other recorded balances;
  • current workers’ compensation, parental leave, flexible-work, disciplinary or performance arrangements;
  • whether the seller will end employment and whether the buyer intends to make an offer;
  • proposed start date, duties, location, hours, pay and probation terms with the buyer;
  • which prior service the buyer must or proposes to recognise; and
  • the seller, buyer or settlement mechanism intended to meet each financial obligation.

Keep the proposed offer separate from the historical compliance review. A buyer may want a person for future operations while still identifying gaps in the seller’s past payments, superannuation, records or classifications.

Ask whether there is a transfer of business

The label used in the sale agreement is not decisive. Fair Work explains that a transfer of business generally requires the employee to start with the new employer within three months of ending employment with the old employer, perform the same or substantially the same work, and have the required connection between the employers. A sale of some or all business assets can provide that connection (Fair Work Ombudsman).

Ask the employment lawyer to analyse this for each worker and the chosen transaction structure. Relevant questions include:

  • Which people are expected to continue doing substantially the same work?
  • When will their old employment end and new employment begin?
  • Is the buyer acquiring the assets used to perform that work?
  • Are the entities associated, or is another statutory connection relevant?
  • Does an enterprise agreement or other transferable instrument continue to cover particular employees?

Fair Work notes that a transferring employee covered by an enterprise award or registered agreement may remain covered by that instrument, while an award-covered employee may move to the award covering the new employer and work (Fair Work Ombudsman). Do not assume that using a new company, issuing a new contract or calling the arrangement a “fresh start” removes statutory consequences.

Map service recognition and accrued entitlements

In a transfer of business, the new employer generally recognises service with the old employer when working out most entitlements, including personal and carer’s leave, requests for flexible working arrangements and parental leave. Different treatment can apply to annual leave, redundancy, long service leave, unfair dismissal and notice (Fair Work Ombudsman).

That is why advisers should produce a written entitlement matrix rather than a single total. It should state, for every category:

  1. the employee’s verified service date and balance;
  2. whether the buyer must, may or will recognise prior service;
  3. whether the seller pays an amount on termination or the obligation continues;
  4. the adjustment, retention, indemnity or other protection proposed between seller and buyer; and
  5. what the employee’s offer and communication will say.

For example, where employers are not associated, Fair Work says a buyer can decide not to recognise prior service for annual leave; if so, the old employer must pay out untaken accumulated annual leave. If leave instead carries across, the buyer needs a verified balance and clear commercial treatment. Redundancy can also depend on the offer’s terms, service recognition and whether the employee accepts it. Notice remains a separate issue for the old employer when its employment ends (Fair Work Ombudsman).

Long service leave needs jurisdiction-specific advice. Fair Work states that most employees derive the entitlement from state or territory law, although older federal instruments and registered agreements can affect the answer (Fair Work Ombudsman). Identify the governing jurisdiction and instrument instead of applying a generic national formula.

Verify the employment foundation, not only the balances

The National Employment Standards are minimum entitlements for Australian employees, and an award, agreement or contract cannot provide less (Fair Work Ombudsman). Ask for contracts, variations, letters of offer, policies, applicable awards and agreements, individual flexibility arrangements, salary reconciliations and written leave agreements.

Check each classification against actual work. Fair Work says award classifications are based on matters such as duties, supervision, skills, experience, qualifications and the main purpose of the role—not simply its job title (Fair Work Ombudsman). “Barista”, “cook” or “manager” in a payroll export therefore does not prove that the classification and minimum conditions are correct.

Reconcile the entitlement report to employee records, payroll journals and the latest pay run. Test a sample back to source documents and investigate negative balances, manual overrides, unexplained resets, missing commencement dates and balances that differ between systems. Fair Work’s record-keeping guidance says prescribed employment and pay records generally must be kept for seven years. It also states that, in a Fair Work Act transfer of business, the old employer must provide relevant employee records for transferring employees (Fair Work Ombudsman).

Plan offers, consultation and communication

Agree who may speak to employees, when, and using which approved documents. The buyer should not make informal promises about continuity, leave, seniority, hours or job security that conflict with legal advice or transaction documents. Offers should state the employer, role, employment basis, start date, applicable instrument, classification, pay, ordinary hours and the treatment of prior service and balances.

The seller and buyer should also identify any consultation obligations. Fair Work says awards contain standard consultation requirements for major workplace change and changes to regular rosters or ordinary hours. Affected employees and representatives may need information, an opportunity to give views and genuine consideration of those views (Fair Work Ombudsman). The exact process depends on the decision, instrument and timing; confidentiality in a sale is not a reason to improvise after settlement.

Questions for the acquisition team

  • Has an employment lawyer documented the transfer-of-business analysis for every proposed continuing employee?
  • Do the sale agreement, offer letters, payroll setup and settlement schedule use the same service dates and entitlement treatment?
  • Which amounts will the seller pay, which obligations will the buyer assume, and how is the price adjusted or protected?
  • Have awards, agreements, classifications, casual or permanent status and contractual promises been independently checked?
  • Are any underpayments, unpaid superannuation, workers’ compensation matters, grievances or employee claims unresolved?
  • Who owns the communication timetable, employee consent steps, record handover and first payroll after settlement?
  • What happens if a key person declines the offer, disputes a balance or leaves before completion?

Employment counsel should advise on transfer rules, termination, offers, consultation and drafting. Payroll specialists can verify balances and system setup; accountants can trace provisions and settlement adjustments; tax, superannuation and workers’ compensation advisers should address their respective issues. The buyer’s task is to make sure these answers form one coherent transition plan.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.