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Legislation update: Transfer of business changes and fair entitlements guarantee

Submitted By Firm: Corrs Chambers Westgarth

Contact(s): John Tuck, John W.H. Denton

Author(s):

Anthony Forsyth

Date Published: 11/11/2013

Article Type: Legal Article

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Two significant pieces of legislation passed by federal Parliament took effect in late 2012:

  • the Fair Work Amendment (Transfer of Business) Act 2012 (Cth) (Transfer of Business Amendment Act), which has important implications for private sector employers that take over outsourced or privatised functions from State government entities; and
  • the Fair Entitlements Guarantee Act 2012 (Cth) (FEG Act), which replaces the General Employee Entitlements and Redundancy Scheme (GEERS) and enables employees to recover unpaid employment entitlements in the event of their employer’s liquidation or bankruptcy.

Transfer of Business Changes

The Transfer of Business Amendment Act is primarily a response by the federal Labor Government to increased privatisation and outsourcing activity by Coalition State governments, especially in Queensland and NSW. It aims to ensure that public sector employees in all other States have the same protections in the event of a transfer of business as those in Victoria, the ACT, NT and the Commonwealth public service.[1]

The legislation extends the operation of the “transfer of business” rules in Part 2-8 of the Fair Work Act 2009 (Cth) (FW Act) to former State public sector employees who become employed by a national system employer – enabling those employees to retain their previous terms and conditions of employment under State awards or agreements.

With effect from 5 December 2012, under new Part 6-3A of the FW Act (inserted by the Transfer of Business Amendment Act):

  • there must first be a transfer of business from a State public sector employer (old employer) to a national system employer (new employer), i.e:[2]
    • the employment of an employee of the old employer has terminated;
    • within three months of the termination, the former employee becomes employed by the new employer;
    • the employee performs the same or substantially the same work for the new employer; and
    • there is a connection between the old and new employers, i.e. the old employer transfers assets or outsources work to the new employer, or the old and new employers are associated entities (as defined in the Corporations Act 2001 (Cth));
  • where there is a transfer of business within the meaning of the above requirements, the employee’s terms and conditions of employment with the old employer are transferred to their employment with the new employer – this is achieved through the creation of a “copied State instrument” under federal law, reflecting the terms and conditions in the State award or State employment agreement that applied to the employee immediately before the termination of their employment with the old employer;
  • copied State instruments are enforceable under the FW Act in the same way as modern awards and enterprise agreements (e.g. breach of a copied State instrument may give rise to proceedings for recovery of underpayments, civil penalties or injunctions in the Federal Court or Federal Magistrates Court);
  • as is the case with transferable instruments under Part 2-8 of the FW Act, orders may be sought from the Fair Work Commission by a new employer, modifying the effect of a copied State instrument – e.g. by providing that the copied State instrument does not apply to the new employer because its terms and conditions are inconsistent with or inferior to an existing enterprise agreement that covers the new employer;
  • other provisions deal with matters such as the interaction of copied State instruments with the National Employment Standards (NES), modern awards and enterprise agreements; variation and termination of copied State instruments; and the recognition of an employee’s period of service with the old employer for purposes of determining entitlements under the NES and the copied State instrument after their employment by the new employer.

Implications for Employers

  • State public sector unions have sought (unsuccessfully) to challenge measures implemented by the Newman and O’Farrell Governments, in Queensland and New South Wales respectively, to nullify the effect of job security provisions in Queensland awards and agreements[3] and to impose limits on the wage increases that can be ordered by the NSW Industrial Relations Commission.[4]
  • However, the Transfer of Business Amendment Act creates impediments to another key strategy of both State Governments to reduce public sector wage costs – i.e. the contracting out of State functions to the private sector.
  • The legislation is therefore of great significance for:
    • State public sector employers (particularly in Queensland and NSW), which must now consider whether there are any advantages to be gained from outsourcing in circumstances where the new employer may incur the same labour costs for transferring employees under copied State instruments;
    • private sector employers across Australia considering tendering for or obtaining outsourcing contracts from a State public sector employer – private sector employers in this position must now consider, for example, whether to offer employment to any employees of the old employer (given that such employees may bring with them higher labour costs under copied State instruments); and whether, if they do so, the transaction is overall worth-while.

The Fair Entitlements Guarantee

The FEG Act fulfils a 2010 election promise by the ALP to replace GEERS with a Fair Entitlements Guarantee (FEG) scheme enshrined in legislation (rather than simply operating on an administrative basis).

The FEG provides employees with much the same entitlements as those previously available under GEERS. If an employee loses his or her job as a result of the employer entering into bankruptcy or liquidation on or after 5 December 2012, the following arrangements apply:[5]

  • subject to satisfying a number of eligibility requirements (e.g. that the employee’s employment ended within six months of the appointment of a liquidator, administrator or other insolvency practitioner),[6] the employee may recover the following unpaid employment entitlements in accordance with an applicable industrial instrument (e.g. award or agreement) or employment contract:
    • up to 13 weeks’ wages (including allowances, loadings and overtime/penalty rates, but not discretionary payments such as bonuses);
    • accrued but untaken annual leave and long service leave;
    • payment in lieu of notice, up to a maximum of five weeks’ pay;
    • redundancy pay, up to a maximum of four weeks’ pay per year of service (under GEERS, redundancy entitlements were capped at 16 weeks’ pay);
  • all payments are capped at the level of the FEG “maximum weekly wage”, presently $2,364.00 – employees earning above this amount will receive payments under the FEG calculated on the basis of the maximum weekly wage;
  • notice and redundancy entitlements are not payable in circumstances where the business of the employee’s former employer is transferred to another employer, and (within 14 days of the employee’s employment ending) the new employer offers the employee a position involving similar work on terms and conditions that are overall no less favourable to the employee;
  • any improvements in an employee’s employment conditions that occurred within six months of their employment ending may be disregarded in calculating their entitlements, if there is evidence that this was done artificially in the knowledge that an insolvency event was likely to occur;
  • eligible employees may make a FEG claim online, and if the claim is successful, an advance will be made by the Department of Education, Workplace and Employment Relations (DEEWR) to the claimant or to an insolvency practitioner who will then provide the advanced amount to the claimant;
  • employees have a right to an internal DEEWR review of decisions on FEG claims, and a new additional right of review before the Administrative Appeals Tribunal;
  • the Commonwealth is entitled to seek to recover any amounts advanced under the FEG, in the liquidation or bankruptcy process.

Implications for Employers

  • The legislated FEG provides employees with greater certainty and reassurance that unpaid employment entitlements will be recoverable in the event of their employer’s bankruptcy or liquidation.
  • The new arrangements do not differ greatly from those applicable under GEERS. However, given the increase in the redundancy entitlements that are payable under the FEG, employers may need to be prepared for union claims for enhanced severance payments in enterprise agreement negotiations.

[1] The Hon. Bill Shorten MP, Minister for Employment and Workplace Relations, Second Reading Speech: Fair Work Amendment (Transfer of Business) Bill 2012, 11 October 2012.

[2] The provisions setting out when there is a transfer of business from an old to a new employer are “intended to reflect, as far as possible, the provisions in Division 2 of Part 2-8 of the FW Act”: Explanatory Memorandum to the Fair Work Amendment (Transfer of Business) Bill 2012, para [9].

[3] Public Sector and Other Legislation Amendment Act 2012 (Qld), upheld in AWU, Queensland v State of Queensland; State of Queensland v Together Queensland, Industrial Union of Employees and Another [2012] QCA 353 (14 December 2012).

[4] Industrial Relations Amendment (Public Sector Conditions of Employment) Act 2011 (NSW) and Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 (NSW), upheld in The Public Service Association and Professional Officers’ Association Amalgamated of NSW v Director of Public Employment [2012] HCA 58 (12 December 2012).

[5] Where the employer entered into bankruptcy or liquidation prior to 5 December 2012, GEERS continues to apply; for employee eligibility requirements and other details of GEERS, see here.

[6] For further information about these eligibility requirements, see here.

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