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What Are Employee Rights On The Sale Of A Business?

What Are Employee Rights On The Sale Of A Business?

The sale of a business can be quite stressful. As an employee or employer, it’s crucial to know employee rights on the sale of a business. The primary factors that will determine an employee’s rights include their employment status, length of employment, if they choose to continue working for the new employer and whether the business is being sold by a share or asset. 

Furthermore, the new employer can decide to uphold some optional rights.

Read along to know what employee rights are on sale of a business and the factors that will determine the rights.

Table of Contents

What happens when a business is sold?

As a business owner, when you choose to sell your business, your existing employees can choose between terminating their employment or transferring their employment to the new business.

What obligations does a business owner have to their employees when selling their business?

As an employer, there are two primary obligations you have to your employees when you sell your business. These include:

You should be aware that the enterprise agreement or modern award that is applicable to your business could potentially provide you with further obligations to your employees when selling your business.

Termination of Employment 

The notice period you must provide your employees will depend on the employee. The factors that will determine the notice period that must be provided include the following:

Employment termination payments

When an employee is terminated, they can usually claim an employment termination payment (ETP)

ETPs are lump sum payments that are made to employees when their employment is terminated. You should be aware that the Australian Taxation Office( ATO) taxes these payments. ETPs can include payments for the following:

Other payments can be included in an ETP depending on the employee’s eligibility.

You should be aware that ETP excludes the following:

  • Lump sum payments for long service leave or annual leave that hasn’t been used
  • The tax-free component of a genuine redundancy payment  
  • Payments for foreign termination 
  • Superannuation benefits 
  • Early retirement scheme payments

Although accrued annual leave and long-service leave payments are excluded from ETP, your employer will provide you with these payments alongside your ETP. As an employee, you should also be aware that ETP is taxed at a lower rate than income and that your employer is required to provide the ETP within 12 months of terminating you.

Finalisation of Taxes

When the business is sold, employers and employees are required to finalise taxes. The most important taxes to be aware of are fringe benefits and PAYG. You should also be aware of superannuation and tax from employee termination benefits.


As a business owner, the legal obligations you have are limited. Therefore, business owners are not generally required to notify the employees of the business that there will be a change of ownership taking place. 

However, once there is new ownership, the new business owner is required to provide their employees with a new fair work information statement. The Australian Government’s Fair Work Ombudsman states that this statement must be provided to all employees prior to or immediately after the employee has started their new position. Casual employees must be provided with a copy of the casual employment information statement when they start their new job.

Carry over employees rights

Furthermore, if the business changes ownership, the employees may claim a transferable instrument. These are a collection of rights that employees have. Whether an employee can claim these rights depends on the new direction of the business. These rights can refer to employment contracts and modern award wages. 

Additionally, the new employer can count the previous work an employee has performed toward their existing annual and long service leave. However, you should be aware that there are exceptions to this. Accordingly, there may be a right to redundancy pay depending on what the new owner recognises.

Transfer of Business

What happens to employees when the business is transferred in a share sale?

As a business owner, if you choose to sell your business through a company share sale, the business entity remains unchanged. In this case, only the company’s shareholders and directors will change. This is because the purchaser’s appointed directors will become the company’s shareholders and directors instead.

When a business is sold this way, employees are not required to transfer. Instead, they remain in their positions. Following the sale of the shares, the business’s employees continue to work in their roles. Furthermore, their employee entitlements remain with them, such as the following:

  • Long service leave entitlements 
  • Annual leave entitlements 
  • Pay rates
  • Working conditions

What happens to employees when the business is transferred in an asset sale?

Asset sales refer to when a purchasing entity (for example, a company) buys your business. The transfer of employees is more complex when a business is sold through an asset sale. One of the disadvantages of selling your business through this method is that the purchaser can buy your business and choose not to employ your current employees.

This condition can be negotiated with the purchaser prior to the sale of your business. Your employees will need to be transferred to the buyer if they choose to purchase your business and  hire your existing employees.

What requirements does the purchaser need to comply with when the business is transferred through an asset sale?

The primary obligation the purchasing business has to employees is that they are required to comply with National Employment Standards under section 61 of the Fair Work Act 2009. The NES entitlements the new employer of the purchasing business must recognise after they have employed employees from the previous employer include the following:

  • Parental leave
  • Carer’s leave
  • Sick leave 
  • Flexible working arrangement requests

However, the new employer can choose to ignore the following entitlements when determining an employee’s entitlements:

In the event that the purchaser chooses to dismiss these entitlements, the vendor must provide the employees with the entitlements prior to the completion of the business sale. 

Additionally, the vendor is required to provide the purchaser with current employee records regarding the transferred employees.

What next?

Knowing your rights as an employee of a business that’s being sold is crucial so that you’re able to claim employee termination payments and so that you have a clear idea of your next move. Similarly, it’s crucial as an employer selling your business to be aware of the rights your employees have so that you can remain legally compliant. 

If you’re still feeling unsure about what rights you have as an employee or if you’re considering selling your business, you should hire a lawyer for legal advice.

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