Often the parties to the sale of an accommodation business can be confused about their respective obligations in dealing with employee entitlements. 

This is understandable because there are different ways to deal with the entitlements and the standard contracts and approaches vary between states.

All parties involved should take a systematic approach to determining the treatment of employee entitlements as part of the negotiation of the business sale agreement. 

The first step is for the vendor to determine the entitlements for the employees on termination of their employment.  An employee’s entitlements will depend on their type of employment (i.e. full-time, part-time or casual), the minimum entitlements in the National Employment Standards (NES) and the relevant award (i.e. Hospitality Industry (General) Award 2010).

Employees may also have their entitlements determined under an enterprise agreement or other registered agreement. 

The second step is to determine which employees will be retaining employment in the business with the purchaser as the new employer (referred to as “transferring employees”) and who will not (“non-transferring employee”).

This will usually be the choice of the purchaser under the terms of the business sale agreement and there should be provisions for how offers of employment are made to the employees, how notice is given to the vendor of which employees to whom offers are made, and who have accepted offers. 

The purchaser should be required to offer employment to the vendor’s employees on the same terms as their current employment with the vendor, or consideration given to redundancy implications.  While the parties may not know which employees will be transferring or non-transferring at the date of the contract, the framework for the treatment of employees with notice from the purchaser will be determined and the parties will be aware of the potential cost obligations. 

The third step is considering the obligations to pay entitlements for non-transferring employees.  Usually the vendor will be responsible for payment of all entitlements to non-transferring employees. In some cases the purchaser will be required to pay redundancies to any employees not offered employment. 

The fourth step is dealing with entitlements for transferring employees which will usually involve an adjustment between the vendor and purchaser, where the vendor compensates the purchaser for the liability of entitlements accrued during employment with the vendor.

This adjustment may be complicated because the purchaser may choose not to recognise the transferring employee’s continuity of service with the Vendor for the purpose of:

1. Annual leave.
2. Redundancy.
3. Minimum period for unfair dismissal cases.

Where the purchaser chooses not to recognise continuity of service, the vendor usually pays out the entitlements to the employee for annual leave and redundancy. The prior service with the vendor will also not count towards the minimum period for the purpose of an unfair dismissal claim.

For other entitlements (notably long service leave, personal and carer’s leave) the purchaser must recognise continuity of service and an adjustment must be made.

Finally, the vendor should also be aware of their obligations to provide the necessary employment termination notices to the employees.   

It is important that the parties to an accommodation business sale carefully consider the position with respect to employee entitlements during the pre-contractual negotiations. This will involve the vendor reviewing the entitlements position and disclosing (after appropriate obligations of confidentiality are secured) to the purchaser with clear terms in the business sale agreement setting out the obligations of the parties in dealing with the entitlements.

The risk of not taking the time to resolve these issues prior to contracting is a dispute arising later which may delay completion or may result in unintended consequences and potential loss to one party.