Tuesday, 8 May 2018

Managing the Unfair Dismissal Risks of Transferring Employees

To make an unfair dismissal claim, an employee must, amongst other things, have served the “minimum employment period”. That is, six months for most employers, 12 months for “small business employers” with less than 15 employees.

In the context of a business acquisition, do you need to communicate to transferring employees that their employment is subject to a new minimum employment period?

One decision of the Fair Work Commission illustrated what not to do.

Transferring Employees Unfair Dismissal Coverage: Case Example

Upon purchasing an existing business, a small business employer instituted fresh 3-month probationary periods for each transferring employee. This was communicated to them through their new employment contracts.

An employee, whose employment was terminated during the new “probationary period”, brought an unfair dismissal claim against the employer. The employer raised a jurisdictional objection, claiming that the employee’s employment was terminated during her contractual probation period and therefore, the employee was not eligible for protection from unfair dismissal.

The Commission found that the employer had not communicated to employees that they would have to serve new statutory minimum employment period.

This meant that those employees were all still protected from unfair dismissal, though they had worked with the new employer for less than 3 months. Why? The employees’ service with the previous employer counted for the purpose of unfair dismissal.

The Commission found that the dismissal was unfair. It emphasised that there is a difference between informing an employee that there will be a new probation period, and notifying them that their period of service with a previous employer will not be recognised for the purpose of unfair dismissal.

For a more detailed discussion of the difference between probationary periods and minimum employment periods, see our previous article here: Qualifying Period v Probationary Period: What’s the difference?

Recognition of Prior Service for Transferring Employees

The default stance when a business is purchased is that the prior service of transferring employees is recognised for the purposes of the minimum employment period. This is always the case when a business is transferred from one associated entity to another.

In circumstances of a transfer between non-associated entities, the new employer has the right to notify the transferring employees that their prior service won’t be recognised. However, this has to be communicated in the right way to reduce the risk of a unfair dismissal.

The Right Way to Notify Transferring Employees

The most important aspect of notifying transferring employees that their prior service will not be recognised is a clear statement that the statutory minimum employment period will apply to their employment with the new employer.

In a previous decision of the Commission, a contract that stated that there would be no new probationary period, but that the statutory minimum employment periods would apply, was ruled to have reasonably informed a transferring employee that their prior service would not be recognised.

Lessons for Employers

Employers should ensure that when purchasing a business, the contracts for new and transferring employees provide them the required notification regarding the minimum periods of employment. It is important not to confuse this with the contractual probation period, as this provides no protection from unfair dismissal claims that may arise if an employee has already worked the minimum employment period.

The best way to ensure your business’ flexibility is to review your contracts for new employees and to implement a solid communications strategy to notify transferring employees of the implications of a fresh minimum employment period on their employment.


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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