Transferring employees on an outsourcing in Australia: overview

A Q&A guide to outsourcing in Australia.

This Q&A guide gives a high level overview of the rules relating to transferring employees on an outsourcing, including structuring employee arrangements (including any notice, information and consultation obligations) and calculating redundancy pay.

To compare answers across multiple jurisdictions, visit the Transferring employees Country Q&A tool.

This Q&A is part of the global guide to outsourcing. For a full list of jurisdictional Q&As, visit www.practicallaw.com/outsourcing-guide.

For the general rules relating to outsourcing, visit Outsourcing: Australia overview.

Sheila McGregor and Andrew Hii, Gilbert + Tobin
Contents

Transferring employees

Transfer by operation of law

1. In what circumstances (if any) are employees transferred by operation of law?

Initial outsourcing

The customer's employees do not by operation of law become employees of the supplier when an outsourcing occurs. Further, the law does not permit the customer to unilaterally assign the employment of its employees to the supplier.

The customer's employees will "transfer" to the supplier (that is, cease to be employed by the customer and become employees of the supplier), where:

  • The supplier makes an offer of employment to the supplier's employees who will provide the outsourced services.

  • The employees accept the supplier's offer of employment.

An employee who is not offered (or does not accept an offer of employment from the supplier) remains employed by the customer. The customer can seek to redeploy the employee to any available position or terminate his employment due to redundancy.

Change of supplier

There is no automatic transfer of employees from an outgoing supplier to an incoming supplier by operation of law on change of supplier. The process for the transfer of employees between suppliers is the same as for an initial outsourcing and employee consent is required.

Termination

When services are insourced, the transfer of employees of the supplier to the customer does not occur automatically by operation of law.

The process for the transfer of employees from the supplier to the customer is the same as for an initial outsourcing and a change of supplier and employee consent is required.

 
2. If employees transfer by operation of law, what are the terms on which they do so?

General terms

A transfer of employees from the customer (transferor) to its supplier (transferee) will result in the transferee inheriting certain employee entitlements from the transferor. This occurs under Australia's national workplace legislation, the Fair Work Act 2009 (FW Act) in relation to transferring employees where they:

  • Are employed by the transferee within three months after their employment with the transferor terminates.

  • Perform work for the transferee which is the same or substantially the same as the work they performed for the transferor (collectively, the "transfer of business conditions").

Apart from inherited statutory entitlements, it is for the parties to the outsourcing arrangement to agree on the terms and conditions of employment on which employees transfer to the transferee. A prudent transferor will require the transferee to make offers of employment to its employees on comparable terms and conditions which specifically:

  • Are substantially similar to, and considered on an overall basis to be no less favourable to the employee's terms and conditions with the transferor.

  • Recognise the employee's period of service with the transferor for the purpose of calculating the employee's service related entitlements with the transferee.

Pensions

Employees are entitled to a statutory retirement income benefit known as superannuation. An employer must make superannuation contributions currently equivalent to 9.5% of an employee's ordinary time earnings capped at a specified amount. Contributions are made by an employer to a superannuation fund.

The transferee's obligation to make superannuation contributions for transferring employees commences from when they start employment with the transferor. The transferor has no liability for any past contributions not made to the transferring employees by the transferor and that liability remains with the transferor.

Employee benefits

Where the transfer of business conditions are met, the transferee:

  • Must recognise the prior continuous service of the transferring employees with the transferor as if it was service with the transferee.

  • Will inherit the personal leave and annual leave of transferring employees accrued during their employment with the transferor.

However, the transferee can decide (assuming it is commercially acceptable to the transferor) that:

  • The annual leave accruals of the transferring employees are not inherited by it and are paid by the transferor to the transferring employees when they transfer to the transferee.

  • It will not recognise prior service of the transferring employees for the purpose of calculating any redundancy pay under the FW Act which they may be entitled to receive from the transferee in the future.

Other matters

Where the transfer of business conditions are met, any collective labour agreement (known as an "enterprise agreement") which covered the transferring employees before the outsourcing, will continue to cover them. The transferee will also be covered by the collective industrial agreement.

See Question 4 for a discussion on how the transferee can seek to stop the transfer of a collective labour agreement to harmonise the terms and conditions of the transferring employees with those of its existing employees.

 

Redundancy pay

3. How is redundancy pay calculated?

Entitlement of a full-time or part-time employee to redundancy pay under the Fair Work Act depends on the employee's period of continuous service. Subject to exemptions, an employee is entitled to redundancy pay if the job performed by the employee is no longer required.

The Fair Work Act provides that:

  • No redundancy need be paid to an employee with less than 12 months' service.

  • For employees with at least nine years but less than ten years' service, a maximum of 16 weeks' pay is due.

  • Employees with more than more than ten years' service receive 12 weeks of redundancy pay.

 

Harmonisation

4. To what extent can a transferee harmonise terms and conditions of transferring employees with those of its existing workforce?

A transferee has greater scope to harmonise terms and conditions of employment if there is no enterprise agreement covering transferring employees.

As discussed in Question 2, an enterprise agreement that covered transferring employees before the outsourcing will continue to cover them for their employment with the transferee. However, the transferee can make an application to the national industrial tribunal, the Fair Work Commission (FWC) for an order that the enterprise agreement will not cover it and the transferring employees.

The FWC has discretion whether to make the order to stop the transfer of an enterprise agreement. The harmonisation of terms and conditions is one of the factors considered by the FWC, but the views of the transferring employees and any disadvantage they could suffer if the enterprise agreement does not transfer are also considered, among other factors.

In the absence of any enterprise agreement, the parties to the outsourcing arrangement can agree on the terms and conditions of employment on which the employees transfer to the transferee. The extent to which the transferee can achieve harmonised terms and conditions for the transferring employees depends on its ability to successfully negotiate them with the transferor and transferring employees.

 

Dismissals

5. To what extent can dismissals be implemented before or after the outsourcing?

An outsourcing has no bearing on whether or not the employment of employees and transferring employees can be terminated by their employer before or after the outsourcing occurs. Any dismissal is subject to an employee's contract of employment and statutory protections in relation to termination of employment, such as the ability of an employee to make an unfair dismissal claim.

 

National restrictions

6. To what extent can particular services only be performed by a local national trained in your jurisdiction?

As a general rule, there are no specific legal requirements that people performing information technology outsourcing services must meet any particular licensing or other local certification or education requirements.

Other kinds of outsourcing services can be subject to local registration rules (for example, legal or medical services).

It is common for outsourcing contracts to include provisions that require the service provider to ensure that its employees or contractors have certain standards of proficiency in English.

For skilled migrants in Australia, there are employment visa requirements such as the temporary work (skilled) visa (subclass 457), colloquially known as the "457 visa". The 457 visa allows a business to sponsor skilled workers to come to Australia and work for an approved business for up to four years.

 

Secondment

7. In what circumstances (if any) can the parties structure the employee arrangements of an outsourcing as a secondment?

There are no legal impediments to the transferor seconding its employees to the transferee rather than adopting an outsourcing model. The choice of the service delivery model is entirely a commercial matter for the parties to decide. The key features of a secondment are:

  • Seconded employees remain employed by the transferor.

  • The transferor is responsible for the terms and conditions of employment of the employee. The transferee does not inherit liability for any employee-related entitlements of the employees.

  • Seconded employees work subject to the direction and supervision of the transferee.

 

Information, notice and consultation obligations

8. What information must the transferor or the transferee provide to the other party in relation to any employees?

An employer must keep various records in relation to each employee under the Fair Work Act. The transferor must provide the transferee with these records in respect of transferring employees. Any other information exchanged between the parties is decided by agreement.

 
9. What are the notice, information and consultation obligations that arise for the transferor and the transferee in relation to employees or employees' representatives?

It is the transferor's responsibility to comply with any consultation obligations that arise. These obligations are found in industrial instruments (such as a modern award or enterprise agreement) that cover the transferring employees. In addition, the transferor will have obligations under the Fair Work Act to consult if the transferor intends to terminate the employment of at least 15 employees because of its outsourcing decision. The transferor must also notify Australia's national social welfare agency of any terminations.

The model consultation provisions in awards and enterprise agreements require the transferor to take the following steps when it has made a "definite decision" to implement the outsourcing. The transferor must:

  • Notify the affected employees and their representatives (if any) of the decision.

  • Discuss the outsourcing with the affected employees and their representatives (if any) to mitigate the impact of the outsourcing on the employees.

The question of when a "definite decision" by the transferor is made depends on the facts of each case. It is possible that a definite decision by the transferor can occur before an outsourcing agreement is signed. The transferor will breach its consultation obligations if consultation does not occur before the outsourcing agreement is implemented or any employees are terminated due to redundancy as a result of the outsourcing.

The transferor is liable to a maximum civil penalty of AU$54,000 for breaching the consultation provisions of an award or enterprise agreement. In addition, a court can order compensation for breach of a penalty provision and even order an injunction to prevent a breach of the provision occurring. There are no criminal sanctions for a breach.

 

Contributor profiles

Sheila McGregor, Partner

Gilbert + Tobin

T +61 2 9263 4152
F +61 2 9263 4111
E smcgregor@gtlaw.com.au
W www.gtlaw.com.au

Professional qualifications. BA (Hons), LLB, Sydney University; diploma from the Australian Institute of Company Directors (AICD)

Areas of practice. Information technology; telecommunications; outsourcing; procurement.

Andrew Hii, Lawyer

Gilbert + Tobin

T +61 2 9263 4046
F +61 2 9263 4111
E ahii@gtlaw.com.au
W www.gtlaw.com.au

Professional qualifications. LLM (Hons), University of Cambridge; BCom, LLB, University of NSW

Areas of practice. Information technology; telecommunications; outsourcing; procurement.


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