Redundancy in a business sale – what Employers need to know

Redundancy in business sales can be tricky – the Gravenell Case shows us “what not to do”

Redundancy in a transfer of business situation will usually be in circumstances where the “new” employer does not want to bring the employee onboard (for whatever reason) or the employee does accept a suitable alternate position.

A recent case before the Fair Work Commission of Gravenall [2020] FWC 4499 (26 August 2020) (Gravenell Case) demonstrates that in a transfer of business situation both companies can still be liable for a redundancy payment, where there is confusion about who was the actual employer at the time the termination took effect.  In this case, the employee was employed by the original employer and there was no apparent employment relationship between the employee making the claim and the new acquiring company.

The case also provides some guidance on ‘what not to do’ when offering an alternative suitable position to an employee and in this case also included a requirement to take into account the personal circumstances of the particular employee at the time of the acquisition. 

Best Practice for Employers

The Gravenell Case highlights:

  • The importance of being very clear when a transfer of business actually occurs and how this is communicated to all employees in the existing organisation, including those on extended absence. 
  • The importance of the business sale clauses in relation to redundancy, redundancy payments and transfer of employees.   
  • The value in having a well-defined understanding of the current organisations structure and which positions will be likely required in the new business.   
  • Having a comprehensive criteria to determine which particular positions will be redundant and which positions will not and why.  
  • Having a clear understanding of any alternative positions which will be offered to employees whose existing positions will be redundant including the reasons why the business considers the alternative position is sufficient for the purposes of determining who is eligible and who is not eligible for a redundancy payment if the employee concerned refuses the offer of that alternative position.
  • Have a clear communication plan on how this will be conveyed to employees in terms of consultation, notice of redundancy and any offers of alternative employment to be given – keeping in mind any industrial instruments that are applicable including Modern Awards, Awards or enterprise agreements.

The Gravenell Case involved an employee making a claim under s 122(4) Fair Work Act 2009 (Cth) (Act) seeking an order from the Commission for a redundancy payment.   The order can be made where the Commission is satisfied under s122(3) of the Act that not providing a redundancy would be unfair to the employee.  In these decisions the Commission is not limited to whether the employment offered meets the s123 requirements but can consider all the circumstances at the time of the termination, including the manner in which the employee was treated by both their employer and in this case, included the company purchasing the business.     In the present circumstances, the employer had argued the employee was not entitled to a redundancy payout because the employer had offered the employee a suitable alternative position.  

In making a decision, the Commission granted a redundancy payment but with a 25% reduction caused from the employees conduct.    However, despite the employees conduct, the employer was still required to pay 75% of the redundancy payment.   The reasons the employer was required to pay the redundancy entitlement was based on a number of grounds as follows:

  • The failure by both the existing and acquiring company’s management to properly and reasonably consider the individual employee’s personal circumstances at the time of the acquisition of the company.  In this case the applicant had been on an extended period of leave in excess of eight (8) months and was not aware of the changes caused by the acquisition of the business.
  • The continued tone of the communications with the employee including the initial contact informing him that his employment was in jeopardy due to his extended absence and the negative effect this communication had on the employee concerned by effectively threatening the employees’ employment.
  • The factual inaccuracies, assumptions and confusion when corresponding with the employee concerned including:  
    • The unreasonable manner of the communications regarding a medical clearance for him to ‘return to work.’   Furthermore, when the employee was cleared to return to work, he was not returned to work as he was legitimately entitled.  In fact, the employee was essentially left in ‘limbo’ after complying with the request to provide a medical clearance and even after the employer gave undertakings that he would return to work.
    • The ‘barrage’ of confusing and uncomprehensive correspondence about a purported alternative role which was directed towards the employee which the Commission decided did not represent a suitable alternative position the employee could properly consider as a suitable alternative position when his original position was made redundant.
  • The timing of the redundancy letter was also taken into account, when it was delivered immediately after the correspondence with the employee about his return to work including that it was reasonable to determine that this letter was also a surprise to him as a result.
  • Other considerations included that the employer was a large and well-resources organisation with access to human resource management and legal advice where the repercussions of mishandling the matter were particularly pointed out and outweighed any culpability by the employee concerned.

The Gravenell Case highlights a number of issues for redundancies in the midst of a sale of business, merger or acquisition – obtaining legal practical and strategic advice on specific issues around employment should be separate to the issues surrounding the commercial sale (or purchase). 

Should you have any concerns about restructures – redundancies, reallocation of work and /or changing positions including the communications and consultation plans supporting this, please contact +61 (07) 3876 5111 to arrange an obligation free consultation to discuss your inquiries and we will do our best to provide a helpful, practical solution.

Written By

Jonathan Mamaril


NB Lawyers – Lawyers for Employers

[email protected]

+61 (07) 3876 5111

About the Author

Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability.  With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers.