New employer is responsible for employee’s previous entitlements on purchase of business

February 18, 2015

in Employment

iStock_000016394154SmallThe Supreme Court has recently provided a decision on a long running issue as to whether or not the previous employer or new employer is responsible for employee entitlements that have accrued to the employee up to the date the employee begins work with the new employer as a consequence of a restructuring, such as the acquisition of the new employer of the previous employers business.

This relates to vulnerable employees under Part 6A Employment Relations Act (ERA).

The case is of some particular interest to Farry and Co. given that it was a decision won by our firm on behalf of a client some years ago that actually resulted in Parliament passing the legislation that currently governs this area of law and, in particular, Part 6A of the Employment Relations Act.

Some time has passed since those provisions came into law and there has been various queries and questions that have arisen due to the drafting of the legislation.  One of them is the very issue that the Supreme Court has now given a final ruling on.  As indicated above, the provisions relate to Part 6A of the ERA which deals with vulnerable employees who are caught up in a restructuring where a new employer is taking over the business of the previous employer.

Under the relevant provisions of the ERA the transfer of those employees is to be on existing terms and conditions and the new employer was required to recognise the accrued leave entitlement those employees had available.

The question was whether the previous employer was liable to reimburse the new employer for those entitlements.

The High Court originally found that the initial employer was liable for the cost of the pre-transfer leave entitlements and had to reimburse the new employer.  On appeal the Court of Appeal reversed this and found that the new employer was responsible and therefore there was no obligation on the initial employer to reimburse.

The Supreme Court has essentially agreed with the Court of Appeal and found that there is no obligation to reimburse the new employer unless there is a contractual obligation in the purchase documentation.

The Court noted that under the legislation at the time of the acquisition the new employer would have been able to obtain disclosure of employee transfer costs including the number of employees and therefore could have contractually mandated what was to happen as between vendor and purchaser in respect to those costs.

The Employment Relations Amendment Act 2014 will become law on 6 March 2015 and will amend the relevant provisions of the Act.  The amendments will require employees to give earlier notice to their current employer of whether they wish to transfer to the new employer and then the existing employer will be required to provide more detailed information under the disclosure regime to the potential new employer.  This will then enable the new employer and existing employer to negotiate understandings as to where the costs of such benefits are to lie.

It is also to be noted that under the amendment provisions the vulnerable employees provisions will not apply to businesses of 19 or fewer employees going forward.

Farry and Co. are experts in this area of law and regularly advise clients in the acquisition and sale of businesses and have the expertise to advise on any issues that may relate to acquisition or transfer of employees.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Paul Farry
09 379 0055 or 03 477 8870


The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.

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