Employee Entitlements When Selling a Business in Queensland

You have spent years building your business, and now you are ready to sell. The price is agreed, the buyer is keen, and settlement is on the horizon. Then your accountant or lawyer asks a question you had not thought about: who is responsible for the staff's accrued leave? In many Queensland business sales, this question arrives too late and too expensively. The good news is that with the right advice, it is entirely manageable.

What happens to employees when a business is sold?

Employees do not simply "come with" the business the way plant and equipment do. Legally, the seller terminates the employees' existing employment, and the buyer offers them new positions. However, if the arrangement qualifies as a transfer of business under the Fair Work Act, the employees' prior service may be treated as continuous with their new employer. That continuity brings accrued entitlements with it.

In a typical Queensland asset purchase, this connection is usually straightforward because the buyer is acquiring the seller's equipment, stock, premises, and goodwill. The practical effect is significant: even though the employees have technically been terminated and re-employed, their accrued entitlements may not reset to zero on settlement day.

Which entitlements transfer to the new employer?

Not all entitlements are treated equally. Some transfer automatically and cannot be avoided. Others give the buyer a choice, but only if the buyer follows the correct procedure.

Personal and carer's leave always transfers. It cannot be paid out by the seller and cannot be opted out of by the buyer. Annual leave transfers by default, but the buyer can choose not to recognise the employee's prior service, in which case the seller must pay it out. This is typically addressed in the business sale contract, with the parties agreeing on an adjustment to the purchase price. Redundancy pay and the qualifying period for unfair dismissal protection follow a similar pattern: the buyer can opt out of recognising prior service, but only by giving the employee written notice before their first day.

Long service leave is the one that catches people out

Queensland has its own rules for long service leave, and they operate independently of the Fair Work Act. When a business changes hands and employees continue in the same roles, Queensland law treats their service as continuous. Unlike annual leave or redundancy pay, the buyer cannot simply opt out of recognising prior long service leave service.

Even if the seller pays out the financial value of accrued long service leave before settlement, the employee's entitlement may still transfer to the buyer. For buyers, this means long service leave must be carefully factored into the purchase price. For sellers, it means accurate records and full disclosure are essential.

Non-recognition notices must be done properly

For those entitlements where the buyer can opt out, the mechanism is a written notice given by the buyer to the employee before the new employment begins. This sounds simple, but the Fair Work Commission has made clear that strict compliance is required. The notice must come from the buyer itself, not the seller, not a related company, and not a solicitor acting on someone else's behalf. It must be in writing and given before the employee's first day. If any of these elements is missing, the prior service counts as if the notice had never been given.

Watch out for "contractors" who are really employees

If the seller has been engaging workers as independent contractors who are, in substance, employees, those workers may have accrued significant entitlements that the buyer inherits. Recent changes to the Fair Work Act have made it easier to challenge contractor classifications by requiring a practical assessment of the real nature of the working relationship, not just what the paperwork says. A buyer conducting due diligence must look beyond the seller's contracts and assess whether any contractor arrangements would withstand scrutiny.

What sellers and buyers should each be thinking about

Sellers should calculate and disclose all accrued entitlements across their workforce, and consider whether any contractor arrangements would be reclassified as employment. Buyers should request employment records, review leave balances, prepare non-recognition notices in advance, and factor transferred entitlements into the purchase price. If you are still at the heads of agreement stage, this is the right time to raise these issues, not at settlement.

How I can help?

If you are buying or selling a business, do not leave employee entitlements to chance. Getting these wrong can mean unexpected liabilities for the buyer and reduced sale proceeds for the seller, and the amounts involved are often substantial.

Book a consultation with me, Joe Kafrouni, to discuss your transaction. Together we can review the employment position, identify any risks, and make sure entitlements are properly dealt with before you sign.

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Disclaimer: The information provided by Kafrouni Law is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their circumstances. Kafrouni Law makes no warranties or representations regarding the information and exclude any liability which may arise because of the use of this information. Liability limited by a scheme approved under professional standards legislation.