Buying a business is one of the most significant commercial decisions a person makes. The due diligence process covers financials, contracts, assets, and liabilities. What often gets less attention is the people side, and that is where some of the most expensive surprises tend to emerge.
Under the Fair Work Act 2009, buying a business does not mean starting fresh with your people obligations. In many cases, you inherit what was already there. Understanding what that means before you sign is far better than discovering it after settlement.
Here are seven HR obligations that come with buying a business.
1. You may inherit the seller’s employment contracts
In a share sale, employees remain employed and their existing contracts transfer to you. You step into the seller’s shoes as their employer, including any terms, conditions, and obligations already in place.
In an asset sale it is more nuanced. Employees may be terminated by the seller and offered new employment by you. Whether a transfer of business has occurred under the Fair Work Act 2009 depends on whether the employee begins working for you within three months, performs the same or substantially the same duties, and there is a connection between the two businesses such as a transfer of assets.
Either way, reviewing every employment contract before settlement is not optional. Contracts that are outdated, non-compliant, or inconsistent with current Fair Work obligations become your problem the moment the deal closes.
2. Accrued employee entitlements may carry over
Where a transfer of business occurs under the Fair Work Act 2009, the new employer is generally required to recognise the employee’s service with the previous employer for most entitlements. This includes sick and carer’s leave, requests for flexible working arrangements, and parental leave entitlements.
Annual leave has some other complexities. Where the new and old employer are associated entities, accrued annual leave carries across. Where they are not associated entities, the new employer can choose not to recognise prior service, in which case the old employer is required to pay out the employee’s untaken accumulated annual leave before settlement.
Getting clarity on what has been accrued and how it will be treated is one of the most important pieces of financial due diligence in any acquisition.
3. Modern award and enterprise agreement obligations transfer with the business
The modern award or enterprise agreement that applied to the employees under the previous owner does not automatically disappear. Under the Fair Work Act 2009, a transferring employee can remain covered by the same instrument as before, or if covered by an award, switch to the award covering the new employer if it covers their job and industry.
If you are not certain which award covers the workforce, or whether the pay rates being paid meet those obligations, that uncertainty needs to be resolved before settlement. Underpayment liability from the previous owner’s practices can in some circumstances follow the business.
4. Redundancy entitlements need careful attention
Redundancy pay is one of the more complex entitlements in a business transfer. Where the new employer is not an associated entity of the old employer, the new employer can choose not to recognise the employee’s prior service for redundancy purposes. If they make that choice, the old employer is responsible for paying any redundancy entitlements on termination.
However, if an employee rejects a job offer from the new employer and that offer was on similar terms, recognised their prior service for redundancy, and a transfer of employment would have occurred had they accepted, the employee may not be entitled to redundancy pay from the old employer either.
This is one of the areas where getting proper advice before the deal is structured can save significant cost on both sides.
Looking for HR support for your acquisition? Reach out to us now.
5. Existing HR policies and procedures come with the business
In a share sale particularly, the HR framework of the previous business becomes yours. That includes whatever performance management practices were in place, whatever complaint processes existed, and whatever documentation has or has not been kept.
If the previous owner managed performance informally, never documented disciplinary conversations, or used HR policies that would not withstand scrutiny, those gaps are now in your business. Getting an independent assessment of where the HR infrastructure stands is one of the most practical things a buyer can do before settlement.
6. Unresolved HR matters become your responsibility
If there are open complaints, grievances, performance management processes, or Fair Work disputes in progress at the time of sale, how those are handled post-settlement becomes your responsibility.
Understanding what matters are live and what the exposure looks like is a standard part of HR due diligence for any acquisition. Discovering an unresolved complaint or a pending Fair Work application after the deal has closed is a situation that is far harder and more costly to manage.
7. The first 90 days set the tone for everything that follows
How you handle the transition period after acquiring a business has a significant impact on retention, culture, and productivity. Employees are watching closely. They want to understand what is changing, what is staying the same, and what the new ownership means for them.
Clear communication, a review of existing employment arrangements, and early engagement with the team are not just good people practice, they are also commercially important. Businesses that manage the people transition well tend to retain the talent that made the acquisition worth making in the first place.
Getting the HR side of a deal right is not a formality. It is where some of the biggest risks and biggest opportunities sit. Specialist HR for mergers and acquisitions support means having someone who understands both the legal obligations and the commercial realities of bringing two businesses together, before the deal closes and through the transition that follows.
UPP HR works with buyers, sellers, and business owners across Brisbane and Australia, navigating mergers, acquisitions, and business transitions. Get in touch before the deal closes, not after.