Long service leave (LSL) entitlement - business changes hands

My family recently took over a hotel business in Qld last year. All employees were terminated on the settlement date and all entitlements were paid. No disputes until recently one casual staff claimed that he's entitled to LSL. He said even though he was employed by different employers (4 different owners in the 16 years he's been here), it's still the same hotel and it counts as 'continuous service' for the purpose of LSL. I have checked business.gov.au and indeed he's correct.

Source: https://www.business.qld.gov.au/running-business/employing/e...

Based on a rough calculation, his LSL is about $12,000.

My question is whether I can challenge the previous owner to pay a portion of this $12,000 as it clearly stated in the business contract that 'The Seller will be responsible and indemnified the Buyer against all claims whatsoever in relation to the payment of its employees' salaries, leave entitlements and taxes up to the settlement date'.

I was aware of LSL but didn't realise the entitlement is still accumulated when a business changes hands. I thought the criteria was 'continuous service with the SAME employer' i.e. SAME ABN not same business.

We feel it's not fair if one day we have to pay this $12,000 as he's been with us for less than 10 months. We should not be responsible for the past 16 years.

Comments

  • +2 votes

    You can challenge anything if you think you have grounds. Didnt the lawyer assisting you with this sale pick this up?

    •  

      The business contract stated the start date for this guy was the same day the previous owner took over from the previous previous owner, which is technically correct from their point of view. Nobody picked this up, even the seller's solicitor, otherwise, I don't think they would put the following clause in the contract. 'The Seller will be responsible and indemnified the Buyer against all claims whatsoever in relation to the payment of its employees' salaries, leave entitlements and taxes up to the settlement date'.

  • +5 votes

    I'm no expert on the matter, but right now YOU the business owner owe this guy his payout, and you might not want to delay paying it since he could take you to Fairwork or QLD Industrial Relations, one of those two.

    After you pay him you can work out if you can get compensation from the previous owner.

    As for your clause "The Seller will be responsible and indemnified the Buyer against all claims whatsoever in relation to the payment of its employees' salaries, leave entitlements and taxes up to the settlement date", well long service is an accumulated leave, so I would hope there is a bank account for the business with the leave payment in it.

    •  

      Sorry if I wasn't clear but he's still with us. He's not leaving (at least for this year). So we don't need to pay him now.

      LSL is an accumulated leave I understand but on page 104, s93(b) QLD Industrial Relations defines 'continuous service' as 'the employee’s continuous service with the same EMPLOYER, whether wholly in the State or partly in and partly outside the State.' No way does it say 'same employer' means 'same business but different owners' in the actual Act. I only found the 'business changes hands' case in Business Qld website https://www.business.qld.gov.au/running-business/employing/e...

      There is no bank account for the business. We went through the due diligence process and no way on the Balance Sheet we found "LSL accrued liability". The previous owners should have set up a provision but I don't think they were aware either.

      •  

        I think a call to QLD Industrial relations will be in order, as a starting point. Otherwise a chat with your business lawyer.

        Did the last owner give the guy a termination letter before they left? And then did you hire the guy on a new contract?

  •  

    The previous owner should have paid his LSL entitlement up to the date you took over the business pro rata, if that is part of sale contract term.

    • +1 vote

      If they had decent accounting software all the leave balances would have been accrued and this would be easily spotable.

      Go after your advisers if you had any too.

    •  

      That's what I thought too. The thing is he didn't ask for a payout on settlement date. He never brought this up until very recently. I am happy to pay a portion in relations to xx number of months/years he's with us but not 100%, it's not fair.

      Sale contract term said the previous owner would clear all receivables and liabilities up to settlement date which means no accounts payable, no GST liabilities, which means we start the business with a blank accounting book. They did not accrue LSL for this man on their balance sheet/PnL either.

  • -1 vote

    IANAL so I will not reply with my ill informed opinion.

  •  

    Casual staff… Already gets a loading to cover his entitlements?

  •  

    I think you need to get an employment lawyer to check this out.

    •  

      Exactly, it's a question of law, not Ozbargain opinions.
      My not legal opinion; I'm not sure why you didn't consider this at the time of sale. Due diligence!

      •  

        We did go through the books during the due diligence process. All liabilities, entitlements were cleared on settlement date. We started the accounting book at 0.

        We were aware of the LSL and we were aware of this gentleman's employment status prior to settlement but we didn't know that LSL would apply to him. It's just a rare case in this industry to be honest and he is the only case in our business. When I looked at the clause " The Seller will be responsible and indemnified the Buyer against all claims whatsoever in relation to the payment of its employees' salaries, leave entitlements and taxes up to the settlement date", I was 100% sure everything would be cleared so I didn't go any further.

    •  

      Thank you for the link.
      From the article it says: "Long Service Leave – the old employer must, if required by the new employer, payout accrued long service leave for employees with 10 years service and pro-rata long service leave if the employee’s period of service exceeds 5 years."

      The question now is the business was sold to 4 different owners during the 16 years the guy's been with the business. and it is now impossible to get into contact with the first three. The only one now I can contract is the previous owner. However, the previous owner had the business for 4 years only, so they might come back and say "I didn't have him for 10 years, why should I pay LSL on settlement date?"

      • -1 vote

        Yeah but you shouldnt worry about that because its the previous owners problem. The previous owner inherited the issue, you have a clause in your contract that should limit your liability.

  •  

    usually there would be something on the contract to say what you would be responsible for.

    and regards to - I was aware of LSL but didn't realise the entitlement is still accumulated when a business changes hands. I thought the criteria was 'continuous service with the SAME employer' i.e. SAME ABN not same business.

    I don't think that's correct, you can "inherit" their LSL, but again depends on the contract.

    •  

      It doesn't depend on the contract, it depends on the law. LSL transfers to the new employer. Not knowing doesn't stop a law applying to someone ;)

      •  

        Assuming the employees were transferred with the business.
        OP mentions employees were terminated on settlement - liability lies with seller?

        •  

          If they are engaged in much the same position by the new owner then they're a transferring employee. The law requires that some entitlements must transfer. The old employer terminating an employee has no effect whatsover on this.

  • +1 vote

    best to get your lawyer to fix it up asap

  •  

    Every day is a school day

  •  

    So the 4 previous hotel employers/owners kicked the can down the road to you ?
    How did the last owner prior to you handle inheriting this guys LSL from the previous owner ?
    Are there any other casuals with possible future LSL claims - or just the one employee ?
    Very interesting situation.

    •  

      No this is the only case. The hospitality industry has a high turnover rate so it's very rare you find an employee that stays in one place for 10 years, let alone this one is 16 years. He's very loyal and he is still working with us but he is nearly 65 so he is going to retire soo and it looks like it's our responsibility to sort out this LSL entitlement.

  •  

    My family recently took over a hotel business in Qld last year. All employees were terminated on the settlement date and all entitlements were paid.
    We feel it's not fair if one day we have to pay this $12,000 as he's been with us for less than 10 months.

    Terminated by the seller?

    Then rehired by the new owner?

    •  

      that's correct. All annual leave, sick leave balances were paid on settlement date.

      •  

        No continuity of employment

        Assume this was made clear when the employee was re hired.

        .. curious who carried out the due diligence work referred to though.

        •  

          when it comes to LSL, it does accumulate even when a business changes hands, even when there is a new owner, even when there is a new ABN, as long as the place of employment, the nature of employment stay consistent.

          Financial due diligence was done by an independent mid-tier accounting firm. They looked through PnL and balance sheet for last 3 years. No LSL provision was recorded on the balance sheet. It's just a small family-owned motel. All the staff is employed on a casual basis, paid weekly, super and tax paid in accordance with the law.

          Legal due diligence was done by a small law firm. They went through the legal aspects of the transaction including conducting council searches, liquor license transfer, food license transfer, title transfer, lease transfer, communications between us and the seller's solicitors. They did a pretty good job in the 6-month period from the date we put down the first offer to the settlement date and I cannot really blame them on this either.

          •  

            @eagleturtle: I'd hit up the accountants. This is what you paid your money for. As someone who gets paid to look at this, it's really not that difficult on the part on their part. Proper due diligence is taking that extra step.

            Are you confident in the records provided that old mate has worked there all this time whilst still meeting continuous employment requirements? Any reason he didn't take LSL after 10 years.

            •  

              @Hardlyworkin: Agree on this - they missed a fairly important provision. I am an accountant; accruals and provisions in a family business are always risky as they don’t always get the state/fed legislation correct or the general accounting concepts for balances on balance sheet (for usually not having adequate knowledge or the correct level of business/tax accounting assistance)… usually their focus is what cash is in and out the door…

              A mid-tier should know better…

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