When buyers acquire a company, they usually focus on revenue, assets, contracts, and growth potential. What many underestimate is the workforce they inherit. In Australian law, employees do not reset when ownership changes. Their history follows the business, and that history carries serious financial consequences.
This is especially true during a transfer of business in Australia, where employment obligations are protected under the Fair Work Act. These rules are designed to protect workers, but they often surprise business buyers who believe an asset purchase removes previous liabilities.
A Transfer of Business occurs when work continues in a similar form, employees move to the new employer, and the new employer is connected to the old one by the sale of assets or business operations. When those conditions are met, employee service history may transfer with them, even if the business sale is structured as an “asset sale”.
This means buyers can inherit long service leave, redundancy exposure, and prior service calculations that dramatically increase future payroll costs. A business that looks profitable on paper can become far less attractive once these hidden liabilities are properly calculated.
One of the most expensive traps is recognising prior service for redundancy. If a role becomes redundant after the acquisition, the employee’s total service time may include years worked under the previous owner. The redundancy bill may be far larger than expected. The same applies to long service leave. In many cases, the buyer becomes responsible for entitlements earned long before the purchase.
Another danger lies in what are often called “zombie agreements”. These are old enterprise agreements or employment conditions that continue to operate even though no one actively manages them. They may include higher penalty rates, outdated allowances, or restrictive conditions that inflate labour costs. When the buyer inherits these arrangements, reversing them can take years of negotiation.
Many buyers assume that structuring the deal as an asset sale will avoid these issues. In practice, that assumption often fails. Under the rules governing a transfer of business in Australia, employment obligations may still follow the work and the workers, regardless of the transaction structure.
Due diligence must go beyond reviewing headcount and base salaries. Buyers must examine service histories, leave balances, redundancy exposure, enterprise agreements, modern Awards, and any custom arrangements that affect cost. Without this review, financial projections become unreliable.
The risk increases in industries with long-serving workforces, such as manufacturing, healthcare, transport, and professional services. Even a small group of inherited employees can shift the economics of a deal.
This is why experienced buyers treat a transfer of business in Australia as both a financial and employment event. Transactional Liability insurance becomes a critical tool. It protects buyers when unknown or underestimated employment liabilities appear after settlement. Without it, disputes over inherited entitlements can turn into expensive legal battles.
Communication with employees also matters. Unclear messaging during the transition creates fear, which can trigger resignations, claims, or industrial action. A stable transition plan reduces operational risk and protects productivity.
Another often overlooked issue is cultural integration. Differences in management style, pay structures, and expectations can increase turnover and disrupt service. While culture is not a legal liability, its financial impact is real.
Smart buyers involve legal, HR, and financial advisers early. They map every potential exposure before signing. They use insurance strategically. They structure employment offers carefully. They prepare for post-acquisition integration instead of hoping problems will resolve themselves.
In every transfer of business in Australia, the workforce is one of the most valuable and most dangerous assets. Buyers who understand this protect both their investment and their future.
