Australia: WorkChoices – Who’s Covered And Who’s Not?

Article by Zita Beuth, Associate

While it has been over a year now since WorkChoices was introduced, many organisations still harbour some uncertainty about whether the Federal workplace relations system applies to them or not. From the recent case law that is emerging on this issue, it seems there are still areas of grey in which it may not be readily apparent whether or not an employer is a ‘constitutional corporation’ and therefore caught by WorkChoices.

Only last month the New South Wales Industrial Relations Commission ruled that an incorporated employer was not a trading corporation and therefore did not fall within the scope of WorkChoices.

So who’s covered and who’s not? This article provides a brief overview of the WorkChoices coverage, with specific reference to two recent cases - the first of which considered the coverage of WorkChoices in the context of an incorporated association which was engaged in trading activities, and the second which examined the particular trust arrangements of the employer.

The starting point in determining whether a particular employer is covered by the WR Act, is the definition of ‘employer’ under that Act. The WR Act defines ‘employer’ as any of the following entities (so far as they employ an individual):

• a constitutional corporation

• the Commonwealth

• a Commonwealth authority

• a person or entity that employs flight crew officers, maritime employees or waterside workers in connection with interstate or overseas trade or commerce

• a body corporate incorporated in a Territory, and

• any other person or entity that operates in a Territory.

In the case of Victoria, the definition is extended to cover all other employers in that state, other than in relation to certain types of public sector workers.

For most employers, whether they are covered by the Federal system depends on whether they can be characterised as constitutional corporations. Under s 16(1) of the WR Act, state industrial relations laws are, largely but not entirely, excluded from applying to constitutional corporations.

A constitutional corporation is defined in the WR Act as being ‘a corporation to which paragraph 51xx of the Constitution applies’, ie a foreign, trading or financial corporation formed within the limits of the Commonwealth. Basically, in order to be considered a trading or financial corporation, the entity must be:

• incorporated; and

• engaged in ‘substantial or significant’ trading or financial activities.

It should be noted that the term ‘corporation’ does not just cover entities that are incorporated under the Corporations Act 2001 (Cth), but can also include those incorporated under other laws such as not-for-profit organisations incorporated under state or territory incorporated associations legislation.

Employers who are not covered by WorkChoices are therefore those which are:

• unincorporated and operate outside Victoria and the Territories. For example, sole traders, partnerships, and state governments;

• incorporated bodies formed within Australia that do not have significant trading or financial activities so as to be properly characterised as trading or financial corporations.

Last month the full bench of the New South Wales Industrial Relations Commission (NSWIRC) ruled that an incorporated employer did not have a significant part of its revenue derived from trading activities and therefore was not a trading corporation so as to fall within the definition of constitutional corporation under the WR Act.

In the case of Garvey v Institute of General Practice Education Incorporated [2007] NSWIRComm 159 (Garvey), an employee had applied for relief from victimisation and unfair dismissal under the state’s Industrial Relations Act 1996. However, the employer challenged the NSWIRC’s jurisdiction to hear the matter based on its contention that it was a constitutional corporation.

The employer, the Institute of General Practice Education Incorporated (IGPE) was incorporated under the Associations Incorporation Act 1984.

The main issue for determination by the NSWIRC was whether the employer engaged in trading activities and if so, whether those activities meant that IGPE could be characterised as a trading corporation.

The full bench set out the key principles relevant to the characterisation of a corporation as a trading corporation, which can be summarised as follows;

• whether a corporation is a trading corporation depends upon the current activities of the corporation;
• a corporation that carries on trading activities can be found to be a trading corporation even if it was not originally established to trade;
• the focus is not on the purpose of the corporation although the objects of the corporation will not be completely irrelevant;
• the test as to whether the trading activities of a corporation mean that it is a trading corporation has been stated in terms of whether the trading activities are:
  • substantial;
  • not substantial; and
  • a sufficiently significant proportion of its overall activities;
• a trading corporation may exist even though its trading activities:
  • do not form the predominant part of the overall activities of the corporation;
  • are not motivated by the hope of private gain but to enable other activities to be performed;
• ‘trading activities’ generally connote the activities of a commercial nature involving the exchange of goods or services for reward;
• whether the trading activities of a corporation are sufficient to warrant it being characterised as a ‘trading corporation’ is a question of fact and degree.

Although the primary source of IGPE’s revenue came from federal government funding, IGPE claimed it also earned income from providing teaching services to a university. While the NSWIRC accepted that those teaching services could properly be described as a trading activity, it concluded that the IGPE could not properly be characterised as a trading corporation "on the basis of its single trading activity". In reaching this conclusion, the full bench compared the proportion of revenue arising from IGPE’s sole trading activity to its total revenue and found that it only formed a very small percentage amount.

Generally speaking, in the case of trusts, the employer will be the trustee.

In one of the first cases to consider the coverage of WorkChoices in respect of trust arrangements, the South Australian Industrial Relations Commission (SAIRC) concluded that where the trustee is a natural person, or a number of natural persons, the employer is not a constitutional corporation: Dr IJ Hough Veterinary Surgery Veterinary Staff Enterprise Agreement 2006 and Glenelg Veterinary Clinic Veterinary Staff Enterprise Agreement 2006, SA IRC 10 (5 May 2006) (‘Glenelg’).

In that case, the SAIRC was asked to approve two Enterprise Agreements covering employees of two South Australian veterinary surgeries pursuant to s 79 of the state's Fair Work Act 1994.

However, in hearing the applications, it was necessary for the SAIRC to first determine whether it had jurisdiction to approve the Agreements in light of WorkChoices.

The SAIRC found that the WR Act did not extend to cover a trust operating a veterinary clinic. In reaching this conclusion, Deputy President Hampton stated that:

The Deputy President then went on to state:

In one of the agreements, the trust was nominated as the employer in the agreement although the SAIRC noted that it was likely that the two individuals, who were joint trustees of the family trust, were at law the employer.

In the other agreement, the employer nominated was a trust, the sole trustee of which operated a veterinary practice on behalf of himself and another person. The SAIRC formed the view that it was likely that this trustee was the employing entity.

In any event, as there were no corporate entities involved in either of the trust arrangements, the SAIRC approved the two agreements.

However, it should be noted, where there is a trustee corporation, the issue becomes whether the corporation is a constitutional corporation - put simply, whether the trustee corporation carries on a business. The key principles identified by the NSWIRC in Garvey, above, may then become relevant.

Some useful questions to ask in attempting to identify the correct employing entity and/or in determining whether or not an entity is a ‘constitutional corporation’ for the purposes of WorkChoices, include:

• In relation to trust arrangements:
  • Who is the trustee of the trust?
  • What / who is the entity through which wages and other employee entitlements are paid?
  • What / who is the employing entity identified in any employment records or documents?
  • What / who is the employing entity identified for the purposes of employer’s statutory obligations (e.g. superannuation, workers compensation, insurance etc)?
• In relation to incorporated associations
  • Is a significant part of its revenue derived from trading activities (i.e. activities involving the exchange of goods or services and which produce revenue for the entity)?
  • Does the entity engage in financial activities to a substantial or significant extet?

As Deputy President Hampton stated in Glenelg, "considerable debate will no doubt ensue about the meaning and application of the concept of a constitutional corporation in the months and years to follow". In the meantime, the slowly emerging body of case law in this area may provide some assistance.

© Hopgood Ganim

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.