Fair Work Act and trading corporations

The Fair Work Act covers the employment of most Australian citizens. But there are exceptions. The reason that the Fair Work Act does so is that its provisions are defined to cover the employment conditions of “national system employees” who, self evidently, are those employees who are employed by national system employers or who are employees of federal government agencies.

A national system employer means a “constitutional corporation” which in turn means a “trading corporation”, that is to say an incorporated entity which has a meaningful “trading” purpose and activity.

Most, but not all, non government organizations (NGOs), such as charities, are incorporated  and many have an undeniable “trading” presence in the community. A good example is the Red Cross. My wife is a volunteer with the Red Cross in one of its stores, and that little business is managed just like a small business, with a budget and so forth.

On the other hand, there are incorporated charities which have no trading activities and, for example, derive their income from fund raising. They are not covered by the Fair Work Act.

In Western Australia, the Western Australian Industrial Relations Act fills the void for employment matters which involve either unincorporated employers (sole traders), unincorporated entities and State government agencies.

The question whether an employer is a trading corporation is often very difficult to determine.

For example in Kenneth Daniel Kelly v Great Southern Employment Development Service Committee Incorporated (2017) WAIRC 968 Kenner SC was called upon to determine whether the Western Australian Industrial  Relations Commission had jurisdiction to determine a claim of unfair dismissal which was before it in the face of a challenge by the employer which was seeking to argue that it was a constitutional corporation and that the claim was misconceived because it should have been pursued in the Fair Work Commission. The Senior Commissioner, with the greatest respect to him, an excellent, experienced and learned lawyer, decided that the activities of the respondent were not sufficiently commercial to render it a trading corporation, despite its revenue being derived largely from federal government grants which were managed by both the Commonwealth and the respondent under very tight accountability protocols and together with revenue from some trading activities.

On the other hand in Kape v The Golden Mile Loopline Railway Society Inc & Ors (No 2) (2017) FCCA 3014 delivered 7 December 2017, Perth Federal Circuit Court Judge Tony Lucev was required to determine whether the abovenamed benevolent railway enthusiasts’ society was a trading corporation under the Fair Work Act. Judge Lucev is also an outstanding judge and industrial lawyer. I have included an extract from his judgement to illustrate just how fine a line this issue can be.

Unfortunately, I have been unable to resist the temptation to describe the different outcomes of each case as just as easily being capable of being determined by a “toss of the coin”.

 

 

“Relevant law

  1. It is the first duty of every court to determine whether or not it has jurisdiction: Federated Engine-Drivers and Firemen’s Association of Australasia v Broken Hill Proprietary Co Ltd (1911) 12 CLR 398; (1911) 17 ALR 285; CLR at 415 per Griffith CJ, 428 per Barton J and 454 per Issacs J; Re Boulton; Ex parte Construction, Forestry, Mining and Energy Union (1998) 85 IR 468; (1998) 73 ALJR 129 at 133per Kirby J; Rentuza v Westside Auto Wholesale [2009] FMCA 1022; (2009) 236 FLR 231; (2009) 190 IR 207 at [6]per Lucev FM, applied in Halls v KR & MA McCardle & Sons Pty Ltd & Ors [2014] FCCA 316 at [17] and [48]-[49] per Judge Lindsay.
  2. The coverage of the FW Actis extended to employees and employers. These terms are defined in the first Division of each part of the FW Act: other than Part 1-1of the FW ActFW Act, s.12. The terms “employee” and “employer” will generally either be defined as national system employees or employers, or as having their ordinary meaning: FW Act, s.12. For the purposes of an application alleging a contravention of general protections provisions the employer must be a “national system employer”.
  3. A national system employer is relevantly “a constitutional corporation, so far as it employs, or usually employs, an individual”: FW Act, s.14(1).
  4. A constitutional corporation is “a corporation to which paragraph 51(xx)of the Constitutionapplies”: FW Act, s.12. These include foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth: Constitution, s.51(xx). For the purposes of the preliminary issue before the Court the issue is whether GMLRS is a trading corporation.
  5. In Adamsonit was stated that:

… The only sure guide to the nature of the company is a purview of its current activities, a judgment as to its nature being made after an overview of all those activities… CLR at 208 per Barwick CJ

Essentially it is a description or label given to a corporation when its trading activities form a sufficiently significant proportion of its overall activities to merit its description as a trading corporation…: CLR at 233 per Mason J.

  1. The result of judgments following Adamson has seen courts adopt the broad non-technical approach expounded in Adamson, CLR at 207-208per Barwick CJ when determining if an incorporated body is to be considered a “trading” corporation. Relevantly, charitable, benevolent and not-for profit organisations and corporations may still be, and have been held to be, constitutional trading corporations: E v Australian Red Cross Society(1991) 27 FCR 310; (1991) 99 ALR 601; [1991] ATPR 41-085 (“Red Cross Society”). In Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) [2002] FCA 860; (2002) 120 FCR 191; [2002] ATPR 46-223 (“Orion Pets”), the RSPCA was found to be a trading corporation despite income accrued being used for charitable purposes other than to create a profit.
  2. The principles used in determining whether a corporation is a trading corporation, derived from those first stated in Adamson,were set out in Aboriginal Legal Service of Western Australia (Inc) v Lawrence (No 2) [2008] WASCA 254; (2008) 37 WAR 450; (2008) 178 IR 168; (2008) 228 FLR 318; (2008) 252 ALR 136; (2008) 61 AILR 400-184 at [68]per Steytler P (“Lawrence (No 2)”) as follows:
  3. The more relevant (for present purposes) principles that might be drawn from these and other cases are as follows:

(1)     A corporation may be a trading corporation even though trading is not its predominant activity: Adamson (239); State Superannuation Board (303-304); Tasmanian Dam case (156, 240, 293); Quickenden [49]-[51], [101]; Hardeman [18].

(2) However, trading must be a substantial and not merely a peripheral activity: Adamson (208, 234, 239); State Superannuation Board (303-304); Hughes v Western Australian Cricket Association (Inc) (1986) 19 FCR 10 at 20; Fencott (622); Tasmanian Dam case (156,240, 293); Mid Density (584); Hardeman [22].

(3) In this context, “trading” is not given a narrow construction. It extends beyond buying and selling to business activities carried on with a view to earning revenue and includes trade in services: Ku-ring-gai (139,159-160); Adamson (235); Actors and Announcers Equity Association of Australia v Fontana Films Pty Ltd (1982) 150 CLR 169at 184-185, 203; 1 IR 397; Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325 at 330; Quickenden [101].

(4)     The making of a profit is not an essential prerequisite to trade, but it is a usual concomitant: St George County Council (539, 563, 569); Ku-ring-gai (140, 167); Adamson (219); E (343, 345); Pellow [28].

(5)   The ends which a corporation seeks to serve by trading are irrelevant to its description: St George County Council (543, 569); Ku-ring-gai (160); State Superannuation Board (304-306); E (343). Consequently, the fact that the trading activities are conducted is (sic) the public interest or for a public purpose will not necessarily exclude the categorisation of those activities as “trade”: St George County Council (543) (Barwick CJ); Tasmanian Dam case (156) (Mason J).

(6)     Whether the trading activities of an incorporated body are sufficient to justify its categorisations as a “trading corporation” is a question of fact and degree: Adamson (234) (Mason J); State Superannuation Board (304); Fencott (589); Quickenden [52], [101]; Mid Density (584).

(7)     The current activities of the corporation, while an important criterion for determining its characterisation, are not the only criterion. Regard must also be had to the intended purpose of the corporation, although a corporation that carries on trading activities can be found to be a trading corporation even if it was not originally established to trade: State Superannuation Board (294-295, 304-305); Fencott (588-589, 602, 611, 622-624); Hughes (20); Quickenden [101]; E (344); Hardeman [18].

(8) The commercial nature of an activity is an element in deciding whether the activity is in trade or trading: Adamson (209, 211); Ku-ring-gai (139, 142, 160, 167); Bevanere (330); Hughes (19-20); E (343); Fowler; Hardeman [26]. (2008) 178 IR 168 at 186 per Steytler P; [2008] WASCA 254 at para.68 per Steytler P.

  1. The Full Court of the Federal Court has adopted the propositions in Lawrence (No 2)in both United Firefighters Union-Full Court and Bankstown Handicapped Children’s Centre Association Inc v Hillman [2010] FCAFC 11; (2010) 182 FCR 483; (2010) 265 ALR 23; (2010) 192 IR 212 (“Bankstown”). The Federal Court most recently adopted the principles in Lawrence (No 2)in Hi-Rise Access Pty Ltd v Standards Australia Ltd [2017] FCA 604 at [133] per Murphy J (“Hi-Rise”).
  2. The Court considers the principles in Lawrence (No 2)as the relevant law to determine this application, and also notes that the application of these principles in United Firefighters Union-Full Court,Bankstown and Hi-Rise means they are binding upon this Court: Suh & Ors v Minister for Immigration & Citizenship & Anor [2009] FCAFC 42; (2009) 175 FCR 515; (2009) 108 ALD 470 at [29] per Spender, Buchanan and Perram JJ; CEPU (Western Australia Division) v Fortescue Metals Group Ltd [2016] FCCA 1227; (2016) 310 FLR 1 at [50]-[55] per Judge Lucev.

Characterisations of the organisation’s trading activities

The legislative provisions

  1. In United Firefighters Union-Full Court the Court considered the purpose and scope of the Country Fire Authority as provided in the Country Fire Authority Act 1958 (Vic)(“CFA Act”). In the present case, GMLRS is not a statutory body established under a statutory instrument, but rather under the GMLRS Constitution. It is therefore necessary for this Court to examine the GMLRS Constitution.
  2. The GMLRS Constitution cl.2 states the objects of GMLRS to be:

The Society is a not for-profit organisation of members interested in the preservation and operation of the narrow gauge railway, known as the Loopline, as a national tourist attraction and public exhibition and as from 01/07/2000 has been registered as a “Deductible Gift Recipient” under the Income Tax Assessment Act of 1997 and is a charitable institution.

  1. The GMLRS Constitution cl.3 further builds upon the objects clause in expressing the aims of the GMLRS:

3 a)         To preserve, maintain and improve the historic Loopline Railway

3 b)         To develop infrastructure for the Loopline Railway.

3 c)         To establish the Loopline Railway and stations as a living museum displaying the history of railways in the Goldfields

3 d)         To educate people of the history of the Goldfields

3 e)         To promote general interest of the public by providing a society of persons united in the common aim of preserving and operating the narrow gauge railway.

  1. The GMLRS Constitution provides for the expenditure of monies accrued in excess of expenses and outgoings in cl.17:
  2. CAPITAL

Any monies above expenses gained by the Society from the operation of trains or by any other means will be used for the extension of facilities and to widen the scope of the Society.

  1. Section 4(2) of the AI Act, provides that:

(2) Notwithstanding subsection (1), an association for the purpose of trading or securing pecuniary profit to the members from the transactions of the association is not eligible to be incorporated under this Act.

  1. An exclusive ‘Not-For-Profit’ clause is included in the GMLRS Constitution in cl.20:
  2. NOT-FOR-PROFIT:

Income and property of the Society shall be applied solely to the promotion of its objects and no part thereof shall be paid or transferred directly or indirectly by way of pecuniary profit to the members provided that nothing herein shall preclude the Society from applying any funds of the Society either directly or indirectly for purpose of improving any property vested in the authority within whose districts such property may be situated and provided further that remuneration may be paid in good faith to officers, workmen and servants of the Society or to other persons in return for services rendered to the Society.

The activities of GMLRS

  1. It is important to look at the activities of an organisation and determine whether a sufficiently significant proportion of its overall activities merit the description of trading corporation, and whether the nature and extent or volume of an organisation’s activities justify its description as a trading corporation: United Firefighters Union-Full Courtat [135]per Perram, Robertson and Griffiths JJ, citing, amongst other cases, Adamson, CLR at 233 per Mason J. Regard must also be had for the purpose for which a corporation or organisation is formed, although it is not the sole or principal criterion of its character as a corporation: Lawrence (No 2) at [68(7)] per Steytler P. The Court looks to the activities overall of the corporation, and where the independent trading activities are on a sufficiently significant scale, a corporation may be characterised as a trading corporation even where there are more extensive non-trading activities: United Firefighters Union-Full Court at [136]-[137] per Perram, Robertson and Griffiths JJ; Lawrence (No 2) at [68(1)] per Steytler P.
  2. Some of the activities of GMLRS are plainly trading activities, and in particular:
  3. a)the daily tram tours on the Loopline Tram earning daily income for GMLRS, and the associated income from advertising and sponsorship. There may be an element of public or community benefit both from employment, and from the educational content of any commentary on the Loopline Tram trip, but the activity is essentially a commercial tourism activity, which, on Mr Bishop’s evidence is one of three “principal areas of activity” for GMLRS;
  4. b)the rental income from the Williamstown Road Property is properly characterised as a commercial activity; and
  5. c)the sale of souvenirs (some manufactured by GMLRS by persons working there under the work for the dole scheme) and the sale of drinks is again a commercial activity, and not dissimilar to that of any other corporation running a shop and sales outlet at a stand-alone tourist attraction.
  6. It cannot be said that the daily tram tours – a “principal … activity”, the sale of souvenirs and drinks in the Information Centre/Museum in particular are peripheral to GMLRS’ overall undertaking.
  7. Much significance was placed on the evidence given by Mr Bishop that up to 70% of the activities undertaken by GMLRS were involved with the building or re-building of infrastructure and rolling stock for the Loopline Railway. Setting aside the Council grants, KCGM grants and the Royalties for Regions grants, it is relevant to observe that those activities are undertaken under the supervision of GMLRS employees whose salaries are paid from monies provided by what appear to be labour hire firms, or firms engaged in the implementation of a Commonwealth work for the dole programme, whereby the contracts between GMLRS and the firms concerned facilitate the provision of cheap labour to GMLRS to enable them to undertake the relevant activities. Those contracts are entered into in that manner for a commercial purpose: the provision of cheap labour to facilitate the undertaking of the activities, which themselves are ultimately in pursuance of GMLRS’ objective of development of a Loopline Railway and becoming “a national tourist attraction and public exhibition”. In this case, however, part of the avowed purpose of GMLRS is not inconsistent with its being a trading corporation. In those circumstances, the activities undertaken by reason of the entry into the service contracts are, in the Court’s view, commercial in nature, and consistent with GMLRS being a trading corporation.
  8. In any event, and leaving to one side the issue of the service contracts, there are other activities such as the daily tram tours and the sale of souvenirs and consumables at the Information Centre/Museum, which are consistent with GMLRS being a trading corporation, as is the receipt of rental income from the Williamstown Road Property.
  9. Even if the service contract activities, and for that matter the activities funded by Royalties for Regions and the KCGM grants, are considered to be non-trading activities, they are not necessarily independent of the trading activities or the ultimate purpose for which all of those activities are being engaged in, namely to make GMLRS a national tourist attraction and public exhibition: United Firefighters Union-Full Courtat [139]per Perram, Robertson and Griffiths JJ; Lawrence (No 2) at [68(7)] per Steytler P.
  10. In all of the above circumstances, it cannot be said that the trading activities undertaken by GMLRS are peripheral, insignificant, incidental or trivial when considered either in absolute terms or relative to the overall activities of GMLRS, and that remains the case whether or not the service contract activities are characterised as trading activities or not.

Revenue

  1. It is necessary to consider the revenue producing activities of GMLRS, both individually and cumulatively: United Firefighters Union-Full Courtat [91]per Perram, Robertson and Griffiths JJ.
  2. An organisation being registered as a charitable or not-for profit organisation is not determinative of it being classed as a non-trading corporation. It has been acknowledged such organisations and charities can vary from being commercial in character, to those which operate purely for charitable and altruistic purposes: Fasold v Roberts (1997) 70 FCR 489; (1997) 145 ALR 548; (1997) 38 IPR 34; [1997] ATPR 41-561; FCRat 524-531 per Sackville J.
  3. A number of authorities have held not-for-profit organisations are trading corporations on the grounds that their trading activities are not insubstantial: United Firefighters’Union of Australia & Ors v Metropolitan Fire and Emergency Services Board[1998] FCA 551; (1998) 83 FCR 346; (1998) 44 AILR 3-842 at [93] per Marshall J (“United Firefighters Union 1998”); Orion Pets; Red Cross Society FCR at 345 per Wilcox J.
  4. The primary revenue source for GMLRS in 2015 is that which is characterised as “Grants & Funding” in the 2015 P&L Statement. That funding constitutes in excess of $927,000 (or in excess of 85% of GMLRS’ gross income). Even if the $163,490.28 of the service contract component is extracted as income from a trading activity, the grants and funding income is still almost $764,000 (or in excess of 70% of GMLRS’ gross income).
  5. The other major components of GMLRS’ income, setting aside the gold coin donations for entry to the Information Centre/Museum of $10,476.17, are derived from what are trading activities, that income being:
  6. a)$17,400 from rental income for the Williamstown Road Property;
  7. b)$3,232.48 from the sale of drinks in the Information Centre/Museum;
  8. c)$15,074.14 from the sale of souvenirs in the Information Centre/Museum; and
  9. d)a total tram income of $98,180.38 comprising $82,453.13 from daily tours and a further $15,727.25 from the sale of advertising and sponsorship in relation to the daily tram tours.
  10. The above income amounts to $133,887, or almost 12.5% of GMLRS’ total income. If the service contract component is as a trading activity, the trading activities income becomes $297,377.28, or approximately 27.5% of total income.
  11. Even on the basis of the revenue derived from trading activities excluding the service contract component, the revenue from trading activities is not insubstantial in the context of an organisation such as GMLRS whose overall income whilst not huge, is also not insignificant in the context of the operations undertaken by GMLRS.
  12. The Court notes that in 2015 GMLRS actually made a profit (nett income) of $356,304.11. That is a not inconsiderable sum in the context of gross revenue of slightly more than $1.080 million. The making of a profit is a usual concomitant of a trading corporation: Lawrence (No 2)at [68(4)]per Steytler P.

Overall characterisation

  1. A difficulty in this case has been the nature of the evidence, and in particular its paucity. Although Mr Bishop was a board member during the period of Mr Kape’s employment by GMLRS, he was not actually employed by GMLRS until after Mr Kape’s employment had been terminated. Much of Mr Bishop’s evidence related to events subsequent to Mr Kape’s employment, and in relation to documentary evidence aside from the GMLRS Constitution and the 2015 P&L Statement there was little substantive evidence of the nature of GMLRS as an organisation, including no evidence of the relevant service contracts, and no documentation in relation to the grants and funding, particularly from KCGM and Royalties for Regions. The Court nevertheless has to make a determination on such evidence as is before it, and has done so.
  2. A significant argument put forward by GMLRS was that it was providing public infrastructure, in the same manner as would be done by government, in this case presumably local or State government. The Court does not accept that argument, there being no evidence to support the contention that State or local government would engage in the development of what is essentially a very specialised small to medium sized tourism development. The fact that Royalties for Regions grants had been provided to GMLRS does not, in the absence of any evidence as to the reasons for those grants, sustain this argument. Nor is there any evidence that this is a community service: in essence, GMLRS is endeavouring to maintain the Information Centre/Museum and Loopline tram, and develop a train track and service to carry tourists. Whilst it may be intended to be a community service, the evidence of GMLRS’ activities in this regard was insufficient to sustain this contention. Presently GMLRS is a small to medium scale specialised tourist development which, pursuant to GMLRS’ objects, aspires to be a national tourist attraction and public exhibition. Its present activities are no more than integers of this ultimate object.
  3. Some emphasis was placed upon the size of GMLRS, but in the Court’s view the size of GMLRS does not sustain an argument that it is not a trading corporation. Its income of just over $1.08 million for the 2015 calendar year is not insubstantial, and its profit for that year is likewise not insubstantial at $356,304.11 or just less than 33% of its gross income. Including Mr Kape it appeared to employ at least 12 people at the time of the termination of Mr Kape’s employment, and operated with considerable input from volunteers. It had infrastructure which was not insubstantial, running the Information Centre/Museum, a tram service, and although not operational was maintaining existing railway track and rolling stock, with a view to ultimately operating it. The FW Actplainly envisages that quite small corporations will ordinarily be subject to its provisions: see, for example, the Small Business Fair Dismissal Code provisions in s.388of the FW Act, and the provisions excluding small business employers from having to make redundancy payments: FW Act, s.121(1). The fact that GMLRS might be said to be a small trading corporation does not, in all the circumstances, detract from the fact that it is a trading corporation.
  4. Additionally, and having regard to a number of factors, including the following:
  5. a)that even though trading may not be the predominant activity of GMLRS, its trading activities as set out above are nevertheless substantial and not merely peripheral;
  6. b)that GMLRS’ trading activities extend beyond the provision of tourism services such as the daily tram tours, to include income from property that it holds, but also to those activities which are engaged in with a view to its becoming a more significant income-earning tourism attraction;
  7. c)that GMLRS did make a profit during the 2015 calendar year;
  8. d)that to the limited extent that the activities of GMLRS might (contrary to the Court’s findings above) be said to be for the benefit of the community or for a public purpose, that does not preclude GMLRS from being engaged in trading activities, and GMLRS is (for reasons set out above) engaged in such trading activities;
  9. e)the ultimate purpose of GMLRS is not only, or even predominantly, a public benefit purpose, but rather the development of an income-earning national tourist attraction, albeit one which is not-for-profit, a factor which does not preclude it from being a trading corporation; and
  10. f)the commercial nature of the activities of GMLRS is sufficient to warrant its characterisation as a trading organisation,

and, therefore, the Court is of the view that GMLRS is, on the evidence available in this case, a trading corporation, and therefore a constitutional corporation for the purposes of s.14(1)(a) of the FW Act. The consequence of that is that the Court has jurisdiction to hear Mr Kape’s claim of an alleged contravention of a general protection.

Conclusion and orders

  1. The Court has concluded that GMLRS is a constitutional corporation for the purposes of s.14(1)(a)of the FW Act. There will be a declaration accordingly. Consequently, the matter will be adjourned to a directions hearing on 2 February 2018 at 2.00pm for further programming orders. There will be an order accordingly.”

Kape v The Golden Mile Loopline Railway Socxiety Inc & Ors (No 2) (2017) FCCA 3014 delivered 7 December 2017 per Lucev J)