Fair Work system; how it works

The Fair Work Act’s coverage

The Fair Work Act essentially covers the workplace and industrial relations issues which arise from the employment of people by “national system employers” which is expression defined to mean “trading corporations”, that is to say incorporated bodies with some material involvement in trading activities.

The extent to which such corporations must have a meaningful “commercial” functionality is the focus of this extract from a recent decision of a Full Bench of the Fair Work Commission.

“It was not in dispute before the Senior Deputy President that RMS conducted a business or undertaking for the purpose of the definition in s 789FD(3) of a “constitutionally-covered business”. The Senior Deputy President found that RMS was a constitutional corporation, and thus satisfied the other element of the s 789FD(3) definition, on the basis that RMS was a trading corporation within the meaning of that expression in s 51(xx) of the Constitution.

In reaching that conclusion, the Senior Deputy President applied the principles concerning the characterisation of a trading corporation stated by Steytler P in the Western Australian Court of Appeal decision in Aboriginal Legal Service (WA) Inc v Lawrence (No 2), 2 by the Federal Court (Wilcox J) in E v Australian Red Cross Society,3 and by Full Courts of the Federal Court in Bankstown Handicapped Children’s Centre4v Hillman and United Firefighters Union of Australia v Country Fire Authority.5 The Senior Deputy President then said:

“[22] The case authorities use many different adjectives to describe the volume of trading activity that will be sufficient to characterise a corporation as a trading corporation. However, it is tolerably clear that when determining if a corporation’s trading activities are ‘substantial’ or ‘significant’ enough, it is not correct to look only at the value of those activities in absolute dollar terms. But nor is it correct to wholly disregard that and look only at their value relative to the value of the corporation’s activities overall. Rather, some happy medium is required – an assessment that takes into account both the absolute and relative volume of the corporation’s trading activities. I understand this to be the ‘question [that] is not without difficulty’ (UFU v CFA (2014) 218 FCR 210 at [102]) to which Murphy J refers.”

The Senior Deputy President then made factual findings concerning RMS’s revenue for the 2016-17 financial year which were not the subject of any challenge in RMS’s appeal. First, he found that RMS’s total funding was $6.47 billion, comprised of $0.9 billion in “own source funds” and the balance consisting of funding from the Federal and New South Wales Governments. 6 Of the “own source funds”, RMS conceded that a total of $172,859,022 was derived from trading activities, constituting 2.67% of its total revenue. The Senior Deputy President considered this to be a significant volume of trading revenue which could not be characterised as minimal, trivial or insignificant.7 The Senior Deputy President also found that there were three other categories of “own source funds” which he considered to be derived from trading activities. These brought the total amount RMS obtained via trading activities to just under $232 million, which was 3.53% of RMS’s total revenue.

The following conclusions were then stated (footnotes omitted):

“[28] As the Full Federal Court stated in Bankstown, there is no ‘bright line’ test that determines what proportion of revenue has to come from a corporation’s trading activities to warrant characterisation as ‘substantial’. There is no magic number above which those trading activities must be so characterised. However, I do not think that I can entirely disregard that in UFU v CFA, Murphy J found that the fact that 2.7% ($12.93 million) of the Country Fire Authority’s revenue was derived from trading activities was sufficient to characterise it as a trading corporation. The absolute amount that RMS obtains from trading activities is significantly higher than the Country Fire Authority’s corresponding figure, and, as a proportion of revenue, is at least similar.

[29] Additionally, as with the Royal Prince Alfred Hospital in E v Australian Red Cross Society, the fact that the revenue RMS obtains via trading activities is ‘dwarfed’ by the government funding it receives is of itself no bar to characterisation as a trading corporation.

[30] In all the circumstances, I consider that RMS’ trading activities are substantial enough to characterise it as a trading corporation for the purposes of s.51(xx) of the Australian Constitution. In my view, the revenue it generates through those trading activities cannot reasonably be described as ‘trivial, insignificant, marginal, minor or incidental’ in either an absolute or relative sense. It follows that the employer is a constitutionally-covered business for the purpose of s.789FD of the Act.”……………………….. We consider that permission to appeal should be granted on the basis that the appeal raises a question of potentially wider application. RMS has a substantial workforce (albeit that it is not the actual employing entity of the persons who comprise its workforce), so that the question of whether it is a constitutionally covered business for the purpose of s 789FD such that it may be the subject of anti-bullying applications under s 789FC may well arise in the future.

It is necessary at the outset to identify some basic propositions concerning the characterisation of a trading corporation relevant to the determination of the appeal. The summary of principles in the judgment of Steytler P in the Western Australian Court of Appeal decision in Aboriginal Legal Service (WA) Inc v Lawrence (No 2), 8 which as earlier discussed was referred to in the decision, is a useful starting point since RMS accepted that it represented a correct statement of the relevant principle. Steytler P said (omitting case references):

“(1) A corporation may be a trading corporation even though trading is not its predominant activity …

(2) However, trading must be a substantial and not merely a peripheral activity …

(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…

(4) The making of a profit is not an essential prerequisite to trade, but it is a usual concomitant…

(5) The ends which a corporation seeks to serve by trading are irrelevant to its description … Consequently, the fact that the trading activities are conducted in the public interest or for a public purpose will not necessarily exclude the categorisation of those activities as ‘trade’…

(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 …

(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 …

(8) The commercial nature of an activity is an element in deciding whether the activity is in trade or trading …” 9

The first, second, fifth, sixth and seventh propositions are particularly relevant to the submissions advanced by RMS in its appeal and require some further elucidation. In respect of the first, second and sixth propositions, the judgment of Murphy J in R v Federal Court of Australia; Ex parte WA National Football League 10 (Adamson) articulates the position in the following terms (cited by Steytler P in respect of both propositions):

“Even though trading is not the major part of its activities, the description, “trading corporation” does not mean a corporation which trades and does nothing else or in which trading is the dominant activity. A trading corporation may also be a sporting, religious, or governmental body. As long as the trading is not insubstantial, the fact that trading is incidental to other activities does not prevent it being a trading corporation. For example, a very large corporation may engage in trading which though incidental to its non-trading activities, and small in relation to those, is nevertheless substantial and perhaps exceeds or is of the same order in amount as the trading of a person who clearly is a trader. Such a corporation is a trading corporation and is the subject of the legislative power in s. 51 (xx.).” 11

The practical application of these principles was recently discussed in the Federal Court Full Court decision in United Firefighters’ Union of Australia v Country Fire Authority. 12 This matter was an appeal against a decision of a single member of the Court (Murphy J) in which it was determined that the Country Fire Authority was a trading corporation.13 The Full Court said:

“[135] We do not accept that the primary judge applied the wrong test, as contended for by the CFA. An important question is whether the corporation’s trading activities form a sufficiently significant proportion of its overall activities as to merit its description as a trading corporation: see Adamson at 233 per Mason J. The same approach was taken in State Superannuation Board at 305 per Mason, Murphy and Deane JJ where their Honours referred to the nature and the extent or volume of a corporation’s activities needed to justify its description as a [trading] corporation. See also the Tasmanian Dam Case at 156 per Mason J; at 179 per Murphy J, at 240 per Brennan J and at 293 per Deane J. Substituting the word “trading” for “financial” follows what their Honours said in State Superannuation Board at 303: the Court’s approach to the ascertainment of what constitutes a “financial corporation” should be the same as its approach to what constitutes a “trading corporation”, subject to making due allowance for the difference between “trading” and “financial”.

[136] Answering that question does not simply involve the application of a formula or equation nor the substitution of percentages or other measures of monetary value as between the activities found to be trading activities and the activities not so found. The purpose for which a corporation is formed is not the sole or principal criterion of its character as a trading corporation and the Court looks beyond the “predominant and characteristic activity of the corporation.” We refer again to the nature and the extent or volume of a corporation’s activities needed to justify its description as a trading corporation. The relationship between the activities relied upon and the overall activities of the corporation, and the extent of those activities in comparison with the extent of the corporation’s activities overall are relevant. In our opinion, this was the approach taken by the primary judge.

[137] If a corporation, carrying on independent trading activities on a significant scale, is properly categorised as a trading corporation that will be so even if other more extensive non-trading activities properly warrant it being also categorised as a corporation of some other type: see State Superannuation Board at 304. In our view, this proposition answers in large part the submissions put as to the public purpose of the CFA. As we have said, the issue is one of characterisation and is a matter of fact and degree.

. . .

[139] The CFA submitted that the error by the primary judge was crystallised at the end of [102] where his Honour said:

In my opinion the CFA undertakes sufficient trading for it to be seen as “not insubstantial”, not trivial, insignificant, marginal, minor or incidental, and I find that it is a trading corporation.

In our opinion, the primary judge was considering whether or not the activities he had found to be trading activities were, proportionately, significant and whether they should be considered as peripheral so as not to affect the overall question of characterisation. We see no error. In our opinion the primary judge correctly took into account the relationship between the trading activities and the non-trading activities in order to evaluate whether the trading activities were “independent” of the non-trading and thus might affect the characterisation of the corporation.”

The fifth proposition is particularly pertinent to RMS’s appeal submissions. In support of the second sentence in that proposition, Steytler P cited two judgments. The first was the dissenting judgment of Barwick CJ in R v Trade Practices Commission; Ex parte St George County Council 14 in which his Honour relevantly said:

“Further, if the terms of an Act expressed in the language of the constitutional power properly construed embrace a government or local government instrumentality or agency, the connexion of the corporation with the government of a State will not of itself place the corporation outside the scope of the power or the statute: Victoria v. The Commonwealth [1971] HCA 16; (1971) 122 CLR 353…

. . .

The power quite obviously, in my opinion, is given to the Parliament to enable it by legislation to control amongst other things at least some of the activities of corporations which fall within its description. It seems to me that the activities of a corporation at the time a law of the Parliament is said to operate upon it will determine whether or not it satisfies the statutory and therefore the constitutional description. Thus, in my opinion, the identification of the corporation which falls within the statutory definition will be made principally upon a consideration of its current activities.

… As I have indicated, the purpose of the grant of legislative power includes the control of the corporate activities of the corporation: it is not so concerned with the motives which prompt those activities, nor the ultimate ends which those activities hope to achieve. If, upon that consideration, the corporation can fairly be described by reason of those activities, their extent and relative significance in the affairs of the corporation as a “trading corporation” it will, in my opinion, be nothing to the point that it is also a government or State or municipal corporation. The effect of the trading activities of such a corporation upon and in the community will not be lessened or necessarily affected by the fact that it is a State or municipal instrumentality.

However, it was said that for a body such as the applicant to reticulate electricity bought by it in bulk is to perform a public service and not to trade. Of course, one of the justifications put forward for the entry of government into manufacture, trade or commerce is that the public will be better served by the government corporation than it would be by a non-government body seeking only profit or gain. But whatever the merit of such a claim, the fact that government, or a “government” corporation, conducts activities which are of their nature manufacturing, trading or commercial activities does not, in my opinion, alter the nature of those activities. This must particularly be so in relation to an Act made under a constitutional power which extends to enable the control of such activities conducted by government, or “government” corporations.” 15

The second judgment referred to by Steytler P is that of Mason J, as he then was, in the Tasmanian Dam Case, 16 in which the Hydro-Electric Commission of Tasmania was determined to be, by majority, a trading corporation. Mason J commenced his consideration of this issue by referring to the judgment of Barwick CJ in St George County Council, and said:

“2. As Barwick C.J. observed in his dissenting judgment in St. George County Council, at p. 541, the connexion of the corporation with the government of a State will not take it outside s. 51(xx). In making this statement, his Honour referred to certain features of the County Council in that case and stated that they did not take the Council outside the category of “trading corporations”. The features were (1) that it was incorporated under the Local Government Act 1919 (N.S.W.); (2) that it had power to levy a loan rate; (3) that there was a limitation on profitmaking to ensure that the council performed a public service for the county district; and (4) that in reticulating electricity to the district it was performing a public service.

  1. The Commission’s connexion with the government of Tasmania is certainly closer than the connexion of St. George County Council with the government of New South Wales. And the Commission’s position in the structure of government is certainly more important than that of the County Council. The Commission is the State authority responsible for generating and distributing electrical power in the State. It constructs and manages the relevant dams, generating plants and other works and makes the policy decisions and recommendations to the Minister in connexion with its functions. But in Launceston Corporation v. The Hydro-Electric Commission[1959] HCA 12; (1959), 100 C.L.R. 654, it was decided that the Commission was an independent statutory corporation and it was not a servant or agent of the Crown. Since then the Commission’s Act has been amended, notably by the inclusion of ss. 15A and 15B. Section 15A enables the Minister to notify the Commission of the policy objectives of the government with respect to any matter relating to generation, distribution, etc. of electrical energy. Section 15B enables the Minister to give a direction to the Commission with respect to the performance of its functions, subject to certain limitations and qualifications. The Commission may object to the direction. If the Minister does not withdraw the direction or qualify it in a manner acceptable to the Commission, the matter is then submitted to the Governor for decision (s.15B(4) and (5)). The Commission is bound to comply with the direction, subject to any withdrawal or modification and subject to a decision of the Governor. However, it is specifically provided that the Minister’s power to give a direction does not make the Commission a servant or agent of the Crown or confer on the Commission any status, privilege or immunity of the Crown (s. 15B(9)). Accordingly it is not suggested that the decision in Launceston Corporationhas been eroded by legislative developments.

    4. The trading activities of the Commission therefore form a much less prominent feature of its overall activities than was the case with St. George County Council. The Commission has an important policy-making role. It is the generator of electrical power for Tasmania for distribution to the public and for this purpose it engages on a large scale in the construction of dams and generating plants. In this respect its operations are largely conducted in the public interest.

  2. However, W.A. National Football Leaguedemonstrates that these considerations do not exclude the Commission from the category of “trading corporations”. The majority judgement in State Superannuation Board pointed out, at p.96, that the case decided that a trading corporation whose trading activities take place so that it may carry on some other primary or dominant undertaking (which is not trading) may nevertheless be a trading corporation.” 17

In relation to the seventh proposition, it may have been more broadly expressed than is justified by the authorities. In this connection we note the following passage in the joint judgment of Mason, Murphy and Deane JJ in State Superannuation Board v Trade Practices Commission 18 (cited by Steytler P in support of the proposition):

“Murphy J. ((1979) 143 CLR, at p 239) said “As long as the trading is not insubstantial, the fact that trading is incidental to other activities does not prevent it being a trading corporation”. Indeed, it was essential to the majority’s approach and to its rejection of St. George that a corporation whose trading activities take place so that it may carry on its primary or dominant undertaking, e.g., as a sporting club, may nevertheless be a trading corporation. The point is that the corporation engages in trading activities and these activities do not cease to be trading activities because they are entered into in the course of, or for the purpose of, carrying on a primary or dominant undertaking not described by reference to trade. As the carrying on of that undertaking requires or involves engagement in trading activities, there is no difficulty in categorizing the corporation as a trading corporation when it engages in the activities.

Indeed, we would go on to say that there is nothing in Adamson which lends support for the view that the fact that a corporation carries on independent trading activities on a significant scale will not result in its being properly categorized as a trading corporation if other more extensive non-trading activities properly warrant its being also categorized as a corporation of some other type.

If there be any difference in the comments made by the majority in Adamson it is one of emphasis only. And it is important to note that they were all directed to the issue as it arose for decision, an issue relating to a sporting club and the league with which it was affiliated; they were not aimed at the corporation which has not begun, or has barely begun, to carry on business. It might well be necessary to look to the purpose for which such a corporation was formed in order to ascertain whether it is a corporation of the kind described.” 19 (emphasis added)

Nevertheless, the Full Court of the Federal Court in UFU v CFA appeared to accept that the purpose for which a corporation is formed may be relevant to its characterisation 20 and we proceed on the basis that the seventh proposition is to be applied in the way expressed………………………

The conclusion that RMS’s trading activities are substantial and of significance permits it to be characterised, on the authorities to which we have referred, as a trading corporation. Contrary to RMS’s submissions, RMS is not deprived of that character by reference to the purposes for which it was established, its closeness to the State of NSW, the fact that it may be subject to Ministerial direction, or the fact that its functions are predominantly for the public good and not commercially orientated. That is made clear in the passages from St George County Council and the Tasmanian Dam Case which have been set out above. Additionally, as State Superannuation Board makes clear, it is not necessary that RMS’s sole or predominant character be that of a trading corporation; a trading corporation may equally be able to be characterised as being also a corporation of another type. Reference to RMS’s statutory description as a “public transport agency” and the predominance of its public functions does not therefore exclude the proposition that RMS is also a trading corporation by virtue of the substantial nature of its trading activities. Accordingly we do not consider that the Senior Deputy President erred by not taking the matters referred to by RMS into particular consideration once he had found that RMS’s trading activities were “substantial enough to characterise it as a trading corporation”. 26

 

Roads and Maritime Services v Leeman (2018) FWCFB 5772 delivered 18 September 2018 per Hatcher VP, Colman DP and Spencer C