Unfair dismissal; Fair Work Commission or State matter?

One of the most daunting tasks in the provision of employment law advice arises when advising a client, especially in Western Australia, which has not surrendered its unfair dismissal jurisdiction to the federal system under the Fair Work Act, and which remains a healthy jurisdiction for example where the employer is a sole trader, is to decide were an unfair dismissal application should be lodged. This requires an analysis of whether the employer is a national system employer, which is defined essentially as a corporation which engages in a material amount of trade and commerce.

This was precisely what the Fair Work Commission was required to confront and determine in the following case and I have included an extract of the Deputy President’s reasoning which lead him to conclude that the employer was a national system employer because its trading activities were sufficient. Although this case involved the Fair Work Commission’s anti-bullying jurisdiction, the principles for determining jurisdiction are the same as for unfair dismissal.

“Is RMS a constitutionally-covered business?

RMS is a New South Wales State government agency. It is therefore not the Commonwealth, a Commonwealth authority or a body corporate incorporated in a Territory. 3 Nor is its business or undertaking conducted principally in a Territory or Commonwealth place.4 To be a constitutionally-covered business, then, RMS would need to be a constitutional corporation.5

A constitutional corporation is one that falls within the ambit of s.51(xx) of the Australian Constitution, which states that the Commonwealth Parliament ‘has power to make laws… with respect to… foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth’.

Section 46 of the TA Act states:

‘46 Constitution of RMS

(1) There is constituted by this Act a corporation with the corporate name of Roads and Maritime Services.

(2) RMS is a NSW Government agency.’

It is clear from that section that RMS is a corporation, but not a foreign corporation. The applicant did not contend that RMS is a financial corporation. Therefore, the issue I need to determine is whether RMS is a trading corporation.

In Cowie, 6 Hampton C comprehensively canvassed the authorities on determining whether a corporation is a trading corporation:

‘[31] The approach of the Courts and Tribunals to the meaning of a trading corporation has been conveniently summarised by Steytler P in Aboriginal Legal Service (WA) Inc v Lawrence (No 2.) (Lawrence). Having reviewed the developments in the approach of the High Court to arrive at what might be described as the activities test, His Honour found as follows:

“68 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] FCA 357; (1986) 19 FCR 10, 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] HCA 23; (1982) 150 CLR 169, 184 – 185, 203; Bevanere Pty Ltd v Lubidineuse [1985] FCA 134; (1985) 7 FCR 325, 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 in 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].” (footnotes and full references omitted)

[32] This summary was adopted by the Full Court of the Federal Court in Bankstown Handicapped Children’s Centre v Hillman (Bankstown).

[33] In an earlier case of E v Australian Red Cross Society, Wilcox J considered whether the Australian Red Cross Society and the Royal Prince Alfred Hospital were trading corporations. The Society supplied blood and blood products, generally free of charge to the community, but received substantial government funding. The Court, in considering the more than $44m received in respect of its blood transfusion services, said:

“These were, of course, substantial sums. They were earned only because the respondents are prepared to carry on blood transfusion services at a scale, in terms of labour and resources, greater than that of many organisations which are undoubtedly ‘trading corporations’. But I do not think that it is appropriate to describe the gratuitous provision of a public welfare service, substantially at government expense, as the conduct of a ‘trade’. It is pertinent to recall the words of Stephen J in St George County Council: ‘It is the acts of buying and selling that are at the very heart of trade’, and also to remember the distinction he made in respect of the distribution of electricity free of charge. In relation to the supply of blood, it seems to me that the first and second respondents do not engage in trading activities. They engage in a major public welfare activity pursuant to agreements with the Commonwealth and the various State governments under which they will be reimbursed most of their costs.”

[34] I note that when considering the position of the Royal Prince Alfred Hospital, Wilcox J found that the scale of the hospital’s trading activities were “substantial enough” to require that the hospital should be regarded as a trading corporation. The details of this aspect are explained in more detail in a decision outlined below.

[37] In terms of the assessment of trading activities as substantial and not merely peripheral, the approaches do vary to a degree.

[38] In Bankstown, the Full Court observed that “there is no bright line that determines what proportion of trading activities is “substantial””. In the more recent decision of the Federal Court in United Firefighters Union of Australia v Country Fire Authority (UFU v CFA), the Full Court adopted the approach to the characterisation of trading activities as summarised in Lawrence and considered the revenue producing activities in order to assess the cumulative impact of those activities upon that assessment. In terms of the cumulative assessment, Murphy J at first instance in that matter observed:

“[92] The term “substantial” is imprecise but it at least encompasses trading amounts that are “not so small as to be trivial”: Quickenden at [51]. In that case the majority treated substantial and nontrivial as synonymous. In the present case the CFA contends that their trading activities are peripheral, insignificant or otherwise incidental. These terms are drawn from the various cases: see for “peripheral” Adamson at 208 per Barwick CJ; State Superannuation Board at 304 per Mason, Murphy and Deane JJ; for “incidental” Adamson at 234 per Mason J; for “significant” see Adamson at 233 per Mason J; E v Australian Red Cross Society and Ors [1991] FCA 20; (1991) 27 FCR 310 (“E v Red Cross”) at 345 per Wilcox J; Quickenden at [47] per Black CJ and French J.

[93] The ordinary meaning of these words is straightforward. The Shorter Oxford Dictionary defines them to include the following:

(a) “peripheral” means marginal, superficial, of minor importance, not essential or relevant to but subordinate to;

(b) “insignificant” means lacking significance, meaningless, devoid of weight or force, ineffective, ineffectual, of no importance, trivial, trifling, or contemptible; and

(c) “incidental” means occurring as something casual or of secondary importance; not directly relevant to; following up on as a subordinate circumstance.”

[39] Having found that six of the County Fire Authority’s (CFA’s) non-fire fighting activities were trading activities, Murphy J found:

“96 The scope of these activities is broad. While they are secondary to the CFA’s primary purpose I would not describe any of them as insignificant, incidental, trivial or unimportant. For example, the road accident rescue service is a specialised emergency service that the CFA has agreed to provide in country areas, which has required special training of CFA employees beyond the usual fire training, and which the CFA recognises as an important part of the range of services it provides. The CFA has no statutory obligation to provide this service and it does so at a cost to road users and the State through the Traffic Accident Commission. I would not describe the provision of this service as incidental to the CFA’s activities nor as a fortuitous or casual occurrence of subordinate importance. Nor should its provision, viewed in the context of all of its services, be described as trifling, ineffective, superficial or marginal.

97 For essentially the same reasons the provision of fire equipment maintenance services, consultancy on matters related to fire safety, the provision of advice related to the storage of dangerous goods and the sale of goods related to fire safety should not be seen as insignificant, incidental, trivial or unimportant activities considered against the range of services the CFA provides. I infer from the evidence that these activities are seen as important by the CFA, although they are not its central or predominant focus.

98 Nor do I consider that the revenue from these trading activities is incidental in the sense of arising fortuitously or as a result of some other activity. The income is earned deliberately by the CFA from these six specific sources and on the basis that the CFA have special expertise or products of value which they provide in exchange. Taken together the income from these activities is substantial.

99 While the quantum of income from the CFA’s trading activities relative to its non trading activities is small, I am disinclined to treat almost $13 million of revenue as minimal, trivial or insignificant. It should be seen for what it is, a significant volume of trading revenue albeit dwarfed by the money received from non-trading sources. The CFA put on no cogent evidence that $12.93 million was insignificant to its operations, and no evidence was given that it could be easily foregone by the organisation. Put another way, it is likely that the CFA would be impaired in its capacity to provide services in road accident rescue, fire equipment maintenance, fire safety consultancy or sale of fire safety related goods, which it regards as important in the range of services offered, if it was not able to charge fees for doing so.

100 Although the $12.93 million of trading income is plainly a substantial amount in absolute terms, it is only a small percentage relative to the CFA’s total income. Even so, I do not consider it is trivial or minimal in relative terms.

101 In E v Red Cross the Australian Red Cross Society was one of the respondents. Wilcox J held that its supply of blood and blood products was the gratuitous provision of a public welfare service, substantially at government expense, and was not a trading activity. The Red Cross received a total of $44.9 million from the government in respect of its non-trading blood supply services, and about $2 million from trading activities. Another respondent, a major hospital, made approximately $18 million from trading activities and, in the words of Wilcox J, that sum was dwarfed by a State government subsidy of $112 million. His Honour concluded that the disparity between the money earned through trading and the money received by way of government subsidy was unimportant explaining at 345:

Trading activities yielding some $18 million per year can only be described as substantial. It seems to me that the scale of the hospital’s trading activities in 1984-1985 was such that it should be regarded as then being a trading corporation.

See also United Firefighters’ Union of Australia v Metropolitan Fire and Emergency Services Board (1998) 83 FCR 346 (UFU v MFB) at 354 to 356 per Marshall J.

102 The CFA contends that both E v Red Cross and UFU v MFB were wrongly decided in that they incorrectly applied an absolute test. While I consider that the CFA’s trading revenue is plainly significant if considered in absolute terms, I do not approach the issue that way. Considering its trading revenue relative to its non-trading activities, the question is not without difficulty and is one of fact and degree. 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.”’ [my emphases, endnotes omitted]

In its decision on the appeal of Murphy J’s decision 7 in UFU v CFA, the Full Federal Court said:

‘[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.’ 8

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’ 9 to which Murphy J refers.

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If these items are included, this brings the total amount RMS obtains via trading activities to just under $232 million, which is 3.58% of its total revenue.

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’. 13 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.14 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.

Additionally, as with the Royal Prince Alfred Hospital in E v Australian Red Cross Society, 15 the fact that the revenue RMS obtains via trading activities is ‘dwarfed’16 by the government funding it receives is of itself no bar to characterisation as a trading corporation.

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’ 17 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.”

Application for an order to stop bullying – Leeman (2018) FWC 3584 delivered 19 June 2018 per Hamberger SDP