Not-for-profit must abide by Fair Work Act

Cases

Not-for-profit must abide by Fair Work Act

The Federal Circuit Court has found a business that presented as ‘not for profit’ was nevertheless a constitutional corporation and therefore subject to the Fair Work system.

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A business that claimed to be a ‘not-for-profit’ was nevertheless a constitutional corporation because its trading income was not peripheral or insignificant, the Federal Circuit Court has held. The business was therefore subject to the Fair Work system.

An employee of the business who was dismissed (allegedly made redundant) complained that the business failed to comply with provisions of the Fair Work Act relating to general protections. The employer argued it was not subject to the Fair Work Act because it was not a constitutional corporation.

Background


Justice Lucev noted the The Golden Mile Loopline Railway Society Inc’s (GMLRS) constitution provided that the income and property of GMLRS was to be applied solely to the promotion of its objects and aims and no part thereof is to be paid or transferred by way of profit to members.

GMLRS’ principal areas of activity included: the construction, restoration and operation of the Loopline Railway; and the operation of the information centre and attached museum.

The business had 10 employees and also operated with considerable input from volunteers.

Mr Kape’s employment with GMLRS as works manager was terminated on 11 December 2015, allegedly on the grounds of redundancy. If GMLRS was not a constitutional corporation the court had no jurisdiction to hear the substantive application relating to an alleged breach of the general protection provisions.

Constitutional corporation – preliminary issue


A constitutional corporation is “a corporation to which paragraph 51(xx) of the Constitution applies”: FW Act, s12. These include foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth: Constitution, s51(xx)

For the purposes of the preliminary issue before the court the issue was whether GMLRS was a trading corporation.

In R v Federal Court of Australia, Ex parte WA National Football League [1979] HCA 6; (1979) 143 CLR 190; (1979) 53 ALJR 273; (1979) 23 ALR 439 (‘Adamson’) it 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….'

Relevantly, charitable, benevolent and not-for profit organisations and corporations may still be, and have been held to be, constitutional trading corporations. For example, the RSPCA was found to be a trading corporation despite income accrued being used for charitable purposes other than to create a profit.

Evidence


The business emphasised 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. 

Justice Luvec noted: ‘In this case ... 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.

Trading activities not peripheral


The court concluded that it could not be said that the trading activities undertaken by GMLRS were peripheral, insignificant, incidental or trivial when considered either in absolute terms or relative to the overall activities of GMLRS. That remained the case whether or not the service contract activities were characterised as trading activities or not.

Considering rental income, income from the sale of drinks in the Information Centre/Museum, the sale of souvenirs in the Information Centre/Museum, a total tram income of $98,180 and the sale of advertising and sponsorship in relation to the daily tram tours, the income amounted to $133,887, or almost 12.5% of GMLRS’ total income. If the service contract component was regarded as a trading activity, the trading activities income became $297,377, or about 27.5% of total income.

The court concluded that, even on the basis of the revenue derived from trading activities excluding the service contract component, the revenue from trading activities was not insubstantial in the context of an organisation such as GMLRS, whose overall income, while not huge, was also not insignificant in the context of the operations undertaken by GMLRS.

The court noted that in 2015 GMLRS actually made a profit (net income) of $356,304: ‘That is a not inconsiderable sum in the context of gross revenue of slightly more than $1.08 million.’

Overall characterisation


The court said that there was a paucity of evidence in this case, but nevertheless it had to make a determination on such evidence as was before it. 

The court found the business to be a trading corporation and: '... [this is so] having regard to a number of factors, including the following:

'... 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... 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 ...

'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 ...

'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 ...'

Conclusion and orders


The court concluded that GMLRS was a constitutional corporation for the purposes of s14(1)(a) of the FW Act. The matter was adjourned to a directions hearing on 2 February 2018 for further programming orders.

The bottom line: A finding that a business is a constitutional corporation means that the business comes under the Fair Work legislation and its employees are entitled to wages and conditions specified under that legislation. Trading with the purpose of some not insignificant revenue return is the key factor in determining whether a corporation is a constitutional corporation or not.

Kape v The Golden Mile Loopline Railway Society Inc & Ors (No.2) [2017] FCCA 3014 (7 December 2017)
 
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