Constitutional Corporations

Federal industrial relations legislation primarily is now based on the use of the corporations powers in the Australian Constitution, instead of its narrower industrial relations powers. This means that all businesses that operate as constitutional corporations — and all their employees — are covered by the federal industrial relations system.


Since 27 March 2006, federal industrial relations legislation primarily has been based on the use of the corporations powers in the Australian Constitution, instead of its narrower industrial relations powers.
 
This means that all businesses that operate as constitutional corporations — and all their employees — are covered by the federal industrial relations system. Although this was instituted by the ‘WorkChoices’ legislation, it has continued under the current federal industrial relations legislation, known as ‘Fair Work’.
 
Complimentary federal and state legislation further extends federal coverage to non-incorporated private employers with effect from 1 January 2010. This is discussed under the various state legislative commentaries. The broader term — National System Employer — is defined here.
 


Definition


A constitutional corporation is a trading or financial corporation or a foreign corporation. This definition can be quite legally complex, based as it is on the corporations power of the Australian Constitution.
 
A simple measure is if a business has ‘Ltd’ or ‘Pty Ltd’ after its name, it is incorporated.
 
Examples of businesses which are not covered by the corporations power are sole traders, partnerships, and trusts. However many of these businesses are now included in the federal industrial relations system via the referral by all the States except Western Australia of their industrial relations powers to the Commonwealth, on 1 January 2010.

Some guidance


The Fair Work Act is largely based on the corporations power in the Constitution.
 
In addition, it relies on other heads of power — the territories power (for the Australian Capital Territory and the Northern Territory), the referral power (for Victoria, New South Wales, Queensland, South Australia and Tasmania) and the external affairs power to support existing arrangements (eg the unlawful termination provisions).

What is a constitutional corporation?

 
Constitutional corporation is a legal term that covers a number of different types of companies and is currently used in the Fair Work Act 2009.
 
Put simply it means:
  • bodies incorporated under the Corporations Law of a state or territory that may be classified as either a trading or financial corporation
  • foreign corporations
  • bodies corporate that are incorporated in a territory
  • bodies that are prescribed as bodies corporate under legislation.  
Associations and other bodies that have been incorporated under state legislation are corporations; however, whether they are constitutional corporations will depend on whether they may be classified as either trading or financial corporations.
 
To be classified as a trading or financial corporation, the incorporated body’s trading or financial activities must be significant.
 
Generally speaking, incorporated bodies carrying out commercial activities with a view to earning revenue will be trading corporations.

What is not a constitutional corporation?

  • partnerships
  • unincorporated associations 
  • sole traders
  • local government. 
Whether an incorporated body is or is not a constitutional corporation is primarily an issue for the employer to consider.
 
For example, business names generally are not a legal entity and as such cannot actually be an employer. Concerned employers may wish to seek independent specialist legal advice as to whether they are a constitutional corporation or contact the Department of Employment and Workplace Relations.

What is a body corporate?


A body corporate is an artificial legal person. This is its status by virtue of an act of Commonwealth, State or Territory parliament.
 
A corporation has a legal personality quite apart from the individuals who make up that corporation.

As such, a corporation can sue and be sued, hold property and enter into contracts.

Trading or financial corporation?


Whether a corporation is properly characterised as a ‘trading’ or ‘financial’ corporation must be determined on a case by case basis; however, there are certain criteria that are critical to this classification.
 
It is also important to realise that when attempting to classify a corporation as ‘trading’ or ‘financial’, it is the current activities of the corporation, rather than the purpose of its formation which are relevant in determining its status.
 
‘Trading’ refers to buying, selling, exchanging or bartering goods or services or, more generally being engaged in the business of commerce.
 
Trading activities must form a substantial or significant proportion of that corporation’s activities (ie rather than being an insubstantial or peripheral concern).
 
However, trading need not be the only, or even the biggest concern of the corporation.

Trading corporations


To be a ‘trading corporation’ the corporation must be a ‘body corporate’ (see ‘What is a Body Corporate?’).

Financial corporations


A financial corporation is a body corporate that deals substantially or extensively in commercial dealings in finance.
 
‘Dealings in finance’ refers to acts such as borrowing or lending, banking or insurance and also the provision of management and advisory services in relation to financial matters.

Foreign corporations


A foreign corporation is a corporation formed and incorporated outside of Australia (under the law of a foreign country) that does business within Australia.

Commonwealth authorities

 
This term is defined in the Fair Work Act 2009 and refers to two types of authorities.
Firstly, a body corporate that is established for a public purpose by or under a law of the Commonwealth or the Australian Capital Territory.
 
Secondly, a body corporate incorporated under Commonwealth, State or Territory law in which the Commonwealth has a controlling interest.

Local government councils excluded

 
Local government workers are excluded from the national IR system, an August 2008 Federal Court decision has confirmed.
 
A council was found not to be an ‘employer’ under the then Federal Workplace Relations Act because it is not a constitutional corporation.
 
Justice Jeffrey Spender said it is ‘inconceivable that the framers of the Constitution intended that the Commonwealth should have powers to regulate the activities, functions, relationships and the business of the Council, which is a body politic of State Government’. 
 
He also expressed the view that if a local government was to be treated as a trading corporation, the Commonwealth would have powers over it that would ‘annihilate any concept in the Constitution of a Federal balance' and would permit the Commonwealth to ‘nullify’ the right of the State to govern in its local government areas. 
 

Examples of constitutional corporations 


Public hospitals
 
The Royal Prince Alfred Hospital was found to be a trading corporation because it provided medical and surgical services for fees (approximately $14 million in the relevant year) and earned an amount for ‘business activities’ (approximately $4 million). It was a trading corporation despite the fact that it was incorporated under a statute to perform public functions and that its income from these sources was dwarfed by its income from public funding (approximately $112 million).
 
Charitable institutions — the Australian Red Cross
 
The Australian Red Cross Society and the NSW Division of the Australian Red Cross Society were found to be trading corporations because they earned considerable sums of money from the sale of goods (over $2 million dollars in 1984–85). It did not matter that the trading activities were not motivated by the hope of private gain but were directed at earning revenue for charitable activities.

Incorporated sporting organisations and clubs
 
The Western Australian and South Australian Football Leagues and the West Perth Football Club (which promoted football matches for reward and sold rights) were found to be trading corporations. The Court also commented that ‘trading’ is not limited to trade in goods and would extend to business activities carried on with a view to earning revenue.

The University of Western Australia
 
The University of Western Australia was found to be a trading corporation or a financial corporation. In looking at the question of fact and degree, all of the Justices considered what proportion of the corporation’s revenue could be said to be generated by trading or financial activities.

The Tasmanian Hydro Electric Commission
 
The Hydro-Electric Commission of Tasmania (the HEC) was found to be a trading corporation. As the HEC was selling electrical power in bulk and by retail on a very large scale, the substantial sales of electricity amounted to the relevant trading activities. This conclusion was not altered by the fact that this activity was carried out largely in the public interest and subject to political direction. 

Local government
 
The St George County Council, which was established solely to supply electricity and electrical appliances and fittings, was found by the High Court not to be a trading corporation but this decision was later found by the High Court to be incorrect.
 
Many local councils would meet the test for a constitutional corporation. Whether a more typical local government body will be a trading or financial corporation will depend on the extent of its trading or financial activities. 

Churches
 
There have been no cases about church bodies. In many cases, a church will not be incorporated. For example, the Catholic Bishops Conference is not incorporated. However, a church may incorporate bodies to perform particular functions and some of those may involve trading activities (eg providing education services).
 

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