Constitutional corporations and WorkChoices – the facts

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Constitutional corporations and WorkChoices – the facts

The WorkChoices IR legislation applies only to incorporated bodies, but many employers are unsure whether their business is, or can become, one, and even more employees don’t know whether they work for one.

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The WorkChoices IR legislation applies only to incorporated bodies, but many employers are unsure whether their business is, or can become, one, and even more employees don’t know whether they work for one.

Simple sign

One simple measure is that if your business has ‘Pty Ltd’ after its name, it is incorporated.

Why incorporation is important

Those employers who are not incorporated have three years to consider the value of moving to incorporation, while their IR circumstances remain largely the same (subject to certain Government changes to the content of awards and agreements).

For WorkChoices to operate effectively as a national system either as many employers as possible must move to become incorporated, or the States must cede their IR powers to the Commonwealth, as Victoria has already done.

The new system’s future also depends on it surviving High Court challenges from the States and the union movement.

Some guidance

WorkplaceInfo has obtained a Federal Government document which provides a summary of what constitutional corporations are and, just as importantly, what they are not.

For the interest of subscribers, it is published below:

What is a Constitutional Corporation?

Introduction

WorkChoices will be largely based on the corporations power in the Constitution.

In addition it will rely on other heads of power – the territories power (for the ACT and the NT), the referral power (for Victoria) and the external affairs power to support existing arrangements (e.g. the unlawful termination provisions).

WorkChoices will cover up to 85 per cent of employees across Australia, primarily, but not exclusively, those employed by constitutional corporations.

What is a constitutional corporation

Constitutional corporation is a legal term that covers a number of different types of companies.

It is currently used in the Workplace Relations Act 1996 to amongst other things enable employers and employees to enter AWAs.

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; and
  • bodies that are prescribed as bodies corporate under legislation.

Associations and other bodies which 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; and
  • sole traders.

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.

Constitutional Corporation

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 & enter into contracts.

Trading or financial?

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 (i.e. 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 Workplace Relations Act 1996 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.

Body corporate incorporated within a territory

The Commonwealth government has power to legislate for the Territories, so any body corporate which is incorporated in an Australian Territory, irrespective of where it employs people or operates, can enter into AWAs with their employees. They are not constrained by the need to be classified as either ‘trading’ or ‘financial’ corporations. This gives different types of corporations (such as non-profit corporations) the ability to make AWAs if incorporated in an Australian Territory.

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, church may incorporate bodies to perform particular functions and some of those may involve trading activities (e.g. providing education services).

Related

Summary of impact of IR changes on employers

 

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