On 20 August 2008, the Federal Court handed down its decision in AWU (Qld) v Etheridge Shire Council [2008] FCA 1268, where the court held that the Workplace Relations Act 1996 (Cth) (Act) does not apply to Etheridge Shire Council (council) or its employees. The decision casts doubt over whether councils can ever be regarded as constitutional corporations.
Facts
The council lodged an employee collective workplace agreement with the federal Workplace Authority. The Australian Workers’ Union (Queensland) objected to the lodgment and sought a declaration from the Federal Court that the workplace agreement did not come into operation, and had no force or effect, as a workplace agreement under the provisions of the Act.
The central question in the case was whether the council was an ‘employer’ for the purposes of the Act. As a consequence of the WorkChoices amendments to the Act, in order to be an ‘employer’, the council must be a constitutional corporation. To be a constitutional corporation, the council must be a trading corporation within the meaning of section 51(xx) of the Constitution.
In considering the answer to this question, Justice Spender had regard to the council’s submission that it engages in significant activities which should be regarded as ‘trade’. Justice Spender confirmed that the appropriate test to determine whether a council is a trading corporation was the ‘activities test’, namely whether the predominant and characteristic activity of the council is trading in goods or services.
The council provided evidence about the parts of its ordinary activities which it considered constituted trading, including the:
- operation of a tourist facility
- undertaking of road works
- provision of hostel accommodation and child care facilities
- renting of office space and residential property
- hiring of halls
- sale of water
- assessment of building work applications, and
- provision of private works to local residents and organisations.
Decision
Justice Spender concluded that these activities entirely lack the essential quality of trade because almost all of them run at a loss and are directed to public benefit objectives within the shire. Justice Spender further concluded that the scale of these activities ‘are so inconsequential and incidental to the primary activity and function of the council as to deny to the council the characterisation of a ‘trading corporation’. Having found that the council was not a trading corporation, the court held that it was therefore not a ‘constitutional corporation’ under the Constitution and not an ‘employer’ for the purposes of the Act. Accordingly, the lodgment of the workplace agreement with the Workplace Authority had no legal consequence and was not in operation.
In determining that the council was not a trading corporation, the court held that it was:
‘inconceivable that the framers of the Constitution and the parliament which enacted it intended that the Commonwealth should have the powers [to regulate the activities, functions, relationships and the business of the council] which is a body politic of a state government, having legislative and executive functions’.
Justice Spender went further to say that:
‘if the Etheridge Shire Council was a trading corporation … Such powers [as the Commonwealth would have] would annihilate any concept in the Constitution of a federal balance, and in a very significant way, permit the Commonwealth to nullify the right of the state to govern in its local areas’.
Justice Spender did not go so far as to say that this means that a council can never be a trading corporation, which was the submission of the Australian Workers’ Union (Queensland). However, it is one interpretation open from the decision. This will be a matter requiring clarification should the matter be appealed.
Implications
While the decision does not completely close the door on the characterisation of councils as constitutional corporations, it does make it more difficult. It is likely that most of the activities which Justice Spender determined lacked the essential quality of trade would be those undertaken and used as examples by other councils to support arguments that they are a constitutional corporation. These are the same types of activities which have previously been considered to be trading activities in numerous decisions in inferior courts and State Commissions and Tribunals (for example, the decision of the Western Australian Industrial Relations Commission on 14 August 2008 in Bell v Dalwallinu WAIRC 01269).
Looking forward, the decision may now have little relevance for local governments in Queensland (other than Brisbane City Council) since the passing of the Local Government and Industrial Relations Act 2008 (QLD) in March this year, which facilitated the de-corporatisation of local governments in Queensland (with the exception of the Brisbane City Council). It remains to be seen whether the Queensland Parliament will now take action to repeal all or part of the legislation given the outcome of this decision.
However, the decision may have more serious consequences for councils who have in the past taken action on the assumption that the council was a constitutional corporation. For example, councils who had made federal workplace agreements. Those agreements may not have been valid agreements and, as a consequence, councils may have been acting in breach of relevant awards or industrial relations legislation.
The decision may also cast doubt on the validity of state certified agreements derived from federal workplace agreements under the Local Government and Industrial Relations Act 2008 (QLD). If the original agreement was invalid, it is doubtful that the subsequent legislation could make it valid.
Councils should consider what impact the outcome of this decision may have on their past actions and current agreements to determine whether those agreements were, or remain, valid, legal and binding.
More information
For information regarding possible implications for your business, contact a member of the Employee Relations team