Constitutional corporations

The Fair Work Act 2009 defines constitutional corporations as 'a corporation to which paragraph 51(xx) of the Constitution applies.'[1]

The Australian Constitution defines constitutional corporations as 'Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth'.[2]

This definition has two limbs that are 'comprehensive alternatives'.[3] This means that constitutional corporations are either 'foreign corporations' or 'trading or financial corporations formed within the limits of the Commonwealth'. Therefore, a foreign corporation does not need to be formed within the limits of the Commonwealth or be a trading or financial corporation to be classified as a constitutional corporation.[4]

A foreign corporation is a corporation that has been formed outside of Australia.[7]

A corporation which is formed outside of Australia, which employs an employee to work in its business in Australia, is likely to be a national system employer and therefore fall within the jurisdiction of the Fair Work Commission.[8]

Geographical application of the Fair Work Act

Australia may include the Territory of Christmas Island and the Territory of the Cocos (Keeling) Island.[9]

There may be instances where people employed on ships or fixed platforms (both within and outside of the Exclusive Economic Zone and the Continental shelf) will be deemed to be performing work within Australia.[10]

Foreign corporation

Employer company was formed in New Zealand but employee performed work in Australia

Gardner v Milka-Ware International Ltd [2010] FWA 1589 (Gooley C, 25 February 2010).

The applicant alleged the termination of his employment was harsh, unjust or unreasonable. The respondent raised a jurisdictional objection as it was:

• a New Zealand registered, directed and owned company
• traded in New Zealand only
• employed the applicant in New Zealand, and
• paid the applicant in New Zealand dollars into a New Zealand bank account.

The applicant however worked in both New Zealand and Australia.

The Commission determined that the respondent was incorporated in New Zealand meaning that it was a foreign corporation within the meaning of s.51(xx) of the Australian Constitution and therefore, to the extent that it employed employees to perform work in Australia, it was a national system employer. The Commission had jurisdiction to deal with the application.

Throughout his employment with the respondent, the applicant performed work in Australia at the respondent’s direction, and at the date of his termination, all of his work was performed in Australia.

Trading denotes the activity of, providing for reward, goods or services.[11]

The Commission will consider the nature of a corporation with reference to its activities, rather than the purpose for which it was formed.[12]

It does not matter if trading activities are a corporation's 'dominant' activity or whether they are merely an 'incidental' activity, or entered into in the course of pursuing other activities.[13]

A corporation will be a trading corporation if the trading engaged in is 'a sufficiently significant proportion of its overall activities'.[14]

A corporation can be a trading corporation even if it was not originally formed to trade.[15]

One factor that may be considered is the commercial nature of the activity.[16] When considering the commercial nature of a corporation's activity, the Commission will look at a number of factors, including:

• whether it is involved in a commercial enterprise; that is, business activities carried on with a view to earning revenue
• what proportion of its income the corporation earns from its commercial enterprises
• whether the commercial enterprises are substantial or peripheral,
• whether the activities of the corporation advance the trading interests of its members.[17]

A financial corporation is one 'which borrows and lends or otherwise deals in finance as its principal or characteristic activity...'[18]

The approach taken in deciding whether the activities of a corporation are such that the corporation should be considered to be a financial corporation is the same as the approach taken in deciding whether a corporation is a trading corporation.[19]

Trading corporation

Professional sporting organisation and club

R v Federal Court of Australia; Ex parte WA National Football League [1979] HCA 6 (27 February 1979), [(1979) 143 CLR 190].

The High Court, by majority, held that a football club and the league to which it belonged in Western Australia were trading corporations. Their central activity was the organisation and presentation of football matches in which players were paid to play and spectators charged for admission, and television, advertising and other rights were sold in connection with such matches. This constituted trading activity.

Charitable organisation

Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) [2002] FCA 860 (5 July 2002), [(2002) 120 FCR 191]).

The RSPCA, a charitable organisation, was found to be a trading corporation on the basis that it earned substantial income from trading activities. It did not matter that this income was used for charitable purposes rather to create a profit.

Not-for-profit organisation and hospital

Re E v Australian Red Cross Society; Australian Red Cross Society New South Wales Division and Central Sydney Area Health Service [1991] FCA 20 (8 February 1991), [(1991) 27 FCR 310].

The Australian Red Cross Society and the Royal Prince Alfred Hospital were held to be trading corporations, on the basis that they both generated substantial income from trading activities, even though that income was only a minority proportion of total income. The motive for which that trading income was earned was not relevant.

Metropolitan Fire and Emergency Services Board

United Firefighters' Union of Australia & Ors v Metropolitan Fire and Emergency Services Board [1998] FCA 551 (20 May 1998), [(1998) 83 FCR 346].

The Court found that the trading activities of the Metropolitan Fire and Emergency Services Board (the Board) generate substantial income and are sufficient to constitute the Board as a trading corporation. The principal activity of the Board, established as a statutory corporation, was to respond to fire and other emergencies, an activity which it undertook without charge to the public. The Board's Fire Equipment Services activities, which involved the commercial servicing of fire equipment for commerce, industry and the domestic market generated 5.11% of the Board's revenue.

Not for profit organisation

Ms Pasalskyj [2015] FWC 7309 (Hampton C, 13 November 2015).

A provider of rehabilitation services to offenders and former prisoners was held to be a trading corporation.

The Commission found that the provider’s funding contracts, individual contracts for some activities and its youth housing renovation program, should be treated as trading activities because they generated about $1.2 million a year for the organisation, 11% of its annual activities.

It was also held that activities associated with the direct provision of accommodation services were trading activities. The combined level of trading activities (in excess of 15% of income) was held to be not insubstantial.

Financial corporation

Building Society

Re Ku-Ring-Gai Co-operative Building Society (No 12) Ltd [1978] FCA 50 (18 December 1978), [(1978) 36 FLR 134].

Two co-operative incorporated building societies, were to be financial corporations, on the basis that they lent money at interest and were therefore engaged in commercial dealing in finance. The fact that his activity was not for profit and involved the performance of an important social function was not determinative..

Trustee of Superannuation fund

State Superannuation Board v Trade Practices Commission (1982) HCA 72 (14 December 1982), [(1982) 150 CLR 282].

A statutory corporation formed to provide superannuation benefits for state public servants was determined to be a financial corporation, on the basis that it engaged in financial activities on a very substantial scale. The fact that this activity was engaged in for the purpose of providing superannuation benefits to contributors was no obstacle to the conclusion that it was a financial corporation.

NOT a trading or financial corporation

District or amateur sporting organisation

Re Kimberley John Hughes v Western Australian Cricket Association (Inc) and Ors [1986] FCA 357 (27 October 1986), [(1986) 19 FCR 10].

Incorporated cricket clubs were found not to be trading corporations (although the Western Australian Cricket Association with which they were associated was found to be a trading corporation). The clubs were basically amateur bodies which did not charge for admission to matches and generally did not pay players. Although they engaged in some trading activities, this was not of sufficient significance to allow them to be characterised as trading corporations.

Charitable organisation

Hardeman v Children’s Medical Research Institute [2007] NSWIRComm 189 (24 September 2007), [(2007) 166 IR 196].

The respondent was found not to be a trading corporation. The trading activities it did engage in were insubstantial and peripheral to the central activity of medical research.

State Government

Re A.B. [2014] FWC 6723 (Hampton C, 30 September 2014).

The Department of Education in New South Wales and/or State of New South Wales were found not to be corporations within the meaning of the Constitution.

Note: The above case was an application under the anti-bullying provisions of the Fair Work Act

In Western Australia, a company which is not a constitutional corporation is generally not a national system employer and therefore not covered by the national unfair dismissal laws.

However, if one of the partners of a partnership is a trading corporation (such as a Pty Ltd company), the partnership can be a national system employer.[20]

What is a partnership?

A partnership is the relationship that exists between persons carrying on a business in common with a view to profit.[21]

A partnership is not a separate entity from its constituent parts. Each partner is jointly and severally liable for the partnership's obligations.[22]

Meaning of person

A person can be defined as a separate legal entity, recognised by the law as having rights and obligations.

There are two categories of person:

• a natural person (a human being), and
• an artificial person (an entity to which the law attributes personality – such as a body corporate).[23]

Partnership a trading or financial corporation

Partnership including Pty Ltd company

McInnes v North Perth Vet Centre [2015] FWC 2720 (Gooley DP, 21 April 2015).

The respondent, P.B. Hodgen, Medivet Trust and the Murray Family Trust were a partnership which carried on a business. Medivet (WA) Pty Ltd as trustee of the Medivet Trust, was also a partner in the partnership. As one of the partners was a trading corporation, the Commission found that the employer was a national system employer.

Partnership NOT a trading or financial corporation

Partnership including Pty Ltd company

Williams v Goldendays Pty Ltd & D Kolichev & L Kolichev T/A Stirling Aluminium and Glass [2015] FWC 4200 (Bissett C, 24 June 2015).

The respondent was a partnership made up of two individuals and a Pty Ltd company. If the Pty Ltd company was a trading corporation then the partnership would take on the characteristic of a trading corporation and therefore be a national system employer.

The respondent submitted that the Pty Ltd company:

• did not have an ABN
• was not registered for GST
• did not have a bank account
• had not been involved in any form of trade, and
• had no income except that received as a partner pursuant to the partnership distribution arrangement.

The Commission found there was nothing in the tax returns to indicate that the Pty Ltd company was engaged in any buying or selling of goods or services or that it generated any revenue. The Commission was satisfied that the Pty Ltd company was not a trading corporation.