Is your Council a constitutional corporation?

31 Jan 2019 9:00 AM | Anonymous member (Administrator)

A Victoria local government council has been found by the Commonwealth Fair Work Commission to be a ‘constitutional corporation’ for the purposes of the (Federal) Fair Work Act 2009 (Cth) (FW Act). That status exposed it to a federal bullying claim.

No South Australian Local Government Council is a ‘national system employer’ pursuant to the FW Act. That status insulates South Australian Councils in many helpful ways. For example, the federal unfair dismissal jurisdiction and the National Employment Standards do not apply.

However, whether South Australian Councils are ‘constitutional corporations’ for FW Act purposes, remains a critical legal issue, possibly exposing South Australian Councils to potential litigation and disputes under the FW Act.

There is no ‘one size fits all test’ to determine whether your council is a constitutional corporation, however, an analysis of the councils trading activities must be taken into account.

In the recent case of Matina Bastakos [2018] FWC 7650, the City of Port Phillip has been found by the Commonwealth Fair Work Commission (Commission) to be a ‘constitutional corporation’ for the purposes of the (Federal) Fair Work Act 2009 (Cth) (FW Act). That status exposed it to a federal bullying claim.

The FW Act exposes employers which are ‘constitutional corporations’ to further employment obligations and further risks of litigation.

No South Australian Local Government Council is a ‘national system employer’ per the FW Act. That status insulates South Australian Councils in many helpful ways. For example, the federal unfair dismissal jurisdiction and the National Employment Standards do not apply to South Australian Councils.

However, whether South Australian Councils are ‘constitutional corporations’ for FW Act purposes, remains a critical legal issue, possibly exposing South Australian Councils to potential litigation and disputes under the FW Act. For example, FW Act bullying claims and General Protections applications.

Notwithstanding that, a ‘constitutional corporation’ includes:

  1. an incorporated entity (which all SA Councils are); which also
  1. engages in ‘substantial’ (i.e.: non-peripheral) ‘trading activity’.

The general rule is that trading activities are akin to normal for-profit commercial activities. For example, trading activities could include: car parks, golf courses, swimming pools, cafes, leasing Council buildings, rental activities, use of parklands for commercial reward, childcare centres, aged care facilities and even festivals, just to name a few.

If such trading activities are ‘substantial’, a Council risks being deemed a constitutional corporation. If so, the above areas of the FW Act would apply to the Council. These risks are therefore significant regarding strategic planning for all Council stakeholders.

There is no single ‘one size fits all’ test of this constitutional corporation status. In the City of Port Philip case, 25% income derivation from trading activities was enough for the Commission to deem it a constitutional corporation, and thus prone to those liabilities and litigation.

However, in the matter of Mr Martin Cooper [2017] FWC 5974, which involved two applications for an order to stop bullying, the employer, the City of Burnside, was found not to be a constitutional corporation for the purposes of the FW Act. Although the City of Burnside no doubt engaged in trading activities, the Commission deemed them to be peripheral, rather than substantial or sufficiently significant.

Councils can consider their respective position with regards to their trading activities. We are able to assist you in considering your position and have a list of council activities that are considered trading activities for the purposes of the activities test, to assist you in this process.

Please contact Sathish Dasan on +61 8 8210 1253 or by email on sdasan@normans.com.au to discuss the matter

Mailing Address:  5 Hauteville Tce EASTWOOD   Phone: 8291-7990   Fax: 8451-1568   E-mail: admin@lgprofessionalssa.org.au

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