Harmer v. Shoalhaven Community Housing Scheme Limited [2006] NSWIRComm 1165

Actors and Announcers Equity Association v. Fontana Films Pty Limited (1982) 150 CLR 169 Australian Red Cross Society Case (1991) 27 FCR 310 Burrows v. Shire of Esperance - unreported Commissioner of Main Roads Case (1976) AR 370 District Council of Karoonda East Murray Enterprise Agreement (No.6) Case - unreported Educang Case - unreported Mid Density Development Pty Limited v. Rockdale Municipal Council (1992) 39 FCR 579 CASES CITED: Pellow v. Umoona Community Council - unreported Quickenden v. O'Connor (2001) 109 FCR 243 R v. Judges of the Federal Court of Australia; ex parte Western Australian National Football League (1979 - 1980) 143 CLR 190 R v. Trade Practices Tribunal; ex parte St George County Council (1973 - 1974) 130 CLR 533 Sheehan v. Manly Warringah Pittwater Community Aid Service [2006] NSWIRComm 1154 State Superannuation Board v. Trade Practices Commission (1982) 150 CLR 282 Sugar Manufacturers Case (1926) AR 113 Tasmanian Dams Case (1983) 150 CLR 282

APPLICANT Walter Styke

LEGAL REPRESENTATIVES: RESPONDENT Peter Holmes Access Business Lawyers

DECISION: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

Leanne Marie Harmer and Shoalhaven Community Housing Scheme Limited

Application under S.84 of the Industrial Relations Act, 1996

1 Ms L M Harmer was employed as a part time financial officer with the Shoalhaven Community Housing Scheme Limited under the terms of the Social and Community Services Employees (State) Award. She commenced employment on 29 March, 2003 and her services were terminated on Tuesday, 10 October, 2006. Ms Harmer subsequently lodged an application under Part 6, Unfair Dismissals, of Chapter 2, Employment [Ss.83 to 90] of the 1996 Industrial Relations Act claiming that the termination of her services was unfair and seeking monetary compensation over it. The matter was allocated to me and I set it down for a preliminary hearing on Tuesday, 14 November, 2006. In the proceedings Mr Styke represented Ms Harmer and Mr Holmes represented the SCHS.

2 The SCHS is a non-profit organisation, providing housing to low income families. But it is also a public company and the question remains whether it is a trading or financial corporation within the meaning of S.51(xx) of the Commonwealth Constitution. That is now an important issue. The 2005 Federal Workplace Relations Amendment (Work Choices) Act came into effect on and from Monday, 27 March, 2006 and there are therefore certain limitations which now flow from that legislation for employees dismissed from employment with S.51(xx) corporations.

3 In particular, Work Choices has acted to exclude from the Federal unfair dismissal regime employees of trading and financial corporations with less than 100 employees. The SCHS engages fewer than 100 employees - only 7 employees, in fact - and, consequently, Ms Harmer is precluded from proceedings in the Federal unfair dismissal jurisdiction. Work Choices has also excluded entirely from State jurisdiction employees of all S.51(xx) trading and financial corporations. The question remains whether the SCHS is a trading or financial corporation because, if that were the position, access to Part 6 proceedings in the State Commission would be denied to her as well. That remedy is proscribed by Work Choices for employees of S.51(xx) corporations.

4 As these preliminary proceedings on Tuesday, 14 November, 2006 were taking place, the High Court decision on a challenge to Work Choices mounted by the State Governments of New South Wales, Victoria, Queensland, South Australia and Western Australia and two trade unions was being handed down. Essentially, that challenge attempted to preserve the State industrial jurisdiction in its entirety against Work Choices. The High Court has confirmed the validity of Work Choices, although there had been no chance for the parties (or me) to read that decision, which I understood to be lengthy, during the proceedings.

5 Bearing in mind that Ms Harmer's position with the SCHS was covered by the terms of a State award, it would ordinarily have followed that prima facie she would be entitled to pursue her claim of unfair dismissal before the State Commission. But, as I indicated earlier in this decision, that jurisdiction now ultimately depends on whether or not the SCHS is a S.51(xx) corporation.

6 Whether an incorporated non-profit organisation, such as the SCHS, may also be a trading or financial corporation for the purposes S.51(xx) remains an issue of some jurisdictional uncertainty at the present time. (As I understand the position, the question of whether or not a non-profit organisation registered as a public company may be a constitutional corporation for the purposes of Work Choices was not directly before the High Court.) The SCHS has nevertheless asserted that it is, in fact, a trading of financial corporation within the meaning of S.51(xx). On Friday, 10 November, 2006 it lodged a notice of motion that I should dismiss Ms Harmer's Part 6 application for want of prosecution as a consequence of Work Choices.

7 The notice of motion also seeks that Ms Harmer's Part 6 application be dealt with in the absence of the public and on the documents and it includes a claim for costs. It is not customary for proceedings before a member of the Commission to be conducted in private (although S.162(2)(b) authorises me to do so). Nevertheless, I see no reason why the question of jurisdiction may not be resolved on the basis of documents provided to me.

8 That takes me to complex jurisdictional issues at the heart of Ms Harmer's Part 6 application. As a starting point, Gibbs CJ of the High Court in Actors and Announcers Equity Association v. Fontana Films Pty Limited (1982) 150 CLR 169 at p.182 explained the position in the following manner:

"The words of para (xx) suggest that the nature of the corporation to which the laws relate must be significant as an element in the nature or character of the laws, if they are to be valid... In other words, in the case of a trading and financial corporation, laws which relate to their trading and financial activities will be within power..." I note that Ms Harmer described herself in her Part 6 application as a "financial officer". Because her activities for SCHS were described as financial that may be sufficient on its own to take her Part 6 application outside jurisdiction. As I understand the position, the activities actually performed in a particular position in a corporation may themselves determine the issue for that particular position at least.

9 The jurisdiction becomes even more confusing for organisations who are primarily not involved in profit-making but whose operations are directed towards community service. It now appears that S.51(xx) will be considered very broadly. For instance, in Quickenden v. O'Connor (2001) 109 FCR 243 the Federal Court held, that universities incorporated under State legislation were covered under S.51(xx). In R v. Judges of the Federal Court of Australia; ex parte Western Australian National Football League (Adamson's Case) (1979 - 1980) 143 CLR 190 the majority of the High Court (Barwick CJ, Mason, Jacobs and Murphy JJ with Gibbs, Stephen and Aickin JJ dissenting) expressed the view that a sporting club may nevertheless still also be a trading corporation for the purposes of S.51(xx). As also could an organisation providing a blood transfusion service to the community and a public hospital [the Australian Red Cross Society Case (1991) 27 FCR 310] or an authority of the State, ie the Tasmanian Hydro-Electric Commission [the Tasmanian Dams Case (1983) 150 CLR 282] . Therefore, whilst the SCHS is primarily a community based organisation, as I see the situation, that does not automatically take it outside S.51(xx).

10 What activities may genuinely be regarded as trading activities? In R v. Trade Practices Tribunal; ex parte St George County Council (1973 - 1974) 130 CLR 533 the majority of the High Court (McTiernan, Menzies and Gibbs CJ, with Barwick CJ and Stephen dissenting), concluded that a county council was not a S.51(xx) trading corporation. Its trading undertakings, ie the purchase of electricity and electrical fittings and appliances for the purpose of sale or hire, were conducted under the terms of the 1919 Local Government Act and were not undertaken for profit but for the benefit of constituents. In Mid Density Development Pty Limited v. Rockdale Municipal Council (1992) 39 FCR 579 Davies J of the Federal Court held that revenue generated from the performance of statutory duties could not be described as trading activities. But, as I see the position, those principles no longer apply.

11 The test to now apply appears to be based on the scale of the organisation's trading activities. Mason, Murphy and Deane JJ for the majority (Gibbs CJ and Wilson J dissenting) in State Superannuation Board v. Trade Practices Commission (1982) 150 CLR 282 summarised the position (at pp.303 and 304), viz:

"...The decision in Adamson is of importance for two reasons. First, the majority of the Court (Barwick CJ, Mason, Jacobs and Murphy JJ), rejecting the argument that the purpose for which a corporation is formed is the sole or principal criterion of its character as a trading corporation, concluded that the relevant character of the football leagues and the football club was to be ascertained by reference to their established activities. In adopting this view, their Honours disapproved the approach taken by the majority in St George which placed emphasis on the purpose for which the county council was formed...

Secondly, the judgments of the majority in Adamson make it clear that, having regard to the activities of a corporation for the purpose of ascertaining its trading character, the Court looks beyond its '...predominant and characteristic activity...'. Barwick CJ spoke of making a judgment '...after an overview...' of all the corporation's current activities, the conclusion being open that it is a trading corporation once it is found that '...trading is a substantial and not merely peripheral activity...'. Mason J said that it '...is very much a question of fact and degree...' having earlier stated that the expression is essentially a description or label given to a corporation when its trading activities form a sufficiently significant proportion of its overall activities as to merit its description as a trading corporation...'

Murphy J said '...as long as the trading is not insubstantial, the fact that trading is incidental to other activities does not prevent it being a trading corporation...'. Indeed, it was essential to the majority's approach and its rejection of St George that a corporation whose trading activities take place so that it may carry on its primary or dominant undertaking, eg as a sporting club, may nevertheless be a trading corporation. The point is that the corporation engages in trading activities and these activities do not cease to be trading activities because they are entered into in the course of, or for the purpose of, carrying on a primary or dominant undertaking not described by reference to trade. As the carrying on of that undertaking requires or involves engagement in trading activities, there is no difficulty in categorizing the corporation as a trading corporation when it engages in the activities.

Indeed, we would go on to say that there is nothing in Adamson which lends support for the view that the fact that a corporation carries on independent trading activities on a significant scale will not result in its being properly categorized as a trading corporation if other more extensive non-trading activities properly warrant its being also so categorized as a corporation of some other type..."

Therefore, the question to determine is whether the trading activities and/or financial activities of a particular corporation are a "...substantial and not a merely peripheral activity...", form a "...significant part of its overall activities..." or are "...not insubstantial...". If so, then the corporation will be a trading or financial corporation for the purposes of Work Choices.

12 As I indicated in my unreported decision of Thursday, 12 October, 2006 in Sheehan v. Manly Warringah Pittwater Community Aid Service [Matter No.IRC 2945 of 2006 at p.5], words like "significant", "insubstantial" or "peripheral" are not particularly precise and leave much room for argument which, until the High Court resolves the question before it, will remain unanswered. How long is a piece of string! As Bartel DP of the South Australian Industrial Relations Commission indicated in his unreported decision of Friday, 21 July, 2006 in District Council of Karoonda East Murray Enterprise Agreement (No.6) Case [Matter No.3406 of 2006 at p.3]:

"...The approach...poses many questions, not the least of which is how the 'cut off point' between substantial and insubstantial is identified and whether it is the percentage of the revenue sourced from trading activities or the dollar value of same that is to be measured. The...approach may also result in corporations changing character, and potentially moving between industrial jurisdictions, as the level of trading activities undertaken and/or the revenue gained from such activities fluctuates over time.

The 'activities' approach reflected in the High Court decisions...in contrast to the 'objects' approach where the nature and purpose of the organisation is the determining factor in assessing whether a corporation is a trading corporation [see, for example, the majority decision in R . v. Trade Practices Tribunal; ex parte St George County Council ] may well result in organisations subject to the same statutory regulation being categorised differently. The area of local government is a good example of this..."

I agree. Moreover, as community based organisations temporarily acquire or lose trading or financial activities from time to time, they may move in and out of Work Choices: not a particularly manageable situation I would think.

13 On that basis Bartel DP was prepared to approve a State enterprise agreement covering employees of a local government authority because of what he regarded as the insignificance of the trading activities performed by it. Bartel DP commented at (p.2) that:

"...The Commission was provided with a document...outlining the financial value of the various trading activities undertaken by the council and the total value of such activities as a proportion of its estimated revenue for the financial year ending June, 2006. This proportion was 2.68% ($74,522.00) or 1.35% if housing rental and maintenance activities are disregarded as trading activities..."

But Hall P of the Queensland Industrial Court in his so far unreported decision of Monday, 10 July, 2006 in the Educang Case [C/2006/35] concluded that trading activities amounting to 16% to 17% of operating revenue for an educational body would bring that body under S.51(xx) as a trading corporation. In its unreported 1998 decision in Burrows v. Shire of Esperance [1373/98 M Print Q8680] Polities SDP of the Australian Industrial Relations Commission regarded trading activities for an organisation to the value of 14.93% of revenue as constituting substantial trading activities, and thereby making the organisation in question a trading corporation.

14 Also in a decision of Wednesday, 19 July, 2006 in Pellow v. Umoona Community Council [Matter No.U2006/2091] O'Callaghan SDEP of the Australian Commission concluded that a purely community based organisation may still be a trading corporation, bearing in mind the nature and the extent of its activities. That took the matter beyond jurisdiction for an unfair dismissal claim by virtue of the operation of Work Choices. In the decision is the following comments (at p.7 and 8):

"...Trading involves buying and selling, or exchanging, of commodities, either by wholesale or by retail. The making of a profit whereby the return on the invested cost is exceeded is not an essential prerequisite, although for most organisations, continued failures to achieve at least a break even position limit the capacity of the organisation to continue to operate. On this basis, I have excluded Federal and State sourced grant funding where this is directed toward social or civic services which do not involve a charge to the recipients for the provision of service. It appears to me that such activities are not able to be regarded as trading for these purposes. There is no capacity through the operation of those activities for the council to generate any form of income and its functions simply involve the delivery of community services in accordance with a grant of money for a particular purpose..."

The fact that the council is incorporated in accordance with its constitution to undertake activities directed at the public good does not automatically take it outside the scope of being a trading corporation. Rather, consistent with the authorities, it is the activities in which it is involved which will determine whether it is, or is not, a trading corporation...

The evidence before me supports the position that the housing services provided by the council represent a trading activity. Rent is charged irrespective of whether the house is owned by the council or whether it is made available for rental arrangements managed by the council. These rental charges recognise the costs of repairs and maintenance. The extent to which these rental charges assist in funding other civic services is unclear, such that on the basis of the evidence put to me by the council, all housing rental income must be regarded as income from trading activities. The charges made by the council for the provision of a water service which reflect the buying and selling of water must also be described as trading services in that water as a commodity is being traded, albeit in a fashion that may well assist...residents..."

15 That having been said, some - possibly many - community based organisations with mixed activities may still escape Work Choices notwithstanding the fact that they have some trading and/or financial activities. I have in mind particularly local government authorities, many church run educational bodies, welfare organisations or small recreational clubs whose activities will always be predominantly directed towards providing a service to the community they serve and only incidentally and peripherally involved in activities of a trading and/or financial character. It would be most unfortunate if the valuable community service those organisations provide is reduced to being categorised simply as no more than trading and financial concerns. It should be more than that. Also, I do not believe that simply calculating the activities of any corporation in percentage terms of its revenue earnings necessarily provides an accurate picture of its true character and what may ultimately make it either a trading and/or financial corporation or some other type of corporation.

16 But I do not believe that is the case with the SCHS. Following the reasoning of O'Callaghan SDEP in Pellow v. Umoona Community Council, which seems to me to be particularly relevant for the purposes of the current proceedings before me, I conclude that the activities of the SCHS would be regarded as trading activities and those activities represent not only a significant part of its operations but, in fact, all of them. That would seemingly take Ms Harmer's claim outside jurisdiction under Part 6.

17 Initially, the parties remained deadlocked in their positions. But in the light of the substantial jurisdictional restrictions on Ms Harmer's Part 6 application, I believed that it was appropriate to attempt further conciliation and I did so. There is nothing in Work Choices which acts to prevent me from conciliation and, if necessary, making appropriate recommendations [the Sugar Manufactures Case (1926) AR 113 at p.115 and the Commissioner for Main Roads Case (1976) AR 370]. Indeed, I have a duty to do so by virtue of S.86, viz:

"The Commission must endeavour, by all means it considers proper and necessary, to settle the applicant's claim by conciliation."

Work Choices has no effect on that role at least provided that, once a question of jurisdiction is raised, as it has been in this case by Mr Holmes , I may not proceed to arbitration until that matter is clarified.

18 The matter was, in fact, ultimately settled by conciliation before me. The terms of settlement should remain confidential to the parties but those terms were committed to writing and provided to me in evidence. On that basis I grant leave for the discontinuance of the matter in accordance with Rule 138. I commend the parties for the constructive manner that they have addressed Ms Harmer's claim. But I observe that it is unfortunate that the successful resolution of matters of this nature now depends so much upon the willingness of an employer to adopt the constructive role in conciliation that the SCHS has done on this occasion. The resolution of this type of matter is now very much dependent not upon the actual merits of any particular claim but rather whether or not an employer choses to press a jurisdictional argument - overall not a particularly healthy or fair position, I would think.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.