Are Councils Covered by the Work Choices Legislation?
Are local councils constitutional (trading) corporations?
Under s.220 of the Local Government Act 1993 (NSW) (the Act) a council is a ‘body corporate”. That is, by virtue of the Act, councils are corporations.
A constitutional corporation is a corporation to which paragraph 51(xx) of the Constitution applies and includes foreign corporations, financial corporations and trading corporations. The Associations’ legal advice indicates that councils are most likely to be trading corporations, as courts have used broad criteria to characterise trading corporations.
A corporation has been determined to be a trading corporation:
• even though it has as its primary or dominant activity a non-trading activity;
• where the corporation does not trade for profit;
• where the trading activities are not motivated by private gain but purely to earn revenue; and
• where the corporation is a sporting, religious or governmental body, as long as the trading is not insubstantial, the fact that trading is incidental to other activities does not prevent is being a trading corporation.
Most recent case law supports the view that councils would, in most circumstances, be trading corporations.
For example, in Burrows v Shire of Esperance, the Australian Industrial Relations Commission (AIRC) held that the Shire of Esperance was a constitutional corporation because a significant proportion of its revenue was derived from trading activities. In coming to this conclusion, the AIRC found that:
• trading was the simple activity of providing for reward goods or services;
• a corporation is a trading corporation if a substantial proportion of its current activities are trading activities notwithstanding that there may be other non-trading activities; and
• just because goods or services were provided by a local government authority did not alter the character of the activities as involving trading
What constitutes significant or substantial trading activity of a council?
To date, case law has not established a definite measure of what is “significant” or “substantial” trading activity.
An assessment must be undertaken of all of a council’s current activities to identify that trading is a substantial and not merely peripheral, activity.
Under case law, there are two approaches as to how “significant” or “substantial” trading activities are assessed.
The scale of trading activities approach
One approach is to consider whether the actual scale of trading activities, as an amount of revenue, is significant in its own right (the scale of trading activities approach). For example, a very large corporation may engage in trading which though incidental to its non-trading activities, and small in relation to those, is nevertheless substantial. It may exceed by some great degree or be of the same order as a corporation that is clearly a trading corporation.
In E v Australian Red Cross Society & Others (Red Cross Case) the Federal Court did not consider that the Society “traded” in blood, however it did receive considerable sums for the sale of goods and other services sufficient for it to be a trading corporation. In Adamson’s case, the WA and SA Leagues received financial revenue “so great and the commercial means by which it was achieved so varied” that Mason J had “no hesitation in concluding that trading constituted their principal activities.”
The percentage of trading approach
The other approach has been to compare, as a percentage, the proportion of non-trading activities with the proportion of trading activities of a particular corporation (the percentage of trading approach).
In Burrows v Shire of Esperance, in deciding that the trading activities were substantial, the AIRC considered evidence of operating income derived from the sale of goods or services. The councils' trading activities amounted to 8.89% of total revenue, which of itself was found to be sufficiently significant. In that matter the AIRC also took into account health and meat inspection fees, and rubbish removal fees, which despite argument to the contrary, were found to be trading activities bringing to total percentage of trading revenue to 14.93% of total revenue.
Conclusion
The Associations’ legal advice indicates that a council is a trading corporation if a substantial proportion of its current activities are trading activities, notwithstanding that there may be other non-trading activities (such as activities related to the provision of community services and the function of local government):
“…..There is no settled method of assessing whether trading activities of council are significant or substantial.
Reliance on one method alone may not accurately gauge whether a council has significant or substantial trading activities.
• For instance, reliance on the percentage approach, where a small trading activity percentage results, but where revenue amounts are large, may mean that the council is still a trading corporation. In any event, a small trading activity percentage of 8.89% has been previously held to be sufficiently significant.
• It is also necessary to also determine whether the actual trading activities are substantial in their own right……
Of course the problem applying either approach is correctly identifying what is a trading activity of council. Again, there is no definite formula, but where there is a payment by or to council in exchange for the provision of goods and services (that is the simple act of buying and selling) this is a trading activity. …..”
As the Associations’ legal advice indicates that the matter of whether a council is trading corporation is a question of fact and degree, for this reason council may wish to seek advice that considers its specific circumstances in this regard.
Council s should not hesitate to contact the Associations’ industrial officers on (02) 9242 4142 for further advice with respect to the application of Work Choices.