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Work Choices in NSW, QLD, SA, WA and TAS
Except for the possible application of the transitional provisions to your NFP, there are two questions that must be answered to determine whether your NFP is covered by the Workplace Relations Act:
1. Is your NFP a corporation?
2. If so, is your NFP a constitutional corporation?
To be covered by Work Choices, each of these questions must be answered 'Yes'.
For the purposes of this Guide, it is assumed that your NFP is not covered by the transitional provisions of Work Choices. On that assumption, the initial relevant question as to coverage by Work Choices is whether your NFP is a 'corporation' which is also a 'constitutional corporation'.
The following information is a guide to determining how these questions should be answered.
1. Is your NFP a 'corporation'?
The legal definition of a corporation includes a proprietary company incorporated under the Corporations Act.
In addition, for the purposes of NFPs in relation to coverage by the Workplace Relations Act, a corporation includes:
1. an incorporated body or association created under State or Territory associations legislation;
2. a cooperative;
3. a body corporate created by or under royal charter;
4. a body corporate created by or under letters patent;
5. an incorporated body; and
6. a non-profit corporation created by statute.
Unincorporated NFPs include some charitable trusts and unincorporated associations.
Individual persons, sole traders and partnerships are not corporations.
2. Is your NFP a 'constitutional corporation'?
Work Choices does not apply to every NFP that is a corporation, but specifically to any NFP that is a constitutional corporation. A constitutional corporation is defined as a foreign corporation, or a trading or financial corporation formed within Australia.
An NFP will only be characterised as a 'financial corporation' in exceptional circumstances. However, many NFPs may be a 'trading corporation'.
What is a trading corporation?
Under the current approach, an NFP will be a trading corporation where:
1. it engages in trading activities; and
2. those trading activities form a substantial or significant part of its overall activities.
What are 'trading activities'?
In determining whether an incorporated NFP engages in trading activities, Courts will look beyond the primary function of the NFP. The Courts will look at the full scope of the activities that the NFP relies on to produce revenue.
It is not necessary for the trading activities of an NFP to be profitable, or even that those activities are intended to be profitable.
Examples of 'trading activities'
Although this is not an exhaustive list, Courts have found that the following activities of NFPs are trading activities:
§ charging admission fees to patrons to view a sporting event;
§ selling advertising rights and sponsorship;
§ selling merchandise;
§ fundraising;
§ hiring out equipment or venues for a fee;
§ door-knock and telemarketing appeals;
§ earning interest on investments; and
§ providing goods or services as part of a public service, where clients are charged for the service (this is so even where a substantial proportion of the cost of the goods or services are covered by the NFP via government or private funding).
Examples of activities which are not 'trading activities'
However, Courts have determined that the following activities of NFPs are not trading activities:
§ provision of goods and services free of charge;
§ funding from a government or private source for the purpose of providing a public service; and
§ educational course fees obtained to provide tuition.
When will trading activities be 'substantial' or 'significant'?
Whether the trading activities of an NFP form a substantial or significant part of its overall activities is a question of fact and degree.
To date, Courts have taken two different approaches to assessing 'substantiality', being to:
§ identify the scale of an NFP's trading activities, in dollar terms, and assessing whether the amount of money is significant in its own right; and
§ compare the income an NFP earns from trading activities as a percentage of the total income generated by the NFP in a certain period.
As there has not been a determination on the preferred approach, it is prudent for NFPs to analyse the substantiality of their trading activities according to both approaches.
Given these various approaches, it is recommended that NFPs seek legal advice specific to their individual circumstances.
Newly-Formed NFPs
Of course, these two approaches cannot be used to determine whether an NFP is a trading corporation, where the NFP has just been established.
In these situations, Courts rely on the contents of an NFP's articles of association or constitution to identify its primary function, and assess whether the NFP is capable of engaging in substantial trading activities.
Case Examples
Courts and tribunals have found various NFPs to be constitutional corporations in a number of cases. Some examples follow:
1. Australian Red Cross Society (Charitable Organisation)
The Federal Court decided that the Australian Red Cross Society and its New South Wales Division were trading corporations because they engaged in trading activities from which they derived substantial income. These activities included the sale of goods and income derived from investments.
The Federal Court observed that the primary function performed by the bodies, being the provision of blood and blood by-products to members of the public free of charge was not a trading activity.
However, because the ancillary trading activities provided the organisations with substantial income in dollar-terms, they were trading corporations.
2. Royal Prince Alfred Hospital (Public Hospital)
The Federal Court found that the Royal Prince Alfred Hospital was a trading corporation because it charged fees to patients for the provision of medical services and also earned revenue from other commercial activities. These activities included the sale of goods and merchandise and fundraising events.
The Court decided that the Hospital was a trading corporation, despite the fact that it was established by legislation, and received a high proportion of its income from government grants.
3. WA and SA National Football Leagues and West Perth Football Club (Incorporated Sporting Organisations and a Sporting Club)
The High Court found that the Western Australian and South Australian Football Leagues and the West Perth Football Club were trading corporations because they engaged in varied and significant trading activities. These activities included charging for admission and programs, selling advertising rights to sponsors and receiving profit from catering businesses that operated during football matches.
The Court stated that these sporting bodies did not have to intend for their trading activities to be profitable to be trading corporations.
4. RSPCA (Charitable Institution for Animals)
The Federal Court found that the RSPCA was a trading corporation because it engaged in a variety of revenue-raising activities. These activities included fundraising events, subscription fees for an RSPCA club, interest on dividends, investments and fixed assets and profit from an Op Shop.
The Federal Court determined that the primary source of revenue of RSPCA, interest from legacy bequeathed to the organisation, was not a trading activity but that its other activities were trading activities from which it derived a substantial amount of revenue.
5. Educang Pty Ltd (Organisation Overseeing Several Christian Schools)
In this case, the Queensland Industrial Court found that Educang Pty Ltd was a trading corporation, because it engaged in trading activities from which it supplemented income from government funding. These trading activities included extra-curricular programs for which students were charged fees and a before and after school care program.
6. Kirinari Residential Services (Non-Profit Residential Services Organisation)
The Australian Industrial Relations Commission (AIRC) found that Kirinari Residential Services (Kirinari), which provided subsidised accommodation services to disabled persons, was a trading corporation. This was because services were not gratuitous but heavily subsidised, and Kirinari charged client a fee for services being a proportion of their disability support pensions. The AIRC determined that the proportion of income from fees to clients was significant, and on this basis Kirinari was a trading corporation.
7. University of Western Australia (Public University)
The Federal Court found that the University of Western Australia was a trading or financial corporation (or both), because it engaged in a number of incidental commercial ventures that were trading or financial activities from which it derived substantial income. These activities included fees charged to overseas students, profit from a property ventures, sale of publications and fees charged for car parking.
The Federal Court observed that the primary purpose of the University was to provide tuition to students for a fee subsidised by government grants, and this was not a trading activity. However, this did not prevent the Court from finding that the other activities of the University enabled it to characterise it as a trading or financial corporation.
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In the following case, the Industrial Court of New South Wales found that a New South Wales-based NFP was not a constitutional corporation.
8. Children's Medical Research Institute (Genetic Research institute)
The Industrial Court of New South Wales found that the Children's Medical Research Institute, which conducts research to understand genetics and the underlying causes of disease, was neither a trading corporation nor a financial corporation. Therefore, the Institute was not a 'constitutional corporation'.
The Court found that the Institute was not a 'trading corporation', given that its activities which were arguably trading activities, including the sale of merchandise and antibodies, were insubstantial. These activities generated no more than 2.5% of the Institute's total revenue and were found to be peripheral to the Institute's research role.
The Court also found that the Institute's financial activities were not a significantly significant proportion of its overall activities to characterise the Institute as a 'financial corporation'. Although the Institute had investments which provided revenue through dividends and interest bearing savings accounts, much of the capital was derived from public appeals, government funding and charitable donations. The Court found that this kind of financial activity was not of a commercial nature, particularly as the Institute utilised a financial advisor and relied extensively on external advice and expertise.
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