This is an industrial relations case heard in the Federal Court of Australia. I would not normally write about industrial cases as I try to limit my blog to operational issues and there are so many industrial cases involving the various emergency services that I do not have the time, or the expertise, to comment on them all. However this one was brought to my attention by a follower of this blog (thank you Tony) and as the judge said (at [6], and note that references in square brackets are references to paragraph numbers in the judgment) ‘what began as a dispute regarding performance of the Agreement under the FW [Fair Work] Act has become a dispute about the breadth of power of Federal and state legislatures under the Australian Constitution’. It is those constitutional issues that I will comment on.
The case arose because the UFU and the CFA had negotiated an enterprise agreement to govern working conditions in the CFA. Central to the agreement was a commitment by the CFA ‘to employ 342 career firefighters over a six year period and to conduct a minimum of three recruitment courses in each year training at least 30 recruits each’ ([2]). The CFA did not comply with that obligation so the Union raised the matter as an industrial dispute, and there was further agreement about staff recruitment which again, the CFA failed to honour ([3]).
The CFA did not offer the Court any cogent explanation for its failure to conduct the recruitment courses as it had agreed, or for its failure to train the number of recruit firefighters as it had agreed. ([6]).
The UFU commenced proceedings to force the CFA to comply with the enterprise agreement. Notwithstanding this was a negotiated agreement, the CFA had an ‘apparent about face’ ([6]) and argued that it was not bound by the agreement or the obligation to employ more staff. The Court, in part, agreed, and that raises the constitutional issues.
The Fair Work Act’s proper title is the Fair Work Act 2009 (Cth); that is it is an Act of the Commonwealth Parliament. Under the Constitution, the Commonwealth can, among other things, make laws relating to ‘Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth’ (Australian Constitution, s 51(xx)). The Country Fire Authority is a corporation (Country Fire Authority Act 1958 (Vic) s 6) but, argued the CFA, it is neither a foreign corporation, a trading corporation nor a financial corporation. The State of Victoria has however transferred some of its law making powers to the Commonwealth (Australian Constitution s 51(xxxvii); Fair Work (Commonwealth Powers) Act 2009 (Vic)) but had specifically not transferred the power to make rules regarding ‘the number, identity or appointment (other than terms and conditions of appointment) of employees in the public sector who are not law enforcement officers’ and ‘the number or identity of employees in the public sector dismissed or to be dismissed on grounds of redundancy’ (Fair Work (Commonwealth Powers) Act 2009 (Vic) s 5; see also [2014] FCA 17 [138]).
So, the argument goes, because the CFA is not a foreign, financial or trading corporation, the powers of Fair Work Australia when it comes to endorsing an enterprise agreement are limited to those matters referred to the Commonwealth by the Victorian Parliament, and those matters do not include issues relating to the number of public sector employees, and so an agreement to employ more staff is outside the scope of those powers and therefore not binding on the CFA.
The CFA also relied on a principle called “the Melbourne Corporation principle” after a decision of the High Court in Melbourne Corporation v Commonwealth (1947) 74 CLR 31.
At [104] Murphy J said:
The Melbourne Corporation principle is derived from the federal structure of the Constitution…. In Re AEU [Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188] at 231 the majority, comprised of Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ, described the limitation as: … the prohibition against laws of general application which operate to destroy or curtail the continued existence of the States or their capacity to function as governments.
He went on to say (at [106]):
In Re AEU the High Court held that a federal industrial award … that impaired the capacity of a state government to determine the number and identity of state government employees and/or the number and identity of such employees to be made redundant, curtailed the state government’s capacity to function as a government and thereby infringed the implied limitation. The majority explained at 232:
… It seems to us that critical to that capacity of a State is the government’s right to determine the number and identity of the persons whom it wishes to employ, the term of appointment of such persons and, as well, the number and identity of the persons whom it wishes to dismiss with or without notice from its employment on redundancy grounds. An impairment of a State’s rights in these respects would, in our view, constitute an infringement of the implied limitation.
The CFA argued that the obligation to employ more staff was an essential issue of State autonomy so the Commonwealth (through Fair Work Australia) could not oblige the State agency, the CFA, to employ more staff. The limited referral of powers under the Fair Work (Commonwealth Powers) Act 2009 (Vic)) was intended to reflect, and retain, the State’s discretion under the Melbourne Corporation principle.
It’s an interesting position for anyone to take, that having entered into an agreement they are not bound by it; but if that’s the law then it’s a position they are entitled to take, and the court, in part, agreed with the CFA.
The CFA is a trading corporation.
The first thing the judge did was reject the CFA’s argument that it was not a trading corporation. The judge, following significant High Court precedent, said a corporation was a trading corporation if it engaged in trade. It did not matter that trade was not its primary purpose, that it had not been established to engage in trade or that it traded on a cost recovery rather than profit making basis. Provided the corporations trading activities were substantial.
In The Queen v The Judges of the Federal Court of Australia; ex parte The Western Australian National Football League (1979) 143 CLR 190 (“Adamson”) the High Court held that corporation should not be considered a trading corporation unless the trading activities were ‘substantial’. Justice Mason said that ‘a corporation should not be considered a trading corporation if the trading activities were so slight and incidental to some other principal activity that the corporation could not be correctly defined as a trading corporation’ but whether a corporation was a trading corporation as “very much a matter of fact and degree” (Adamson, p 234 cited in CFA v UFU [88]).
The CFA is established to provide fire fighting services (Country Fire Authority Act 1958 (Vic) ss 6, 14 and 20) not to engage in trade; but it admitted that it does in fact have trading activities. It was agreed, or the court found, that the following activities represented trade ([95]):
(a) fire equipment maintenance services;
(b) sales of goods;
(c) property rental, including subsidised property rental to employees;
(d) consultancy services;
(e) road accident rescue services; and
(f) advice as to dangerous goods.
Road accident rescue as trade?
Readers of this blog may be interested in the reasoning that lead Murphy J to conclude that road accident rescue services provided by the CFA constituted a trading activity. His Honours reasonsing was that there was no obligation upon the CFA to provide road accident rescue services, there is nothing in the Country Fire Authority Act 1958 (Vic) that says it is the function or duty of the CFA to provide such services though section 97B says that the Authority may provide road accident services and may charge for those services. Accordingly the CFA provides those services because it chooses to not because it has to.
Pursuant to the Act and regulation 100 of the Country Fire Authority Regulation 2004 (Vic) the CFA is entitled to charge Victoria’s Transport Accident Commission (TAC) when it provides road accident rescue services. Fees charged for road accident services were determined by agreement between the CFA and the TAC. ‘The bargaining in relation to the fee is another indication that the fee is in exchange for the service and indicates commercial activity’ ([57]).
Given there was no statutory obligation to provide the service, and the CFA could and did charge effectively a ‘fee for service’ (even if it was just cost recovery rather than profit making) this was a trading activity.
The provision of road accident services could be (and was) compared with fire fighting. The CFA provides fire fighting services because that is what it was established to do and was required to do by its statute.
Amongst other things, the CFA’s activities in preventing and suppressing fires involve no element of freedom of choice which is a common feature of commercial or trading activity. For example, it has no discretion to decide that it will not attend a particular fire on the basis that the relevant insurer has refused or failed to make the required contribution. ([67]).
The CFA received money from insurance companies but not as a fee for service. The obligation on insurance companies to pay a contribution to the CFA was determined by the Minister and they had to pay that whether or not any of their policy holders sought assistance from the CFA.
Where the CFA attends a fire on uninsured premises it can charge the owner but the owner’s liability is imposed by the Act rather than by agreement. Murphy J said (at [73]) that this revenue source ‘has no bargaining element nor is there any other element of commercial exchange in the activity. I do not accept … that the property owner is liable to pay money in exchange for services rendered’.
So fire fighting is not a trading activity, but for the CFA, road accident rescue services are.
Were the trading activities substantial?
In 2010-11 the CFA earned nearly $13 million from these trading activities. Whilst only a small proportion of its total budget of $466.5 million, Murphy J was ‘disinclined to treat almost $13 million of revenue as minimal, trivial or insignificant’. He said (at [99]-[100]):
It should be seen for what it is, a significant volume of trading revenue albeit dwarfed by the money received from non-trading sources. The CFA put on no cogent evidence that $12.93 million was insignificant to its operations, and no evidence was given that it could be easily foregone by the organisation. Put another way, it is likely that the CFA would be impaired in its capacity to provide services in road accident rescue, fire equipment maintenance, fire safety consultancy or sale of fire safety related goods, which it regards as important in the range of services offered, if it was not able to charge fees for doing so.
Although the $12.93 million of trading income is plainly a substantial amount in absolute terms, it is only a small percentage relative to the CFA’s total income. Even so, I do not consider it is trivial or minimal in relative terms.
In the circumstances the CFA is a trading corporation and therefore falls within s 51(xx) of the Australian Constitution. Because of that, the power of Fair Work Australia to make an enterprise agreement did not depend on the Fair Work (Commonwealth Powers) Act 2009 (Vic) and so the limitation contained in s 5 of that Act (that is the limitation that said that Victoria did not give to the Commonwealth the power to make laws with respect to the number of employees) did not apply. The agreement would be binding unless the Melbourne Corporation principle applies as an inherent limit on the Commonwealth’s power.
The Melbourne Corporation principle
Murphy J held, in fact it was agreed by all the parties, that the Melbourne Corporation principle did apply and that, to the extent it dealt with ‘the number and identity of the public sector employees who the CFA wishes to employ and/or who it wishes to make redundant’ ([108]) it appeared to be contrary to that principle.
The UFU argued however that the principle did not apply where the obligation was voluntarily entered into; that is the Commonwealth could not impose a condition on a state agency that said how many people it had to employ or could make redundant, but it could give effect to an agreement, voluntarily entered into. Murphy J disagreed. At [132] he said:
The implied limitation is a recognition that the Constitution is concerned with the federal structure of government in Australia. Whether by legislation or some other voluntary act the States cannot disturb the federal structure created by the Constitution. The focus must be on the effect of a Commonwealth law upon the capacity of a state to function as a government, and it is of little relevance whether the state agrees to the imposition of any such limitation. Any curtailment or impairment of the capacity of a state to perform functions critical to its capacity to govern cannot be overcome by the exercise of a specific legislative or executive power.
In other words the State, even by voluntary agreement, could not agree to give up its sovereign authority so as to change the Australian Federal Structure; so a state, for example, cannot simply will itself out of existence. This clause is not that dramatic, but allowing the Commonwealth to enforce the agreement, even though the agreement was voluntarily entered into, would allow the Commonwealth to dictate to the State the number of public sector employees it would have and that would be contrary to the federal arrangements established by the Constitution and is therefore invalid.
Relevant legal conclusions
The critical conclusions from this judgment are:
1. The CFA is a trading corporation and can therefore be bound by Commonwealth law that is directed to ‘Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth’.
2. The Melbourne Corporation principle does however impose some limits on Commonwealth power, in particular the Commonwealth cannot ‘determine the number and identity of the persons whom it wishes to employ, the term of appointment of such persons and, as well, the number and identity of the persons whom it wishes to dismiss with or without notice from its employment on redundancy grounds’. As a result the agreement that required the CFA to employ and train more fire fighters could not be enforced under the Fair Work Act 2009 (Cth).
I’m not sure what implications this will have for future management of the CFA but it is certainly an interesting outcome!
Michael Eburn
12 February 2014
Australian Emergency Law 
Whilst the legal argument may be that the agreement could not be enforced, it brings the concept of “good faith bargaining” and the registration of the “agreement” in to question.
Both parties would have agreed to the condition and you would expect that they did so with a view of fulfilling their respective obligations. However it does seem a strange clause for a State Government agency to commit to when so many variables affect recruitment and budgeting from year to year.
It probably would have also been the case that the State Government approved the clause before the agency signed it.
I agree that it brings the idea of good faith into question. I, too, would assume they intended to comply but when they didn’t and when the UFU took action, some clever lawyer looked at it and said ‘I don’t think this is enforceable’ and he or she was right! Hence the judge’s reference to an ‘about face’. I have no idea on how these things get approved and whether approval outside the agency level was required, presumably there was a CFA Enterprise Bargaining Team and an UFU Team and they agreed, it went out for employee approval and was then registered. I have no idea if it would have needed cabinet or ministerial ‘sign off’ – does anyone involved in CFA industrial matters know?
Quick and perhaps silly question.
As victoria has referred parts of its IR system to the commonwealth, and therefore public sector agreements must be signed off by fair work, how can fair work sign off any agreements from now on? Surely things like pay rates of public sector employees are a matter which is critical to a States function – what if a Victoria suddenly agreed to (in their EBA’s) paying all it’s teachers, ambos and fireys 1 million dollar salaries, crippling the state economy?
Conversely, what if they decided to suddenly pay only the minimum wage? Does fair work have any teeth? It seems like we are heading in a direction where fair work doesn’t really have any control over state public sector employees.
My question, summarised, is this: How can Fair Work be powerful in regards to Victorian public sector EBAs, if the courts decide they have no power? What will be the point of the FWC?
A question may be quick, but none are silly. You are right that Victoria has referred part of its IR powers to the Commonwealth but it has “specifically not transferred the power to make rules regarding ‘the number, identity or appointment (other than terms and conditions of appointment) of employees in the public sector who are not law enforcement officers’ and ‘the number or identity of employees in the public sector dismissed or to be dismissed on grounds of redundancy’ (Fair Work (Commonwealth Powers) Act 2009 (Vic) s 5…)”. So rates of pay, for example, are governed by the transfer of powers, though whether Fair Work Australia can refuse to endorse an EB just because the wage rates are so high the state can’t afford it, but everyone agrees, I don’t know. Allowing the Commonwealth to exercise control over State employees (whether employed by the State or employed by entities that operate only within a state) has always been a matter of contention and confusion (as I recall from my studies of ‘Trade Unions and the Law’ back in the mid 1980s). I can’t give an informed answer to this question other than to say we must focus on the words of the limitation; the federal system can determine issues for Victorian employees other than ‘the number, identity or appointment (other than terms and conditions of appointment) of employees in the public sector who are not law enforcement officers’ and ‘the number or identity of employees in the public sector dismissed or to be dismissed on grounds of redundancy’.
Thanks for your reply.
I guess what I was getting at was that since this decision used Re: AEU, it would seem that any part of an agreement which could affect the ‘critical functions of the state’ (however you define critical), which could feasibly extend to such areas as pay rates, or types of equipment (due to cost), frequency of maintenance of trucks – anything that costs money really, could be deemed unconstitutional under this latest decision.
Does this mean that this latest decision effectively renders fair work a paper tiger in regards to state based public sector EBAs in Victoria?
Tom, I think the authorities cited are pretty limited; it’s not ‘any part of an agreement which could affect the ‘critical functions of the state’’ but issues relating to the number of employees and who can be made redundant. It does not (at least on these authorities) extend to pay rates. As for types of equipment and maintenance of trucks I don’t suppose those things are usually covered in enterprise agreements (though I suppose the issue of PPE may be). I think the gist of it is however that Fair Work can enforce an EB but not to the extent that it obliges the state to employ a set number of people or who can and cannot be made redundant. Does that make the FWC a ‘paper tiger’ I don’t think so but it’s powers are limited with respect to State public sector.