On 20 August 2008, the Federal Court determined that local councils are not constitutional corporations and therefore not 'employers' for the purposes of the Workplace Relations Act 1996 (Cth).

This decision has implications for local councils across Australia.

AWU v Etheridge Shire Council

In the case of AWU v Etheridge Shire Council1, the Federal Court considered whether the Etheridge Shire Council in Queensland could enter into a workplace agreement with its employees under the Federal industrial relations system.

Under the Workplace Relations Act 1996 (Cth), the agreement could only be made if the Council was a constitutional corporation, that is, a trading or financial corporation formed within the limits of the Commonwealth.

Council Activities Key to Status

Justice Spender held that, in determining whether the Council was a trading or a financial corporation, the primary focus is on the activities of the Council.

There was evidence that the Council's activities included providing a tourism centre, road works for the Department of Works, private works (services to residents and organisations), hostel accommodation, childcare centres, office space rental, residential property rental, sale of land, hire of halls, sale of water and services to the Federal Government.

In finding the Council was not a trading corporation, Justice Spender held that:

  • All of the above activities "entirely lack the essential quality of trade"
  • Almost all activities ran at a loss
  • All activities were directed to public benefit objectives
  • In monetary terms they were "so inconsequential and incidental to the primary activity and function of the Council as to deny the Council the characterisation of a 'trading corporation or a financial corporation'."

Workplace Agreements unavailable to Councils

The decision means that local councils cannot enter into workplace agreements under the Federal industrial relations system and are not employers for the purposes of the Federal unfair dismissal provisions.

We understand that an appeal is unlikely against the decision. This is due in part to legislative amendments made to the Local Government Act 1993 (Qld) in March 2008 which expressly provided that councils are not corporations.

However, for councils that have implemented Federal workplace agreements, such as in Western Australia, the Federal Court's decision is likely to cause significant uncertainty.

In NSW, the government legislated to shield some public sector employees from Federal industrial relations law, but not council employees2. However, councils have not sought to enter into Federal agreements and the issue in Etheridge has not arisen.

Status of Non-Profit Organisations Unclear

Etheridge turned on the nature of local councils and their functions and provides little guidance as to the status of incorporated notfor- profit organisations.

Footnotes

1. Australian Workers' Union of Employees, Queensland v Etheridge Shire Council [2008] FCA 1268 (20 August 2008) per Spender J

2. Public Sector Employment Legislation Amendment Act 2006 No.2

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.