Application of Federal Workplace Laws To Nonprofits

As a result of the referral of power by most States to the Commonwealth over industrial matters as of 1 January 2010, most not for profit organisations are now covered by Federal workplace laws.

Until this referral took place, the assumption of many not for profit organisations is likely to have been that they were not covered by the Federal workplace laws because they were not “trading” or “constitutional” corporations.

The Issue

Depending on their activities, many not for profit organisations may have been safe in this assumption until February this year when the Full Court of the Federal Court handed down its decision in the case of Bankstown Handicapped Children’s Centre Association Inc. v Hillman [2010] FCAFC 11 (25 February 2010).

In this case, the court overturned a previous decision of the New South Wales Industrial Court in finding that the Bankstown Handicapped Children’s Centre Association Inc. was in fact a “trading” corporation for the purpose of Federal workplace law. In coming to this conclusion, the Court confirmed a number of principles including that:

• a corporation may be a trading corporation even though trading is not its predominant activity;
• “trading” is not to be given a narrow construction and includes trading in services;
• the making of a profit is not an essential prerequisite to trade;
• the fact that the trading activities are conducted in the public interests or for a public purpose will not necessary exclude the categorisation of those activities as “trade”;

On the basis of these principles, the Court held that the Bankstown Handicapped Children’s Centre Association Inc was a “trading” corporation even though the Association’s activities were for the purpose of public welfare and predominantly supported by government funds,. In coming to this conclusion, the Court focused on the “essentially commercial nature of the relationship” between the Association and the relevant government funding body (DOCS), namely, the provision of services for a fee.

Practical Consequence

We have recently advised a not for profit organisation in the disability services sector that their activities would also be characterised as “trading” activities consistent with the decision in Bankstown.

For this organisation, this has meant exposure to liability for underpayment of wages to a number of employees who had been remunerated under State Award rates instead of the higher applicable rates required under Federal workplace law. The advice we provided required an assessment of the organisation’s liability as far back as 27 March 2006, when the Work Choices amendments came into operation which swept “constitutional corporations” into the Federal workplace regulatory regime.

Impact on You

We expect that the Bankstown decision may have a significant impact on a number of not for profit organisations who operate by way of a “fee-for-service” delivery model to government.

As a result, such organisations may be unaware or have not planned for the fact that they may be exposed to claims by employees for underpayment (depending on the rates paid to their employees and whether there has been any shortfall in comparison with applicable rates at the Federal level for the period since March 2006).

While the impact of the Bankstown decision may not yet be fully felt, we expect that employee representatives and unions will soon become attuned to its importance.

We encourage you to be proactive and prepared for this by seeking good legal advice now rather than waiting to find out later from someone else.