Lining up the Bills: Preparing for a Double Dissolution

Can the Corporations Power be Used to Limit the Regulation of
Employment Contracts in Australia?

Adam Bisits

A. Introduction

The corporations power in the Australian constitution was used in the legislation for a type of employment contract, the "Australian workplace agreement". Generally AWAs prevail over inconsistent Australian and state laws and awards. The purpose of this paper is to consider whether the corporations power may be used to facilitate the employment contracts of corporations generally and not just those which fit the description of an AWA.

Experience and analysis brings us to this question. Twenty five years ago when it was asked "Can the contract of employment be regulated through the corporations power" a fear was raised that the corporations power might be used for an undesirable, coercive method of regulation of employment.[1] More than 10 years ago the issue before the HR Nicholls Society was whether the corporations power could be used at all for "voluntary industrial agreements". Professor Greg Craven in his paper "Voluntary Industrial Agreements: You Agree, I Agree, But Will the High Court Agree?" thought that the power would be available but he was troubled by the composition of the High Court; by whether "industrial agreement laws are directly for the protection of a corporation or its trade;" whether "entry into employment contracts by corporations" fell into the category of acts undertaken for the purpose of trade; and by the fact that the "non-corporate employment sector", which included many small businesses, burdened by excessive industrial regulation, would not be exposed to the new regime.[2]

At the 1992 conference of the society, Mr. S.E.K. Hulme QC in his paper "A Constitutional Basis for the Federal Coalition's Industrial Relations Policy and Related Matters" thought that the corporations power would be available. He laid Professor Craven's doubts to rest and indicated that even the conciliation and arbitration power in the constitution could be used to remove laws which conflicted with the freedom to make contracts of employment. He pointed out that the corporations power is not limited to the trading activities of trading corporations but to all things to do with trading corporations. The breadth of the power can be understood when it is said that "any law in the form 'No trading or financial corporation formed within the Commonwealth shall' or 'Every trading or financial corporation formed, etc. shall,' must necessarily be valid".[3] Legislation about the voluntary industrial agreements of trading corporations is about their activities for the purpose of trade. As to the non-corporate employers, Mr Hulme said that they "and their employees want little but to be left alone, and that is what [the voluntary agreements policy or legislation] seeks to do for them."[4]

It is natural to now ask, after (i) the corporations power has been used to make employment laws, both in the Workplace Relations Act 1996 and earlier; (ii) AWAs have been made for some years---181,437 had bee approved up to August 2001;[5] and (iii) the fear of coercive regulation of employment has not materialised, whether a broader concept of employment agreement could be made which, like an AWA, could prevail over inconsistent state and federal industrial laws and awards.

It is useful next to see how employment agreements in the form of AWAs have been provided for in the Workplace Relations Act.

B. Current contracting freedom

S. 170VF (1) of the Workplace Relations Act says: "An employer and employee may make a written agreement, called an Australian workplace agreement, that deals with matters pertaining to the relationship between an employer and employee." The agreement must include an anti sex and race etc. discrimination code (s. 170VG (1) and schedule 8 to the Workplace Relations Regulations). The agreement cannot be required to be kept confidential (s. 170VG (2)) and it must include a dispute resolution procedure which could include referral of power to settle disputes to the Australian Industrial Relations Commission (s. 170VG (3)(4)). The requirement to file the agreements with the Employment Advocate arises from the fact that unless so filed the agreement is of no effect (s. 170VC). The filing results in some checking of the agreement (s. 170VA) and testing whether the agreement disadvantages employees in relation to their terms and conditions of employment (the test is set out in part VIE, ss. 170X ff).

The effect of an Australian workplace agreement on awards and agreements and other laws is broadly that the agreement "operates to the exclusion of any award that would otherwise apply to the employee's employment" (s. 170VQ (1)) subject to an exception for certain awards and exceptional matters (s. 170VQ (2) (3)).

S. 170VQ (4) provides:

    During its period of operation, an AWA operates to the exclusion of any State award or State agreement that would otherwise apply to the employee's employment.

There is provision for a certified agreement (between a business and a union or the employees concerned) to prevail over an AWA in some cases but otherwise the AWA "operates to the exclusion of any certified agreement that would otherwise apply to the employee's employment." (s. 170VQ (6)).

S. 170VR provides for the effect of an AWA on other laws as follows:

    (1) Subject to this section, an AWA prevails over conditions of employment specified in a State law, to the extent of any inconsistency.

    (2) Provisions in an AWA that deal with the following matters operate subject to the provisions of any State law that deals with the matter:

    (a) occupational health and safety;

    (b) workers' compensation;

    (c) apprenticeship;

    (d) any other matter prescribed by the regulations.

    (3) If a State law provides protection for an employee against harsh, unjust or unreasonable termination of employment (however described in the law), sub-section (1) is not intended to affect the provisions of that law that provide that protection, so far as those provisions are able to operate concurrently with the AWA.

    (4) To the extent of any inconsistency, an AWA prevails over prescribed conditions of employment specified in a Commonwealth law that is prescribed by the regulations.

    (5) [contains definitions].

The result is that a specific type of contract of employment, the AWA, is facilitated and is allowed to prevail over many conflicting Australian and state industrial laws and awards.

C. Greater freedom to contract

The present issue is whether contracts of employment generally, or contracts of employment described in a more general way than those which are AWAs, could be made to prevail over conflicting Australian and state industrial laws and awards. For instance such a contract of employment would not necessarily have to have the anti-sex, racial etc. discrimination code. It would not necessarily have to have a dispute settlement procedure. Nor a requirement to be filed in order to be effective. Nor would it necessarily have to be vetted by the Employment Advocate. Nor pass a no-disadvantage test.

The freedom to contract terms of employment could be expressed in many ways. At one extreme there would be no legislation on the contents of the contract at all, recognising that a corporation already has a statutory power to make contracts with employees, but only making provision for such employment contracts as are made to prevail over some or all inconsistent Australian state industrial laws and awards. If one took the view that employer and employee best know what terms they should agree on there is very little for an Australian Act to say, creating the possibly unusual situation that the main operative provision of the Act would be that such employment contracts to which the corporation was party (or whichever subset of such contracts are chosen) should exclusively regulate the employment relationship between the parties.[6]

Analysis of the experience with the 180,000 plus AWAs and with the workplace agreements allowed under Western Australian legislation, and projections of the impact of different types of contract or ways of making a contract on levels of employment could indicate how any greater freedom to contract should be defined.

D. Conciliation and arbitration power

This "original" power has been a fertile source of employment legislation and practice. Mr Hulme's 1992 paper showed that it could also be used in shutting down the award system at the same time as introducing voluntary industrial agreements.[7] It is worth considering for the present issue.

The power of the Australian parliament under s. 51 (xxxv) of the constitution is to make laws with respect to:

    Conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State.

This is a power "with respect to" conciliation and arbitration etc. The purpose of the conciliation and arbitration described in the power includes "the prevention ... of industrial disputes extending beyond the limits of any one State". It may be said that encouraging employers and employees to enter into a particular type of employment agreement (or employment agreements entirely of their own choosing) itself prevents industrial disputes and can help prevent them extending beyond the limits of any one state. One can then envisage a law under the conciliation and arbitration power which first encourages employers and employees to make these employment agreements. For instance, making conciliation and arbitration conditional on the existence of such agreements would be to do something with respect to conciliation and arbitration which was within the power. In the past, and in the present Act, industrial disputes of a grand kind are able to be established because the Act facilitates the creation of employer and employee associations, each of whom may be a party in dispute with the other or with employers and employees. However the Act could also focus on Industrial disputes of a more intimate kind, coming out of a contract of employment.

It may be that only a collection of these contracts involving parties in different states could give rise to an interstate dispute. But it could hardly be an objection to legislation under a power to prevent disputes that the legislation makes it difficult for a dispute to arise.

E. Corporations power

The corporations power is the power under s. 51 (xx) of the constitution for parliament to make laws with respect to:

    Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth;

As Mr. Hulme says, the trading or financial corporations to which the power applies are "the vast majority of corporations, statutory or otherwise, which employ people in Australia".[8] How the power could be used (if the doctrine of powers reserved to the states does not apply, as has turned out to be the case) was stated by Griffith CJ. in Huddart, Parker & Co. Pty. Ltd. v Moorehead (1909) 8 CLR 330, 348:

    The Commonwealth Parliament can make any laws it thinks fit with regard to the operation of the corporation, for example, [it] may prescribe what officers and servants it shall employ, what shall be the hours and conditions of labour, what remuneration shall be paid to them, and may thus, in the case of such corporations, exercise complete control of the domestic trade carried on by them.

The width of the corporations powers is now acknowledged. It covers incorporated football clubs (R v Federal Court; Ex parte WA National Football League (1979) 143 CLR 190; state superannuation boards (State Superannuation Board v TPC (1982) 150 CLR 282; incorporated government utilities (Tasmanian Dam case (1983) 1153 CLR 1 and shelf companies with the potential to trade (Fencott v Muller (1983) 152 CLR 570 and even universities (National Tertiary Education Industrial Union v University of Wollongong (1997) 74 IR 348.

The limits on the power, as much a matter of interpretation as, it is submitted, a response to strained use of the power, emerge from Re Dingjan; Ex parte Wagner (1995) 183 CLR 323, 339. Here the Australian Industrial Relations Commission's power to review contracts between constitutional corporations (that is those referred to s. 51 (xx)) and independent contractors was considered. A company in Tasmania with rights to harvest timber , contracted with Mr. & Mrs. Wagner to harvest some of the timber. The Wagners in turn subcontracted some of their harvesting rights to Mr. & Mrs. Dingjan. The company initiated changes to these arrangements which affected the Dingjans who, through their union, the TWU, applied to the AIRC for a review of the subcontract. The AIRC's power was to review a contract on the ground that it was unfair, harsh or against the public interest (s. 127A (2), Industrial Relations Act 1988). The contracts referred to were contracts for services by an independent contractor (other than for private and domestic work for the other party) where, relevantly, a party to the contract was a "constitutional corporation" or if the application to review or the commission's decision to set aside the contracts was "in relation to a contract relating to the business of a constitutional corporation" (s. 127C (1) (a) and (b)).

The subcontracts between the Wagners and the Dingjans fell into the second category as a contract relating to the business of a constitutional corporation, the Tasmanian company. The issue was whether this second category was authorised by the corporations power. The High Court by a majority of 4 to 3 struck down the second category as outside the corporations powers. The limits to the power which were taken into account by the majority included: that there was no corporation which was a party to the contract; that the setting aside of the subcontract may have no effect on the business of the Tasmanian company;[9] that the corporate nature of the Tasmanian company had no rational connection with the AIRC's power to set aside the subcontract;[10] that the relationship in the second category was insufficient "as a peg upon which to hang legislation;"[11] that the "personality" of the person bound (in this case the Tasmanian company) was not an element in the second category;[12] and that the connection with corporations was too remote and tenuous.[13]

The minority would have found the second category within the corporations power which in the words of Mason, CJ. "extends to the enactment of laws dealing with activities undertaken for the purposes of the business of a constitutional corporation."[14] Gaudron, J. would have, if necessary, read down the second category to bring it within power.[15]

Could the greater freedom to contract terms of employment be bestowed on corporations under these powers and within these limits? Yes, since, first, the power embraces practically any corporation in Australia. Secondly if the law was in the form "No trading or financial corporation formed within the limits of the Commonwealth shall have its contracts of employment regulated by any state industrial tribunal or award or be the subject of proceedings in such a tribunal" it would come within the very breadth recognised for the power. It is a type of employment regulation under the power envisaged by Griffith CJ himself. Thirdly the law would be within the limits in the Dingjan case since the law would have a much closer connection with the corporation than merely 'relating' to it. Contracts of employment give the corporation the ability to act and to trade and the contents of those contracts also can limit that ability.

Thus even accepting the limits in Dingjan, the greater freedom to contract that is proposed would, it is submitted, be within power.

F. Prevailing over state laws and awards

A further issue is whether the few provisions which might constitute the Australian law on the subject of corporations' contracts of employment and the freedom for such contracting that that law created, could be made to prevail over inconsistent state industrial laws and awards.

This is not a case of allowing an industrial award to be created and specifying in an Australian or federal law that the awards have exclusive authority.[16] It is not a case of having the facilitated contract checked and filed and specifying that that contract prevails over the state laws and awards---the present situation with AWAs.

The problem has been explained as follows:

    There is no doubt great difficulty in satisfactorily defining the limits of the power to legislate upon a subject exhaustively so that s. 109 will of its own force make inoperative State legislation which otherwise would add liabilities, duties, immunities, liberties, powers or rights to those which the Federal laws had decided to be sufficient. But within such limits an enactment does not seem to me to be open to the objection that it is not legislation with respect to the Federal subject matter but with respect to the exercise of State legislative powers or that it trenches upon State functions. Beyond those limits no doubt there lies a debatable area where Federal laws may be found that seem to be aimed rather at preventing State legislative action than dealing with a subject matter assigned to the Commonwealth Parliament.[17]

The aim of preventing state industrial tribunals and awards from regulating the contracts of employment of corporations cannot be the sole aim of the proposed Australian law But in fact there would be the further aim, namely ensuring that the general law, or specified law, did apply to the contract, and possibly also the aim of specifying how those contacts are made. Laws with these aims would, it is submitted, not fall afoul of the above limit.

The industrial systems of the states are so well established that it might be thought that depriving them of their jurisdiction over companies is a threat to the existence of the states themselves and discriminated against the states.

There is a prohibition derived from the federal structure of the Australian constitution that "the Commonwealth's legislative powers do not extend to making a law which denies one of the fundamental premises of the Constitution, namely that there will continue to be State governments separately organised."[18] This prohibition has been explained in terms of discrimination, and in an explanation, that has now criticised,[19] as consisting of two elements: (i) a prohibition against discrimination which involves the placing on the States of special burdens or disabilities; and (ii) a prohibition against laws of general application which operate to destroy or curtail the continued existence of the States or their capacities to function as governments.[20] In explaining this implied prohibition, Mason, J. said that "it does not follow that every law which deprives a State of a right, privilege or benefit which it enjoys will amount to discrimination ... A law which deprives a State of a right, privilege or benefit not enjoyed by others, so as to place the State on an equal footing with others, is not a law which isolates the State from the general law."[21]

Speaking of special federal laws dealing with conciliation and arbitration and the electricity industry in Queensland, Mason, J .has said:

    ... when the Parliament singles out disputes in the electricity industry to which agencies of the State of Queensland are parties and subjects them to special procedures which differ from those applying under the principal Act to the prevention and settlement of industrial disputes generally, and of industrial disputes in the electricity industry in particular, it discriminates against the agencies of the State by subjecting them to a special disability in isolating them from the general law contained in the principal Act.

The proposed greater freedom for contracts of employment would it is submitted have no bearing on the states as governments separately organised nor would it discriminate against their industrial tribunals and awards. The jurisdiction of courts and tribunals within states and between the Australian and state systems has been adjusted many times in the past, and the proposed limit on the state tribunals and awards would be of the same kind.

It would seem that that since the AIRC no longer deals with interstate industrial disputes generally and since the other changes brought by the Workplace Relations Act 1996 and perhaps earlier, the aim of excluding state governments and their instrumentalities (at least the non-business ones) from any aspects of the Act would not necessarily be viewed as discriminatory against them. These developments since the Queensland electricity industry case, which was in 1985, and the recent decision striking down a federal tax on state judges' pensions,[22] should be taken into account in any proposal to have the state governments themselves control the employment contracts of their own employees. Such a proposal would in fact be consistent with employers being granted a greater freedom to contract the terms of employment with their employees.

G. Other aspects of the proposed freedom to contract

A general freedom to make contracts of employment necessarily involves a contraction of the roles of the states. It calls into question the role of the state industrial tribunals and awards generally.

The president of the Australian Industrial Relations Commission spoke on this topic last October.[23] Interpreting what the president put forward, it may be said: (i) there is practical uniformity in the minimum wage because state industrial commissions as a rule award the same increases as does the AIRC;[24] and (ii) half-yearly conferences between the heads of the industrial tribunals and provisions for joint sittings contribute to co-ordination.[25] His recommendations are expressed in terms of objectives---eliminating differences in the minimum wage; having the same rights of access to industrial tribunals around Australia; consistent laws about termination of employment; elimination of jurisdictional disputes---and in comments on past attempts at uniformity or co-ordination. He notes that co-operation between the jurisdictions varies and says "It seems to me to be sensible to ask whether this strategy has been effective and whether the issues are still the same." He appears to query whether economic developments since 1985 such as deregulation of the banking and financial systems, tariff reductions, globalisation in many industries and reduction in union membership have been taken into account in the industrial relations structure in Australia.

In these comments Justice Giudice was asking whether there should be a unitary industrial relations system in Australia. Creating a single freedom to contract terms of employment would be a practical way of dealing with this problem.

It would also be practical, it is submitted, to regularise the flow on of minimum wage determinations by the AIRC so that the one determination applies in the whole country. The minimum wage or safety net wage is determined by the AIRC for the purpose of assisting it in its other functions. It is determined by reference to living standards in the Australian community and various economic factors including productivity and inflation (ss 88B(2) and 89 of the Workplace Relations Act). Even the terms of an award or agreement can show the links between the economy, trade and terms of employment.[26] Under a recent bill[27] the objective of the minimum wage protecting the low paid is to be expanded. This is high level economic enquiry and determination with a bearing on Australia's trade and commerce and external relations, which could be made under various powers in the constitution, even the power in s 101 for an Inter-State Commission. It is submitted that there is ample power for a minimum wage to be determined to apply around the whole country without the intervention of state tribunals. Incidentally a change in the law would also be an opportunity to remove the words "safety net" from the minimum wage concept. What do these chattering words really add to the concept?

It may be asked: how will non-corporate employers and their employees be bestowed with this new freedom to contract? One would first research the problem. If these people really want to be left alone it may be that no law has to be passed or that some intrusive law has to be lifted from them. Secondly if a law is required it may be that the power to make laws with respect to trade and commerce among the states, in s 51(i) of the constitution, supplies the power since even small business will often be involved in interstate trade.

Next it has been pointed out that the legislative practice of preserving state laws on sex, racial or other forms of discrimination and also on matters of termination of employment leads to different treatment of these subjects with risks of legal ineffectiveness and invalidity.[28] Legislation on the proposed freedom to contract could also deal with this problem.

Finally the proposed freedom for contracts of employment may call into question the contents of certified agreements and awards. A recent study by the Institute of Public Affairs[29] shows the many non-pay clauses in these agreements and awards, which impinge on a company's capacity to manage its own affairs. The study shows the way to a further use of the corporations power to regulate the terms of employment of company employees.


[1] See J.O. Donovan's paper of this name at (1977) 51 ALJ 234, 246

[2] P 4

[3] P 9 of Mr. Hulme's paper. The words are those of Griffith CJ in Huddart, Parker & Co v Moorehead (1909) 8 CLR 330, 348, quoted with approval by Mason J in the Tasmanian Dam case (1983) 158 CLR 1, 149.

[4] P 10

[5] M J Pittard and RB Naughton, Australian Labour Law, 4th edn, Lexis Nexis Butterworth, 2003, p 777.

[6] Speaking of a judge having to consider the use of the trade and commerce power for voluntary industrial agreement legislation, Mr. Hulme said: "His quandary here would arise from the fact that the trade and commerce power would, unusually, be used in support of legislation not leading to Commonwealth power."---P 11

[7] P 9 of his paper.

[8] P 9

[9] Brennan, J. at p 338

[10] Brennan, J. at p 338

[11] Dawson, J. at p 347

[12] Dawson, J. at p 347

[13] Toohey, J. at p 354

[14] P 337

[15] P 366

[16] As explained by Dixon, J. in Ex parte McLean (1930) 43 CLR 472, 484

[17] Wenn v Attorney General (Vic) (1948) 77 CLR 84, 120

[18] Austin v Commonwealth (2003) 77 ALJR 491, 516, para 115

[19] Austin v Commonwealth, at p pp 523-524, para 143-145.

[20] Queensland Electricity Commission v Commonwealth (1985) 159 CLR 192, per Mason, J. at P 217

[21] at p 217

[22] Austin v Commonwealth.

[23] Justice Giudice in a paper dated 18 October 2002 to the Industrial Relations Society of Victoria entitled "A Unitary IR System?"

[24] P 2

[25] P 3

[26] Eg, Mitsubishi Motors Australia Ltd Enterprise Agreement 2001, which in cl 9 gives a local and global economic 'background' to the agreement, including links between domestics and international markets and flexibility and other matters dealt with or encouraged by the agreement.

[27] Workplace Relations Amendment (Protecting the Low Paid) Bill 2003.

[28] G. McCarry "Landmines Among the Landmarks: Constitutional Aspects of Anti-Discrimination Laws" (1989) 63 ALJ 327.

[29] Australian Financial Review, 9 April 2003, pp 60-61.

Why HR Nicholls?