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Pasalskyj [2015] FWC 7309

The Fair Work Commission (FWC) recently held in Pasalskyj [2015] FWC 7309 that a not-for-profit organisation, funded predominantly by government grants, is captured by the anti-bullying provisions in the Fair Work Act 2009 (FW Act). The NFP's arguments that it was not a "trading corporation" and therefore excluded from the definition of a "constitutional corporation" was rejected. The impact of this decision extends beyond the anti-bullying provisions, as classification as a constitutional corporation is central to also enlivening the jurisdiction of unfair dismissal and general protections areas and, in fact, the FW Act generally.

How this will affect you

Not-for-profit organisations in Western Australia who do not conduct significant trading activities should consider whether their operations will nevertheless enliven the FW Act's jurisdiction.

FWC's jurisdiction over constitutional corporations

Under s 789FD of the FW Act, a bullied worker in Western Australia must work in a "constitutionally covered business" to be able to make a claim in the FWC's anti-bullying jurisdiction. The definition of a "constitutionally covered business" requires reference to a number of definitions:

  • s 789FD(3) of the FW Act confirms that if a person conducts a business or undertaking within the meaning of the Work Health and Safety Act 2011 and is a constitutional corporation, then the business or undertaking will be a "constitutionally covered business"
  • the FW Act defines a "constitutional corporation" to be a corporation to which paragraph 51(xx) of the Constitution applies, and
  • paragraph 51(xx) of the Constitution refers to "foreign corporations and trading or financial corporations formed within the limits of the Commonwealth".

The concept of a constitutional corporation is also relevant to classification as a National System Employer for the purposes of the FW Act (and unfair dismissal jurisdiction), as well as the general protections jurisdiction.

In Pasalskyj, it was the "trading corporation" arm of the definition of constitutional corporation that was relevant to Outcare's operations and considered by the FWC, and the key question was whether Outcare's services should be characterised as having the character of trading.

When will a not-for-profit be a trading corporation?

Outcare Inc. is a not-for-profit incorporated association operating in Western Australia that provides services to former prisoners and their families. Outcare argued that it was not a trading corporation because it does not engage in trading. Outcare argued, among other things, that:

  • it predominantly conducts its programs using government funding
  • it did not make any profit from the provision of services, and
  • trading is not intended to be a primary purpose of the organisation.

There is significant case law looking at when a corporation will be considered a trading corporation and, by extension, a constitutional corporation. The FWC referred to Aboriginal Legal Service (WA) Inc. v Lawrence (No. 2), which set out some general principles about when a corporation will be classified a trading corporation. The position established in the authorities is that a corporation can be a trading corporation even though trading is not its predominant activity, however, the trading activity must be substantial and not merely a peripheral activity. Trading is also given a wide construction, extending beyond business activities conducted with a view to earning revenue to include trade in services. Ultimately, whether the trading activities of a corporation are sufficient to justify its categorisations as a trading corporation is a question of fact and degree.

The FWC drew a distinction between government funding for services where:

  • the government pays for services to be delivered to the community—usually resulting from a competitive tender process and where specific services are sought at a particular rate—and payment is made for services delivered, and
  • the provision of bulk grants—that may be linked to performance requirements and benchmarks but do not have the character of buying and selling—between the organisation and the funding agency, and are often provided gratuitously to the public and are considered to be an end in themselves.

The former was regarded by the FWC to be trading activities and the latter was not, although the FWC did recognise that the characterisations represent "points on a spectrum" and analysis in any given case will require a number of indicia.

Decision on the facts

The specific funding arrangements and method of providing each of Outcare's services were considered separately and in detail by the FWC. Then an assessment was made about whether those services with a trading character were, in all the circumstances, a "substantial" part of Outcare's services.

In relation to specific services, the FWC held that:

  • Outcare's block funding arrangements (whereby Outcare received funds from the Government to provide programs and was required to return surplus funds to the funding department) to not constitute trading activities, notwithstanding the general characterisation of services delivered at a set rate having a trading character, and
  • Outcare's accommodation service (in which ex-prisoners were able to rent accommodation from Outcare subject to a contractual arrangement) had a trading character, despite the intention of these agreements being to acquaint the boarders with the terms and obligations associated with the private rental process and assist their transition back into the community.

The FWC determined that around 15% of Outcare's income (approximately $1.2 million per annum) was generated from sources that had the character of trading. This level of trading activities were "substantial and not merely peripheral, insignificant or incidental as a matter of fact and degree".

Lessons

The FWC will take a broad view as to what constitutes a "trading" activity for not-for-profits in Western Australia and this will capture many modern funding arrangements and service models adopted by not-for-profits, including where the services provided have been wholly funded and/or are provided to clients at no cost.

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