Express law No. 47

22 November 2006

The Work Choices decision

The High Court, by a 5:2 majority (Kirby J and Callinan
J dissenting), has upheld the constitutional validity of
the recent amendments to the Workplace Relations Act
1996 (WRA) made by the Workplace Relations Amendment
(Work Choices) Act 2005 (Work Choices Act).

State of New South Wales v Commonwealth of Australia
(Work Choices Case)

High Court of Australia, 14 November 2006
[2006] HCA 52

In upholding the constitutional validity of the Work Choices
Act the Court has confirmed that the Commonwealth's
power with respect to trading, financial and foreign corporations
extends to:

  • the regulation of the activities, functions, relationships
    and the business of a corporation
  • the creation of rights, and privileges belonging to
    a corporation
  • the imposition of obligations on a corporation.

In respect of these matters, the corporations power also
extends to:

  • the regulation of the conduct of those through whom
    a corporation acts, its employees and shareholders
  • the regulation of those whose conduct is or is capable
    of affecting its activities, functions, relationships
    or business.

Background

Historically, Commonwealth laws regulating aspects of
industrial relations have relied on s 51(xxxv) of the Constitution,
which confers power on the Commonwealth Parliament to enact
legislation with respect to 'conciliation and arbitration
for the prevention and settlement of industrial disputes
extending beyond the limits of any one State'. In
more recent years, however, the Commonwealth has relied
on other heads of power, including s 51(xx), for some aspects
of its industrial relations legislation. Section 51(xx)
confers power on the Commonwealth Parliament to enact legislation
with respect to 'foreign corporations, and trading
or financial corporations formed within the limits of the
Commonwealth' (constitutional corporations).

Then in December 2005 the Commonwealth Parliament enacted
the Work Choices Act, which created a substantially new
federal industrial relations regime primarily in reliance
on the corporations power.1 Most significantly,
the WRA (as amended by the Work Choices Act) now directly
regulates the industrial rights and obligations of constitutional
corporations and their employees.

The States of New South Wales, Victoria, Queensland, South
Australia and Western Australia and two trade union organisations
challenged the constitutional validity of the WRA as amended
by the Work Choices Act. The Attorneys-General of Tasmania,
the Northern Territory and the Australian Capital Territory
intervened in support of the plaintiffs' challenge
to the constitutional validity of the law. The case was
argued over six days by a record 39 counsel.

According to the Explanatory Memorandum for the Work Choices
Act, use of the corporations power (together with the other
powers relied on) for the new regime 'would mean
that up to 85 per cent of Australian employees would be
covered by the federal system'. The principal issue
before the High Court was the validity of the extensive
use of the corporations power to support the new federal
regime.

The majority decision

Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ delivered
a joint judgment upholding the validity of the legislation.

Scope of corporations power

After discussing previous High Court authority on the
corporations power, developments in company and corporations
law in the 19th century, the Convention Debates,2 drafting
history and various failed referendums3 to amend
both s 51(xx) and s 51(xxxv), the majority endorsed the
statement by Gaudron J in Re Pacific Coal Pty Ltd4 that
the corporations power extends to:

the regulation of the activities, functions, relationships
and the business of a corporation described in that sub-section,
the creation of rights, and privileges belonging to such
a corporation, the imposition of obligations on it and,
in respect of those matters, to the regulation of the
conduct of those through whom it acts, its employees
and shareholders and, also, the regulation of those whose
conduct is or is capable of affecting its activities,
functions, relationships or business.

It follows that the power 'extends to laws prescribing
the industrial rights and obligations of corporations and
their employees and the means by which they are to conduct
their industrial relations': [178].

The plaintiffs had relied on three main lines of reasoning
to argue that the corporations power should not be construed
as supporting the WRA: [57].

  • First, the corporations power was said to extend only
    to regulating the dealings of corporations with persons
    external to the corporation and not its internal relationships.
    The relationship between a corporation and its employees
    was said to be part of its internal relationships.
  • Secondly, it was argued that the corporations power
    did not support a law merely because it conferred rights
    or imposed obligations on a corporation. Rather, 'the
    fact that the corporation is a foreign, trading, or financial
    corporation should be significant in the way in which
    the law relates to it': [140].
  • Thirdly, it was argued that the corporations power
    had to be read down because of the presence of s 51(xxxv).
    The consequence was said to be that the Commonwealth
    Parliament could enact laws dealing with the industrial
    relations between a corporation and its employees only
    under s 51(xxxv) and not under the corporations power.

The joint judgment rejected each of these asserted limitations
on the corporations power. Their Honours observed that
underlying each of them 'was a theme, much discussed
in the authorities on the corporations power, that there
is a need to confine its operation because of its potential
effect upon the (concurrent) legislative authority of the
States': [54], [183]–[196]. They regarded this
appeal to the 'federal balance' as carrying 'a
misleading implication of static equilibrium'.

The approach of the joint judgment was to determine the
content of the power to legislate 'with respect to' constitutional
corporations by applying settled principles of constitutional
interpretation, beginning with the decision in the Engineers' case.5 The Engineers' case discarded 'an
approach to constitutional construction that started in
a view of the place to be accorded to the States formed
independently of the text of the Constitution' although
it 'did not establish that no implications are to
be drawn from the Constitution': [194]. One of those
implications is that the Constitution requires the continued
existence of the States 'as separate bodies politic
each having legislative, executive and judicial functions':
[194]. However, the implication 'does not identify
the content of any of those functions'.

Their Honours emphasised at several points the need to
construe the constitutional text and said:

The general principles to be applied in determining
whether a law is with respect to a head of legislative
power are well settled. It is necessary, always, to construe
the constitutional text and to do that "with all
the generality which the words used admit". The
character of the law must then be determined by reference
to the rights, powers, liabilities, duties and privileges
which it creates. The practical as well as the legal
operation of the law must be examined. If a law fairly
answers the description of being a law with respect to
two subject-matters, one a subject-matter within s 51
and the other not, it is valid notwithstanding there
is no independent connection between the two subject-matters.
Finally, as remarked in Grain Pool of Western Australia
v The Commonwealth, "if a sufficient connection
with the head of power does exist, the justice and wisdom
of the law, and the degree to which the means it adopts
are necessary or desirable, are matters of legislative
choice". [142] (footnotes omitted)

It is apparent that their Honours did not regard the 'fundamental
and far-reaching legal, social, and economic changes in
the place now occupied by the corporation, compared with
the place it occupied when the Constitution was drafted
and adopted' as providing any basis for applying
different principles in construing the text of s 51(xx):
[67], see also [121]. The consequent extension in the range
of activities that Commonwealth laws could now reach was
a practical result of those changes but this fell well
short of establishing that 'the States could no longer
operate as separate governments exercising independent
functions'. The majority concluded that 'the
proposition, that a particular construction of s 51(xx)
would or would not impermissibly alter the federal balance,
must have content, and the plaintiffs made no attempt to
define that content': [196].

In rejecting the three particular ways in which the plaintiffs
sought to restrict the scope of the legislative power in
s 51(xx), the majority also reached the following conclusions.

First, the suggested division between external and internal
relationships found no support in the text of s 51(xx)
([94]–[95]), was 'a distinction of doubtful
stability' and, even if were to be adopted, 'there
seems every reason to treat relationships with employees
as a matter external to the corporation': [66], see
also [89]–[90].

Secondly, the majority held that s 51(xx) is not, as
some members of the Court had previously suggested, limited
to the trading activities of trading corporations and the
financial activities of financial corporations. That is
not what s 51(xx) says: [169]. To the extent that the WRA
prescribes norms regulating the relationship between constitutional
corporations and their employees, or is directed to protecting
constitutional corporations from conduct intended and likely
to cause loss or damage to them, it can be characterised
as a law with respect to corporations without needing to
satisfy any additional requirement that the nature of a
corporation (as a trading, financial or foreign corporation)
is significant as an element in the nature or character
of the law: [198].

Thirdly, there was no basis in the text and structure
of the Constitution, or in the historical context in which
s 51(xxxv) was included in the Constitution, for reading
down s 51(xx) by reference to s 51(xxxv). The majority
referred to the general principle that 'a law with
respect to a subject-matter within Commonwealth power does
not cease to be valid because it affects a subject outside
power or can be characterized as a law with respect to
a subject matter outside power': [219], see also
[204]. Although s 51(xxxv) confers power in relation to
particular means (conciliation and arbitration) for the
prevention and settlement of a particular class of industrial
disputes (interstate disputes), its text expresses the
scope of the power as a compound conception rather than
containing a positive prohibition or restriction upon what
would otherwise be within its scope. There was, then, no
reason to read s 51(xx) as subject to any such prohibition
or restriction: [203], [219]–[222].

WRA validly regulates industrial rights and obligations

As a result, the majority upheld the validity under the
corporations power of the provisions of the WRA that regulate
the industrial rights and obligations of constitutional
corporations and their employees. These include provisions
dealing with:

  • minimum terms and conditions of employment covering
    matters such as rates of pay, maximum hours of work,
    and leave entitlements, which together constitute the 'Australian
    Fair Pay and Conditions Standard' in Part 7 of
    the WRA ([246]), and other provisions relating to minimum
    entitlements of employees: [251]
  • the making of workplace agreements, in Part 8 of the
    WRA ([252]), including provisions:
    • prohibiting certain content from being included
      in the agreements and proscribing conduct in relation
      to prohibited content: [275], [416]
    • regulating industrial action to do with the making
      of collective Workplace Agreements in Part 9: [258]–[261]
  • the minimum entitlements of employees in relation
    to termination of employment set out in ss 637 and 643
    of the WRA ([278]), and the interim exclusion of certain
    corporations (small businesses) from State laws regarding
    redundancy pay effected by Part VIAAA : [270].6

The majority also upheld these provisions as supported
by the Territories power (s 122) in so far as they apply
to employers incorporated in a Territory, or employers
that carry on an activity in a Territory so far as the
employer employs, or usually employs, an individual in
connection with the activity carried on in the Territory:
[335]–[343].

Registration and accountability of organisations

Schedule 1 sets up a system of registration, incorporation
and regulation of industrial organisations (i.e. unions
and employer organisations). Registered organisations have
a range of rights and privileges under the WRA, including
to intervene in matters before the Australian Industrial
Relations Commission (AIRC), to be parties to collective
agreements and to seek certain relief under the Act. In
return for such rights and privileges, however, registered
organisations are required to comply with various standards
set out in Schedule 1.

The majority upheld the validity of Schedule 1, stating
that:

If it be accepted, as it should be for the argument
on this branch of the plaintiffs' case, that it is within
the corporations power for the Parliament to regulate
employer–employee relationships and to set up a
framework for this to be achieved, then it also is within
power to authorise registered bodies to perform certain
functions within that scheme of regulation. It also is
within power to require, as a condition of registration,
that these organisations meet requirements of efficient
and democratic conduct of their affairs. [322]

Excluding State and Territory laws (s 16 of the Act)

Section 16 of the WRA deals with the exclusion of certain
State and Territory laws. In particular, s 16(1) provides
that the WRA is intended to apply to the exclusion of the
State and Territory laws identified in s 16(1)(a) to (e)
(such as 'a State or Territory industrial law',
a term defined in s 4(1)) so far as those laws would apply
in relation to an employee or employer. Section 16(4) then
provides for additional State and Territory laws – that
the WRA is intended to apply to the exclusion of – to
be prescribed by regulation.7

The majority rejected an argument that s 16 of the WRA
is invalid as a bare attempt to exclude State laws. The
majority accepted the Commonwealth's argument that
s 16 validly indicated the 'field' that the
WRA covers, even though the Act does not make detailed
provision about every matter within that field which is
dealt with by State and Territory law: [369]–[370].
Section 16 is not materially different from other Commonwealth
provisions that had been upheld in previous decisions of
the High Court: [372].

Other issues

A number of other challenges made by the plaintiffs to
the WRA were rejected, including to the following:

  • Broad regulation-making powers: The
    operation of several provisions in the WRA depends on
    the making of regulations, for example as to what content
    is prohibited from being included in workplace agreements
    (s 356),8 and what additional State and Territory
    laws are excluded by s 16 (s 16(4)). The majority rejected
    arguments that these provisions involved an impermissible
    delegation of legislative power to the executive and
    thus were not 'laws': [375]–[376],
    [414]–[418], [420]. The majority did, however,
    state that the technique employed at least by s 356 was 'undesirable' (at
    [399]), and led to the ambit of the relevant regulation-making
    power being 'imprecise': [417].
  • Transitional arrangements for employees/employers
    leaving the federal system: Schedule 6 of
    the WRA provides transitional arrangements for non-federal
    system employers and employees, who were bound by
    federal awards made under the pre-reform WRA, but
    who are not within the new system established by
    the Work Choices Act. During a five-year transitional
    period those employers and employees remain bound
    by the relevant awards, which are continued in operation
    as 'transitional awards' and are maintained
    by the AIRC, but within the limits specified in Schedule
    6. The majority held Schedule 6 to be valid, including
    because it was part of the Commonwealth's staged
    dismantling of the previous system established pursuant
    to s 51(xxxv) of the Constitution: [307]–[308].
    The majority similarly upheld transitional arrangements
    in Schedule 1 for organisations which may no longer
    be eligible for registration: [327].
  • Rights of entry under State law: The
    plaintiffs attacked various provisions in Part 15 which
    prohibit certain persons from exercising a right under
    State law to enter premises for OH&S purposes, unless
    amongst other things the person also holds a permit under
    the WRA. Part 15 relevantly applies to a right to enter
    premises occupied or controlled by a constitutional corporation,
    or where the right relates to conduct of a constitutional
    corporation, or where the right relates to a contractor
    in so far as the contractor provides services to a constitutional
    corporation. In so applying, Part 15 is supported by
    the corporations power: [284]–[286].
  • Freedom of association: Part 16 proscribes
    certain conduct to ensure that employers, employees and
    independent contractors are free to become, or not become,
    members of industrial associations and are not victimised
    because they are, or are not, such members (s 778(1)).
    Part 16 is supported by the corporations power because
    it only applies to conduct by or against constitutional
    corporations, conduct whose ultimate purpose or effect
    is to cause harm to a constitutional corporation, and
    conduct affecting a person in his or her capacity as
    employee of, or contractor to, a constitutional corporation:
    [291]–[294].
  • Restraining State industrial authorities: Section
    117 confers power on the AIRC to make an order restraining
    a State industrial authority from dealing with a matter
    that is also the subject of proceedings before the AIRC.
    The majority rejected the plaintiffs' arguments
    that s 117 is contrary to s 106 of the Constitution (which
    provides for the continuation of the 'Constitution
    of each State'), or otherwise infringes what is
    known as the Melbourne Corporation doctrine, and
    held that s 117 is supported by the corporations power:
    [390]–[393]. The interference with the functioning
    of a State which s 117 permitted is 'relatively
    minor'.

Dissenting judgments

Justices Kirby and Callinan each delivered strongly worded
dissenting judgments, drawing attention to the wide-ranging
consequences of a broad view of the corporations power,
given the role that corporations now play in modern life.
For example, Kirby J stated:

The States, correctly in my view, pointed to the potential
of the Commonwealth's argument, if upheld, radically
to reduce the application of State laws in many fields
that, for more than a century, have been the subject
of the States' principal governmental activities. Such
fields include education, where universities, tertiary
colleges and a lately expanding cohort of private schools
and colleges are already, or may easily become, incorporated.
Likewise, in healthcare, where hospitals (public and
private), clinics, hospices, pathology providers and
medical practices are, or may readily become, incorporated.
Similarly, with the privatisation and out-sourcing of
activities formerly conducted by State governments, departments
or statutory authorities, through corporatised bodies
now providing services in town planning, security and
protective activities, local transport, energy, environmental
protection, aged and disability services, land and water
conservation, agricultural activities, corrective services,
gaming and racing, sport and recreation services, fisheries
and many Aboriginal activities. All of the foregoing
fields of regulation might potentially be changed, in
whole or in part, from their traditional place as subjects
of State law and regulation, to federal legal regulation,
through the propounded ambit of the corporations power.
[539]

In light of this the dissenting judges considered that
s 51(xx) had to be read down in order to preserve the 'federal
balance' in the Constitution.9 Thus Callinan
J stated:

There is nothing in the text or the structure of the
Constitution to suggest that the Commonwealth's powers
should be enlarged, by successive decisions of this Court,
so that the Parliament of each State is progressively
reduced until it becomes no more than an impotent debating
society. This Court too is a creature of the Constitution.
Its powers are defined in Ch III, and legislation made
under it. The Court goes beyond power if it reshape[s]
the federation. By doing that it also subverts the sacred
and exclusive role of the people to do so under s 128.
[779]

The dissenting judges then held that s 51(xx)10 should
be read down or restricted in its operation by reference
to s 51(xxxv), with the result that Parliament has, in
effect, no power to legislate with respect to the employment
relationship between a constitutional corporation and its
employees except pursuant to s 51(xxxv): [583], [913].

In reaching this conclusion, the dissenting judges also
referred to:

  • the history of failed referenda to amend the Constitution
    to confer power on the Commonwealth with respect to industrial
    matters more generally (Kirby J at [437], Callinan J
    at [707]–[735])
  • s 51(xxxv) as protecting industrial fairness (Kirby
    J at [519]–[531])
  • the assumption, by successive governments and courts,
    that s 51(xxxv) was the Commonwealth's only source
    of power to legislate with respect to industrial matters
    (Kirby J at [428]–[447]).

According to the dissenting judges, the core provisions
of the WRA as amended were laws with respect to industrial
disputes or industrial relations and were invalid for failing
to comply with the limitations in s 51(xxxv) concerning
conciliation and arbitration. Furthermore, as those core
provisions could not be severed from the balance of the
amendments, the entire Work Choices Act was invalid: [599],
[912]. Kirby J also held that Schedule 6 and various 'opaque' regulation-making
powers were invalid in their own right: [460].

Issues for the future?

Since the Work Choices Act several lower courts have had
to address whether various employers are constitutional
corporations and thus covered by the WRA. In the present
case, the majority emphasised that the question of what
is a constitutional corporation was not in issue in this
case, and that any debate about that question 'must
await a case in which [it] properly arise[s]' (see
e.g. [55], [58], [86], [158], [185]). Similarly, the majority
noted that no party had sought to reopen the Incorporation
case11 and thus that there was no occasion
to consider further what it decided (namely that s 51(xx)
does not confer a general power to incorporate trading
or financial corporations): [137].

Text of the decision is available at:
http://www.austlii.edu.au/au/cases/cth/high_ct/2006/52.html

AGS lawyers advised on the constitutional basis of the
Work Choices Act and acted for the Commonwealth in the
High Court litigation. The Commonwealth's counsel
in the litigation included the Commonwealth Solicitor-General
David Bennett QC and AGS Chief General Counsel Henry Burmester
QC.

For further information please contact:

Andrew Buckland
Senior Executive Lawyer
Constitutional Litigation Unit
T 02 6253 7024 F 02 6253 7303
andrew.buckland@ags.gov.au

David Bennett
Deputy Government Solicitor
Constitutional Litigation Unit
T 02 6253 7063 F 02 6253 7303
david.bennett@ags.gov.au

Notes

  1. Parts of the WRA are also supported by other heads
    of power. Most notably, the operation of the WRA in Victoria
    is supported by a reference of power from that State
    pursuant to s 51(xxxvii) of the Constitution.
  2. In relation to which the majority expressed some caution,
    stating that 'the answer to [the] question [whether
    a law is within power] is not to be found in attempting
    to attribute some collective subjective intention to
    all or any of those who participated in the Convention
    Debates': [120].
  3. The majority concluded that 'There are insuperable
    difficulties in arguing from the failure of a proposal
    for constitutional amendment to any conclusion about
    the Constitution's meaning.': [131]–[135].
  4. Re Pacific Coal Pty Ltd; Ex parte Construction,
    Forestry, Mining and Energy Union (2000) 203 CLR
    346 at 375 [83].
  5. Amalgamated Society of Engineers v Adelaide Steamship
    Co Ltd (1920) 28 CLR 129.
  6. Part VIAAA has since been replaced by the more general
    exclusion of State laws effected by s 16 of the WRA.
  7. According to the majority the kinds of laws that can
    be prescribed under s 16(4) are, however, limited by
    its statutory context: [361].
  8. Section 356 provides: 'The regulations may specify
    matters that are prohibited content for the purposes
    of this Act'.
  9. At [532]–[559] per Kirby J, and [774]-[797]
    per Callinan J.
  10. And other heads of power, except for the defence power
    (s 51(vi), [569], [797]), probably the external affairs
    power (s 51(xxix), [573], [797]) and perhaps the Territories
    power (s 122, [573], [910]).
  11. NSW v The Commonwealth (The Incorporation Case) (1990)
    169 CLR 482.

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