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December 2005   

Interview: The Binds That Tie
Dr Don Edgar has demolished the Prime Minister's credentials as a family man.

Unions: Worth Cycling For
Pedal power joined the Your Rights At Work campaign on a 350km journey to take a message to Canberra’s politicians, wrties Phil Doyle.

Industrial: The Elephant in the Corner
Jim Marr takes a look at what the government has secreted away in the WorkChoices package, revealing what is really at stake - and what can be done about it.

Legal: A Law Unto Themselves
In this extract from the Evatt Foundation's 'State of the States' Jeff Shaw & Monika Ciolek look at the constitutional issues rasied by WorkChoices.

Politics: Ethically Lonely
At a forum in the Australian Stock Exchange sponsored by big end of town solicitors, you would expect at least one person to be in favour of John Howard’s industrial relations laws, wrties Rachael Osman-Chin.

History: Women, Unions, Banners and Parades
Trade union banners reveal more about union history than their male designers and makers intended, writes Neale Towart.

Women: Relaxed and Comfortable?
Suzanne Hammond from WEL argues there are many hidden nasties in WorkChoices for working women.

International: The Last Social Democrat
A trade union leader's victory marks beginning of class politics in Israel, wrties Eric Lee

Review: The Corpse Bride
Come to a world where decay, loss and broken dreams are everywhere - and it's not the Federal Senate.

Culture: Tony Moore Holds His Own
In his new book, Tony Moore argues that today's generation of political leaders has much to learn from Bazza McKenzie.


The Soapbox
Whitefellas - You Just Can’t Trust ‘Em.
Racial stereotyping is a bad business. That said, Graham Ring has discovered a segment of society that drinks too much, behaves unreliably and can’t seem to adapt to change. Sadly, the conclusion is inescapable…

The Locker Room
Phil Doyle slices one into the car park.

The Westie Wing
Ian West makes a midnight dash to Workers Online, slides his State political report under the door, then heads back to the Macquarie Street Chamber of Horrors…


A Free Vote
This week’s charade of the Senate amending the Howard Government’s workplace laws raises fundamental questions about the sort of democracy Australia has become.


 Read His Lips: WorkChoices Too Much

 Joyce A Christmas Goose

 Workers Leave Boss in Tool Shed

 Costello Chokes On Asbestos Compo

 Telstra Hangs Up on Former Staff

 Bank Check on Bras

 Bill of Work Rights on Agenda

 Funny Film - Scary Message

 Sign Of the Times

 Unions Chip In for Lauren

 Company Raids Own Ship

 Activist's What's On!

 Million Mum March
 Pension Pinching
 John Bares All
 Radicalising Yoof
 Tom A World Away
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A Law Unto Themselves

In this extract from the Evatt Foundation's 'State of the States' Jeff Shaw & Monika Ciolek look at the constitutional issues rasied by WorkChoices.

At Federation in 1901, the colonies agreed to 'unite in one indissoluble Federal Commonwealth', as proclaimed by the preamble to the Australian Constitution.

It is unlikely that the drafters of the document would have envisaged the ascendancy of the federal government 104 years on. They may however have guessed that if the balance of power were to shift, it would be with the assistance of the High Court. As Albert Dicey now famously noted in 1885, 'federalism ... means legalism, the predominance of the judiciary in the constitution'. In concert with intergovernmental agreements, wartime fiscal relationships, and constitutional amendment by referendum, the High Court's interpretation of the Constitution has steadily increased the financial, political and legal clout of the Commonwealth government.

It seems likely that the High Court will soon have before it questions going to the heart of contemporary Australian federalism. In March 2005, John Howard's Coalition government, armed with a majority in the Senate, announced that it intends to introduce federal legislation so as 'to work towards a unified national system' for industrial relations. Since the states declined to refer their industrial relations powers to the Commonwealth on 3 June 2005, the Commonwealth intends to rely on the Constitution's corporations power to over-ride the state jurisdictions (s 51(20) of the Australian Constitution). The political and legal debate surrounding these proposals extends beyond labour and industrial issues, to questions of states' rights, and the appropriate use of federal power. Prime Minister John Howard has said that 'the goal is to free the individual, not to trample on the states'. Having refused to refer their powers, the states have pledged to mount High Court challenges to the take-over.

Accordingly, this chapter will focus on constitutional aspects of the Coalition's proposal for a unified industrial relations scheme. The first part sketches out arguments which might be raised to challenge the use of the corporations power to displace state industrial relations jurisdictions. The second part maps the known limits of the corporations power's application, and the questions which remain to be resolved in that regard. It is argued that, in the event the proposed new system was found to be valid, it could not profess to be unified, as its coverage would be both patchy and uncertain.

Constitutional validity of a national system based on the corporations power

Section 51 of the Australian Constitution lists the subject matter with respect to which the Commonwealth parliament is entitled to make laws. Subsections 20 and 35 are the corporations and industrial powers. They are worded as follows.

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order and good government of the Commonwealth with respect to:


(xx) foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth


(xxxv) conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one state.

The industrial power is a limited one, as is clear from the wording of the provision. Section 51(35) has the following characteristics:

it is not a direct power for the federal parliament to legislate with respect to the wages and conditions of employees;

on the contrary, it is a power to provide a system of conciliation and arbitration to deal with or prevent disputes about such matters;

it does not create an obligation upon the Commonwealth parliament to have a conciliation and arbitration system, but merely empowers it to do so if it chooses;

the power may only be applied when the dispute extends beyond the limits of any one state.

The Coalition has therefore pinned its hopes on the corporations power, whose potential has been progressively expanded by the High Court over the last hundred years. Simply put, from being restricted to the regulation of interstate activities of foreign, trading and financial corporations (henceforth referred to as 's51(20) corporations'), the power evolved to enable the regulation of the trading and financial activities of these corporations. Later still, it was held also to enable the protection of these activities, including protection against industrial action. In 1995, a narrow majority of judges indicated that they understood the power to be plenary, allowing the regulation of any activities of s51(20) corporations. The question has yet to be formally resolved: the precise scope of the corporations power in the area of industrial relations is undetermined. Similarly, the specific wording and form in which the Commonwealth will put forward its new system is, at the time of writing, unknown. Nevertheless, it is possible broadly to outline three potential arguments against the validity of a national industrial relations system founded on the corporations power.

The first argument looks to precedent to contend that, although the corporations power extends to allow the protection of corporations, the proposed over-ride of state industrial relations systems is qualitatively different from such protection and is beyond the scope of the corporations power. In 1981, Fontana Films asked for an injunction against a trade union of actors and artists for organising a secondary boycott of Fontana when it refused to sign a preference agreement with the union. The law which prohibited secondary boycotts was challenged as invalid under the corporations power. The High Court decided that the power allowed the Commonwealth to regulate not just the trading activities of s51(20) corporations, but also the conduct of others if this achieved the protection of those activities. Hence, the first argument would seek to highlight the differences between the direct protection of the activities of s51(20) corporations and a forceful displacement of state industrial relations jurisdictions. By distinguishing the nature of the two forms of legislation, the idea would be to show that the latter falls outside the agreed scope of the corporations power. The corporations power is both regulatory and protective, but whether it can validly be said that the 'protection' of corporations includes the decimation of state industrial relations systems is more problematic.

The second potential argument is a doctrinal one. The Melbourne Corporation case of 1947 stands for the proposition that the federal nature of the Constitution implies certain prohibitions on Commonwealth action. The case involved a challenge to a federal banking law which prohibited any banks from doing business with state government agencies. The aim was to compel all the state governments to bank with the Commonwealth Bank. The Court found that the law was invalid because

federal laws which 'discriminate' against the states are not laws authorised by the Constitution. Laws 'discriminate' against the states if they single out the states for taxation or some other form of control, and they will also be invalid if they 'unduly interfere' with the performance of what are clearly state functions of government.

The doctrine was restated in 1995, in the following terms.

The limitation (recognised in the Melbourne Corporation case) consists of two elements (1) the prohibition against discrimination which involves the placing on the states of special burdens or disabilities ('the limitation against discrimination') and (2) the prohibition against laws of general application which operate to destroy or curtail the continued existence of the states or their capacity to function as governments.

Commonwealth laws may be struck down for infringing either of these limbs. The first has been used to invalidate a federal law obliging an agency of the Queensland government to submit to arbitration. The second has prevented Commonwealth laws from control of the number and identity of state employees, and prevented control also of their appointment and their dismissal. While the precedent is not strong, a challenge to Commonwealth industrial relations laws on doctrinal grounds might therefore seek to show that the Commonwealth laws unduly interfere with the performance of state functions of government; namely, state industrial relations jurisdictions. Alternatively, it would seek to show that by aiming to restrict and control state industrial relations jurisdictions, the Commonwealth laws affect the integrity of the states and their capacity to function as governments.

The third potential argument is an originalist one. The validity of Commonwealth laws resting on the corporations power to create a national industrial relations system would be weakened if it could be contended that the framers of the Constitution did not intend to enable direct industrial relations regulation under s51(20). This contention is supported - though certainly not resolved - by the observation that s51(35) grants only very limited industrial powers to the federal parliament, leaving intra-state matters to be dealt with by the states. Championed by Justice Scalia of the US Supreme Court, originalism is often sharply contrasted with theories of living, adaptable Constitutions. Even though the High Court has long adopted an approach which looks to both the original meaning of words and their contemporary understanding, a strong originalist argument would assist any challenge to the validity of the proposed Commonwealth laws.

Of course, as we have already pointed out, the validity of the proposed national system will depend in part on the precise form and nature of the legislation which may ultimately be enacted - and all potential challenges to the laws will be borne in mind throughout the drafting process. So far as is possible, the legislation will be crafted to avoid these issues. It will also most likely be in the form of several bills, to constrain the effect of challenges, and make them more difficult. The composition of the High Court has, moreover, changed since the last time its members gave an indication of their position on industrial relations and s51(20), and the question of the scope of the corporations power has divided opinions on the bench since 1909. Therefore it is impossible to predict with any dogmatism whether or not the High Court will grant the Commonwealth a further extension of its influence by validating a national industrial relations system under the corporations power. In any event, the progress of the legislation and of the eventual challenges to it will provide us with a glimpse of the future of the Australian states' relationship to the Commonwealth.

Likely extent of a national IR system

The Coalition has put forward its proposals for changes in the industrial relations arena on the ground that 'the workplace relations system is still complex and further improvements are needed to make the system simpler, accessible and more effective'. It is true that the current system is complex and could do with improvement. However the suggestion that the proposed changes will achieve these aims requires qualification.

First, it may be possible that, despite the enactment of a federal law, state conciliation powers might persist. This is currently being determined with respect to the present federal legislation: the union representing the employees of Newcrest Mine is attempting to have a state tribunal exercise some powers of conciliation and, or, recommendation in relation to their dispute.

Second, even if the proposals are found to be valid under the Constitution, the power in s51(20) cannot support a uniform industrial relations system across all employers, since it applies only to laws with respect to certain sorts of corporations.

There are a number of areas in which it is clear that proposed changes will not operate. The Commonwealth Constitution via section 122, gives the federal parliament power over the Australian Capital and Northern Territories. Outside these areas, its powers over employees are limited to people working for the types of corporations named in section 51(20): 'foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth'. Therefore, any industrial relations system relying on the corporations power will not extend to the employees of businesses which operate as sole traders, partnerships or trusts. In 1997 such businesses employed a significant number of private sector workers in Australia. Workers outside the scope of the power include the following.

Employees of small to medium businesses, which tend to be sole traders or partnerships. As Breen Creighton and Andrew Stewart have pointed out, it is ironic that the small business sector - considered so politically and economically vital by the Howard government - will be excluded from the proposed system.

Owner-managers of unincorporated enterprises. These accounted for 13 per cent of employed people nationwide in 2005.

Farmers and their employees, another group of significance to the Coalition parties, would be excluded as they tend not to incorporate for tax reasons.

Contract workers who do not contract directly with foreign, trading or financial corporations would not be covered by the new system, as laws purporting to affect these contracts are not considered to be laws with respect to s51(20) corporations.

People working directly for the state Crown (ie. the administrative edifice of the executive) and for other unincorporated government departments and, arguably, people working for local government. The Crown, although perhaps a corporation sole, would not generally be regarded as a trading or financial corporation.

Should a new national industrial relations system based on the corporations power be found valid, these workers would not be covered. A range of others would find their position uncertain, their awards and rights subject to litigation. This is for two reasons.

The first is that some employees work for corporations whose status under the Constitution is unclear. One example is local councils. In 1974, local councils were held not to be s51(20) corporations. This decision has never been technically overruled, but the High Court's reasoning on the question has since changed. The Court now looks to the actual activities of the corporation rather than the purpose for which it was established. If trading or finance are a substantial or significant proportion of its overall activities, the corporation will fall within s51(20), irrespective of whether it also performs a government or public interest role. Because the question is one of fact and degree, the status of each council - and the consequent industrial rights of its employees - will need to be determined on a case by case basis.

The same goes for any incorporated organisation which has made some investments or which sells goods or services for a profit. This could include some state government departments, medical services, emergency services and universities. For example, the Federal Court recently decided that University of Western Australia is a trading or financial corporation because 18-28 per cent of its activity was trading, and it also had 'substantial' investments in the short-term money market and short-term bills. Given that the trading and investment activities of universities are likely to vary across the sector, employees of each institution may well need to have their rights determined through litigation.

A special case of corporations of indeterminate status is state-owned corporations (SOCs). A number of states have created SOCs by legislation. The laws creating these corporations show a legislative intention to provide for commercial, profit-oriented entities. If their activities match this intention, they may be trading corporations under the Constitution and within the Commonwealth's power. Of interest is the fact that, with a few intricate exceptions, the NSW legislation about SOCs explicitly excludes them from the reach of existing national corporations legislation. An argument could be attempted that, because of this exclusion, and because of the Melbourne Corporation doctrine, the SOCs are not within the scope of the corporations power. These limitations provide a doubtful basis for such an argument, however, as has been recognised by the CPSU-SPSF (Community and Public Sector Union-State Public Services Federation group). In March 2005, the CPSU-SPSF announced that it would lobby the states to bring employees of SOCs back into direct employment by the Crown, in the hope of removing them from the reach of the corporations power. Approximately 300,000 employees nationwide were thought to be eligible for such a transfer.

The second reason for which some employees' status under the new system will be unclear is as a result of the Melbourne Corporation doctrine, which protects the integrity of states as functioning entities. As mentioned, the Commonwealth is prevented from passing laws which destroy or curtail the continued existence of the states or their capacity to function as governments. It has been held that, because of this protection, those working 'at the higher levels of government ... Ministers, ministerial assistants and advisers, heads of departments and high level statutory office holders, parliamentary officers and judges ... and possibly others as well' may not have their terms of employment regulated by the Commonwealth under s51(35) of the Constitution. It is possible that the same doctrine may prevent Commonwealth control over these people under s51(20). Also excluded from the new system might be employees engaged in 'the administrative services of the state'. As with the 'higher level' employees, these have previously been considered to fall outside the scope of s51(35) and may arguably be beyond the reach of s51(20).

From what we have set out above, it seems that any new system relying on the corporations power cannot expect to be either unified or simple. Though many more employees would come under the federal system, state conciliation and arbitration functions will persist and may even coexist with it. Anyone not working for or contracting directly with a foreign, trading or financial corporation will be excluded, and a range of employees will be in uncharted legal territory. The new system, if valid, would still be incomplete, uncertain and would therefore inevitably precipitate litigation. The new system would still be inconsistent with the professed goals of the proposal.

Certainly, this prospect is not a fundamental obstacle to the Coalition government's plans. The prime minister expects that states may eventually cede and refer their industrial relations powers, should they find running a separate system for fewer workers too burdensome. In the meantime, lack of uniformity and lack of certainty are consistent with the ultimate aim of de-regulation. The Coalition wishes to create a fragmented system of negotiation in the place of centralised adjudication or bargaining. And uncertainty as to the detail of what employees may expect from their employers may not be seen as undesirable - rather, it is just another way of referring to the 'flexibility' of employment conditions on which the Coalition places so much importance.


The manner in which change is brought about will have just as significant an effect on Australian federalism as the operation of the new system will have on industrial relations. Reducing the complexity of Australia's overlapping industrial relations systems is an arguable objective, but for such an objective to be properly achieved, the simplification must be a matter of substance: the new system must in fact work better than the ones it replaces. And it must be fair to employees, protective of their wages and all of their working conditions. The creation of a so-called unitary system may be more ideological than technocratic: to prevent state labourist systems being a fetter on the de-regulation of the labour market. To recall Albert Dicey again, in 1885 he also observed that federalism tends to produce conservatism. How the High Court will resolve the tension between legal conservatism and John Howard's self-proclaimed political conservatism remains to be seen. Ironically, a relatively conservative constitutional court may take a sceptical view of the use of the corporations power for ulterior purposes.


*    More from the Evatt Foundation

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