The Federal Court has found that clauses in an enterprise agreement (Agreement) between the Country Fire Authority (CFA) and the United Firefighters Union of Australia (UFU) are unconstitutional and accordingly invalid.

The Agreement, approved by the Fair Work Commission (FWC) in 2010, contained a clause requiring the CFA to employ an additional 342 firefighters over a six year period, to conduct at least three recruit training courses per year and to train at least 30 recruits at each training course. The CFA did not comply with the recruitment regime in the Agreement. The Agreement also contained clauses constraining the CFA's management prerogative to restructure work classification, implement redundancies or recruit laterally.

The UFU brought proceedings against the CFA in the Federal Court, seeking a declaration that the CFA had breached the Fair Work Act 2009 (FW Act) by failing to comply with the Agreement, as well as injunctive relief requiring the CFA to comply with the relevant clause and remedy the effects of any contraventions of the Agreement found to have occurred.

CFA – a constitutional corporation?

Murphy J accepted the UFU's argument that the CFA was a constitutional corporation, being a 'trading corporation' for the purposes of the Constitution (although this issue was ultimately not decisive). His Honour found in this respect that:

  • it is a corporation's activities, rather than what the corporation was set up to do, that will usually be determinative of the issue 
  • the fact that the CFA conducts activities in the public interest does not exclude those activities from being trading activities
  • despite less than three per cent of the CFA's total revenue during the relevant period being referrable to its trading activities, those activities were not 'peripheral, insignificant, incidental or trivial'. 

Implied limitation

In its defence, the CFA (an agency of the State of Victoria) argued, among other things, that the recruitment clause was invalid and unenforceable by reason of the implied constitutional limitation on Commonwealth legislative power described in the High Court's decision in Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188 (Re AEU).

The concept of an implied limitation in the Constitution on the Commonwealth's legislative power has been developed by the High Court over many years, and essentially refers to a prohibition on the Commonwealth making laws which impose a special burden on a state, or which curtail a state's capacity to function as a government.

In Re AEU, the High Court held that an industrial award, made under a predecessor to the FW Act, that impaired the capacity of a state government to determine the number and identity of state government employees it wished to employ and to dismiss on the grounds of redundancy, infringed the implied limitation.

In the present case, Murphy J of the Federal Court dismissed the UFU's application, finding that:

  • the principle in Re AEU extends to an enterprise agreement approved by the FWC 
  • it is of 'little relevance' that the CFA agreed to the recruitment clause by voluntarily entering into the Agreement
  • the recruitment clause was invalid and unenforceable, as were the other clauses constraining CFA's ability to deal with its recruitment, redundancy and work classification requirements referred to above. 

However, the Court held that broad dispute resolution and consultation clauses are valid and enforceable, even where they cover matters not otherwise arising under the Agreements, and allow for union nomination of committee membership.

Referral Act

The CFA also argued that the recruitment clause was invalid by reference to the Fair Work (Commonwealth Powers) Act 2009 (Referral Act).

The Referral Act specifies certain matters referred from the Victorian Parliament to the Commonwealth Parliament to allow the Commonwealth to legislate on those matters. Section 5 of the Referral Act essentially restates the principle described in Re AEU, in that it expressly excludes from that referral matters pertaining to the number, identity or appointment of employees in the public sector.

Murphy J held that it was unnecessary to decide this issue, given his finding that the CFA was a constitutional corporation. However, His Honour:

  • agreed with the Full Bench of the FWC in the decision of Parks Victoria v Australian Workers Union and Ors [2013] FWCFB 950 that the FWC does not have jurisdiction to approve an enterprise agreement (even though its terms have been agreed between the parties) containing clauses that deal with matters within the exclusion set out in section 5 of the Referral Act 
  • held that if the FWC's power to approve the Agreement had been derived from the Referral Act, the FWC would equally have had no power to approve the recruitment clause in the Agreement.

Lessons for the State of Victoria and its agencies  

  • The State of Victoria and its agencies are parties to a number of enterprise agreements and a workplace determination that contain terms that, on the basis of this decision, are likely to be unenforceable. For example, the Victorian Public Service Workplace Determination 2012 restricts the employment of casual and fixed term contract workers in the public service. Even so, the political and industrial consequences of breaching admittedly unenforceable, yet agreed, terms remains a live issue. 
  • A state agency may be a trading or financial corporation for constitutional purposes, even if its actual trading activities are but a small percentage of its total revenue. This has implications for access by, for example, employees of Councils or statutory authorities, such as the CFA, to the Fair Work Commission's anti-bullying jurisdiction, which is limited to constitutional corporations. That right of access may be broader than previously thought.
  • Employers need to be careful, when negotiating enterprise agreements, that they do not inadvertently agree to dispute resolution or consultation clauses that have a broader reach than intended. Employers need to think carefully about the time and productivity cost, amongst other things, of having issues susceptible to a consultation and/or dispute resolution process that prevents, or at least delays, the timely implementation of management decisions, and establishes the union as the exclusive point of consultation on behalf of employees in general.