Australian education minister David Kemp is being sued over claims that he has contravened the government's Workplace Relations Act by trying to coerce universities into adopting anti-union policies.
If the case is proved, Dr Kemp could be fined and his plans to reform university industrial relations could be declared illegal.
The National Tertiary Education Union has asked the court to rule that Dr Kemp has broken the law by offering universities a 2 per cent salary supplementation grant only if they achieve certain workplace reforms.
The union's case is that by imposing a list of criteria and attempting to intervene in negotiations between the parties, Dr Kemp is trying to coerce the employers - which is outlawed under the act.
Dr Kemp said he would vigorously defend the action. He said his offer to provide A$269 million (Pounds 106 million) in additional funding to universities was about pay rises for university staff and "more efficient services to students".
His plans to influence bargaining between the union and individual institutions were revealed in a leaked cabinet document last October. The document proposed a wholesale deregulation of higher education aimed at workplace reform.
In the submission, Dr Kemp said some salary increase for academics was warranted but that workplace reform could be pursued through "an upfront injection of funds" contingent on achievement of the reforms.
The submission said: "The Australian government solicitor considers it appropriate to act on the basis that the Workplace Relations Act's prohibition of coercion, in relation to agreement-making, does not apply when a government imposes conditions on a proposed grant of funds."
Following widespread publicity about the impact of the plans on students and regional universities, prime minister John Howard rejected the submission. But Dr Kemp proceeded to offer funding for a 2 per cent salary rise to those universities implementing "significant workplace reform".
To obtain supplementation, universities must meet at least nine of 14 criteria set down in the guidelines relating to enterprise bargaining agreements.
These include provisions for individual contracts, payment of union dues through payroll deduction to be optional, youth employment, including adoption of junior rates of pay, and simplified procedures for staff redeployment.