Steelink Contracting Services Ltd v Manu CA54/98 [1998] NZCA 199; [1999] 1 NZLR 722 ; [1998] 3 ERNZ 648; (1999) 5 NZELC 95,862 (16 November 1998)

Last Updated: 14 February 2014

IN THE COURT OF APPEAL OF NEW ZEALAND CA54/98

BETWEEN STEELINK CONTRACTING SERVICES LIMITED

Appellant

AND JAMES MANU Respondent

Coram: Gault J Blanchard J McGechan J

Hearing: 20 October 1998

Counsel: D A Garrett for Appellant

A J Little for Respondent

Judgment: 16 November 1998

_{JUDGMENT OF THE COURT DELIVERED BY GAULT J}

The respondent, Mr Manu, who had been employed by the appellant (the employer) as a scaffolder/rigger successfully claimed against his former employer in the Employment Court for breach of his employment contract and in respect of a personal grievance.

In a judgment delivered on 18 February 1998 the Chief Judge made an order pursuant to s57 of the Employment Contracts Act 1991 (the Act) setting aside as harsh and oppressive a clause in the relevant collective employment contract which empowered the employer to stand down workers in response to fluctuations in demand for work. He further held that in purporting to suspend or stand down Mr Manu relying on that clause the employer acted in breach of the contract and subsequently completed or confirmed his dismissal by offering to pay out holiday pay and other

entitlements. Mr Manu was awarded $7,644 for lost wages and $1,000 for humiliation on his personal grievance.

The employer appeals under s135 of the Act on the ground that the findings are

“erroneous in point of law”.

The first issue is whether cl 5(b)(ii) of the collective employment contract between the employer and its workers was “harsh and oppressive when it was entered into” as provided in s57(1)(b) of the Act.

The material parts of cl 5 read: TERMS OF EMPLOYMENT

(a) All employees will be deemed to be employed from the

Company’s premises at Centennial Drive, New Plymouth

(b) (i) Initially your employment shall be hourly, however after one months service it will be deemed to be weekly. As such, within the first month of service termination of employment by either party shall be by the giving of one hours notice. After one month the notice of termination required of either party will be one week. If this is not done, a week’s wages shall be paid or forfeited.

(ii) The parties agree that due to the nature of the work, demand may fluctuate and the employee may from time to time be stood down without this contract terminating. The employer shall endeavour to give two paid days notice of any such stand-down. During any stand-down periods no remuneration shall be payable. The employee may resume work when required by the employer under the same terms and conditions as in this contract.

Section 57 of the Act reads:

Harsh and oppressive contracts -

(1) Where any party to an employment contract alleges -

(a) That the employment contract, or any part of it, was procured by harsh and oppressive behaviour or by undue influence or by duress; or

(b) That the employment contract, or any part of it, was harsh and oppressive when it was entered into,-

that party may apply to the Court for an order under this section.

(2) An allegation of the type referred to in subsection (1) of this section may be made in proceedings before the Court commenced for that purpose or in the course of other proceedings properly brought before the Court.

(3) The Court may exercise the powers contained in subsections (4) and (5) of this section only on the application of a party to the contract and not of its own motion.

(4) Where the Court is satisfied, on the application of a party to an employment contract, that an allegation of the type referred to in subsection (1) of this section is true, the Court may make one or more of the following orders:

(a) An order setting aside the contract (either wholly or in part):

(b) An order directing any party to the employment contract to pay to any other party such sum by way of compensation as the Court thinks fit.

(5) In making any order under this section the Court shall take into account all the circumstances surrounding the creation of the contract or the relevant part thereof.

(6) Any order under this section may be made on such terms and conditions as the Court thinks fit.

(7) Except as provided in this section, the Court shall have no jurisdiction to set aside or modify, or grant relief in respect of, any employment contract under the law relating to unfair or unconscionable bargains.

The focus is upon the time the contract was entered into or leading up to that event and subsec (5) requires that there be taken into account all the circumstances surrounding the creation of the contract or the relevant part. It follows that the conduct of the parties after the contract was created is not part of the enquiry under

s57. How that restriction might affect any assessment of compensation is not something that arises on the present appeal as no order was made under subsec (4)(b).

The factual background is set out in the judgment under appeal. To some extent it records the evidence of the parties without specific findings, but we do not understand there to be any significant dispute. Accordingly the following facts are taken from the judgment.

The employer is a contracting company specialising in providing scaffolding for the petro-chemical plants in Taranaki. The demand for its services fluctuates as does the available work for its workforce. Notwithstanding that, some members of the workforce are permanent, others are employed on a casual basis. Prior to September

1995 there were no written employment contracts. About that time, under pressure from its petro-chemical company customers, the employer arranged for written contracts. Individual employment contracts were signed by (presumably) the permanent employees including Mr Manu who had worked for the employer since

1990. The judgment states:

The plaintiff says that he and a co-worker raised an issue about a stand down clause (similar to the clause in the collective employment contract) but Mr Lockwood [Operations Manager of the employer] could not recall any such discussion. He pointed out, however, that some employees successfully negotiated amendments. Whether they did or not does not seem particularly material because the plaintiff signed the individual employment contract. He then approached the union, along with some co-employees, and soon afterwards a strike followed in support of a demand for a collective employment contract. This resulted in a collective employment contract on essentially the same terms as the individual employment contracts but with a slightly different stand down clause from that in the individual employment contracts. Mr Gardner, the union organiser, claimed credit for the difference but I am left unclear at the end of the day what its genesis was. The difference consisted of an express statement that the notice that the employer undertook to endeavour to give would be of 2 paid days’ duration rather than just of 2 days.

Later the Chief Judge said:

Mr Glasgow gave evidence of the fluctuating nature of demand for labour in the defendant’s business. Against this it was pointed out, and I accept, that this has been the case in the scaffolding industry and has been recognised as such for many decades. Awards existed which referred to the discontinuous nature of the employment and, for that reason, made provision for incremental payments known as site allowances. However, there is no doubting that the defendant was seeking, by the introduction of clause 6(b)(ii), to effect an economy. The question is whether its doing so resulted in a contract that was in part harsh and oppressive.

In his judgment the Chief Judge analysed the collective contract. He referred to the provision dealing with redundancy which provides for not less than one week’s notice to any affected employee but no compensation is payable. He referred also to the stated objects of the contract:

(a) To provide a stable and secure industrial employment arrangement that as far as is practicable meets the objectives of both the company and employees.

...

(c) To provide flexibility for the company to improve competitiveness, profitability, productivity, and effectiveness of operation.

The Chief Judge addressed the meaning of “harsh and oppressive” as used in s57. He cited earlier cases including the decisions of this Court in United Food and Chemical Workers Union v Talley [1993] 2 ERNZ 360 and Eketone v Alliance Textiles (NZ) Ltd [1993] 2 ERNZ 783 and drew from them a series of propositions some of which he accepted were inapplicable to the present case. They included the need to consider the effect on the party sustaining the detriment of the bargain, any countervailing benefit, the realities of the particular workplace, and whether obligations properly belonging to persons in business have been imposed upon employees. Reference was made to the comment of Hardie Boys J in Eketone (p 378) to the effect that it is unnecessary to go beyond the ordinary meaning of the words “harsh” and “oppressive”.

The Chief Judge went on to say:

In both Adams [the Employment Court decision in the Eketone case] and Talley I was searching for a meaning of the phrase “harsh and oppressive” that would give effect to both its components “harsh” and “oppressive”. In many cases the contract complained of will be so unfair to one party that it will easily qualify for both epithets. On reflection, and with the benefit of reasoning articulated in later cases, I do not think that I was right to search for different qualities of harshness on the one hand and of oppression on the other, and to require that both should be established as it were separately and cumulatively. Rather, I think on reflection that in this phrase the statute uses two words to describe one condition. It is not that harshness and oppression are one and the same thing but, rather, that there is only one quality of being harsh and oppressive, not two qualities of (a) harsh and (b) oppressive. It is simply a case of Parliament using two nearly synonymous words, in order to make sure that the widest possible clear understanding would be conveyed of Parliament’s intention.

In applying the principles he had identified the Chief Judge said:

In the CEC presently under discussion what stands out is that there is one provision already dealing with a downturn of work and providing for a week’s notice or a week’s pay in lieu of notice in the event of redundancy. The stand down provision gives the employer the further facility of avoiding the need to give a week’s notice or pay a week’s wages by permitting a stand down on 2 days’ notice, or up to 2 days’ notice, for there is no absolute obligation to give 2 days’ notice but only to endeavour to do so. In theory, therefore, employees could be stood down without notice or on minimal notice for indefinite, possibly lengthy, periods of time.

...

I do not accept Mr Little’s argument that, merely because business risks were being transferred to employees by the employer, the provision was harsh and oppressive. That can be an element but it is not necessarily decisive. The reason for categorising it as possessing this quality is that it is harsh when overlaid on a power to make employees redundant on a week’s notice and with no compensation. It is not harsh and oppressive in any absolute sense, for there are few provisions that are so bad that they could automatically, without reference to surrounding circumstances, be seen to be harsh and oppressive. No, it is capable of seeming harsh and oppressive only when seen in all the circumstances of the case and in the context of the other provisions in the contract protecting the employer against a sudden downturn and failing to protect the employees other than

minimally. In that environment, was it so exploitative to extract the employees’ agreement to a stand down provision of this kind as to be harsh and oppressive? Put another way, given the power to dismiss employees for redundancy on only one week’s notice, did the further power to stand them down on no notice at all go too far? It seems to be common ground that the demand for labour in this industry was unpredictable from day to day, even more so than in the construction industry generally. That this was so had been recognised for a long time by negotiating parties. This quality had been used for the purpose of supporting employees’ arguments that they should receive an enhanced rate of pay for working in this insecure environment. That argument has been turned on its head by the defendant for the purpose of resisting the cost and administrative labour of repeatedly terminating employment for redundancy. The short answer is that the employer has some scope, however limited in practice, for passing the cost on in its price structure while the employee has no such ability and has received no benefit in exchange for the introduction of this provision. It is far too severe and, however desirable it may be from the employer’s point of view, it is, in its contractual and industrial context, so one-sided that it cannot survive scrutiny. It is harsh and oppressive and must be set aside. Clause 5(b)(ii) is therefore deleted from the collective employment contract.

Mr Garrett challenged that conclusion submitting that the Chief Judge was wrong to treat the words harsh and oppressive as providing a single level of repugnance as the test for the jurisdiction to set aside. He argued further that it was an erroneous conclusion to find the test satisfied by cl 5(b)(ii) of the contract.

With Hardie Boys J, we see no need to give the words harsh and oppressive anything other than their natural collective meaning. In contexts relating to the impact of particular terms on a party or parties to a contract any difference in meaning they may bear must be slight indeed. In dictionary definitions there is considerable overlap. Both connote considerably more than imbalance; rather, the sense of unreasonably or unjustifiably onerous to the degree suggested by the dictionary meanings such as severe, cruel, burdensome, merciless.

It is instructive to note the definition of “oppressive” in the Credit Contracts Act 1981 which empowers the Court to reopen a credit contract where any term is oppressive. Section 9 gives as the meaning of oppressive:

oppressive, harsh, unjustly burdensome, unconscionable or in contravention of reasonable standards of commercial practice.

In that Act, it is a ground for reopening a contract that a party has exercised or intends to exercise a right or power conferred by the contract in an oppressive manner (s10(1)(b)). It is noteworthy that s57 of the Employment Contracts Act contains no corresponding provision. It is confined to harsh and oppressive behaviour by which the contract was procured and terms in the contract which are harsh and oppressive at its inception. Just as with credit contracts, there will in employment contracts be many provisions which, although capable of operating unobjectionably in the relationship between the parties, may also be capable of abusive use which might impact harshly and oppressively on the other party. It appears that, understandably, the legislature was satisfied to leave issues of harsh and oppressive exercise of contractual rights in employment contracts to be dealt with under the personal grievance provisions of the Act. That is preferable to having the court set aside every provision conferring rights capable of being exercised in a harsh or oppressive manner; particularly so when there is taken into account the special nature of employment contracts into which there are implied the obligations of fair treatment, confidence and fidelity.

We consider that the jurisdiction in s57 is to be approached in that light. If at the time it was entered into a term in an employment contract was capable of operating in a manner that is not harsh and oppressive but was also capable of being used harshly and oppressively by one party, it should be considered having regard to the fundamental obligation of each party to act towards the other fairly and in such manner as maintains the relationship of good faith and confidence. Viewed in this way a clause will be inherently harsh and oppressive and so within s57(1)(b) only where there is a realistic likelihood that it will be used in a manner that is harsh and oppressive and any such abuse by the employer cannot be checked by invocation by the employee of the employer’s obligation to act fairly and in good faith or by another means. Section

57(1)(b) orders are appropriate in circumstances where, perhaps because of the subject matter of the clause or because of its explicit wording the employee is unable to be protected from oppression or potential oppression by the availability of those obligations of the employer or in some other way.

That approach is perhaps the more important where only one term in a contract is under examination. The process of negotiation generally involves give and take. Concessions are made at one point to secure a position at another. The bargain is reached as a whole. The term under consideration might well have been agreed to in order to secure an additional benefit elsewhere. The power to interfere with the balance arrived at by the parties should be exercised with care. Generally it will be less draconian to deal with instances of unjustifiable conduct by means of personal grievance procedures than to strike down the right entirely.

In the present case the Chief Judge referred to how the stand down clause might be used by the employer “in theory”. We do not consider that reflected a correct approach having regard to his acceptance that it was common ground that it had been recognised by the negotiating parties for a long time that the demand for labour in this industry was unpredictable from day to day, a circumstance that had been used by employees as an argument for enhanced rates of pay and had been accepted in the contract negotiations in which the employees were represented by a strong union. Plainly the general concept of retaining a pool of “permanent” workers on which to draw according to demand, without repeated terminations and re-hirings, was the accepted practice to cope with the realities of the particular industry. Indeed in the course of argument Mr Little, who appeared for Mr Manu, accepted that the fluctuating demand was a fact of life in the scaffolding industry and that, so long as a stand down arrangement was operated fairly, with those stood down being called upon in priority for work when it next became available, that would be an appropriate practice in the particular industry. His complaint was that the particular clause did not incorporate any such protection for the workers. Certainly it does not expressly do so, but that obligation is implicit in the arrangement.

The other aspect on which the Chief Judge concentrated was the overlay of the stand down clause on the redundancy provision of the contract. He thought that where there is a right to determine the employment for redundancy on not less than one week’s notice, it is harsh and oppressive to have also the right to stand down workers (he does not appear to have seen the same combined mischief with the right to

terminate the employment under cl 5(b)(i)). But that assumes the two provisions are intended to serve the same purpose. That is not necessarily the case. The very object of the stand down provision is to avoid termination of the employment, with the consequent need for re-hiring when demand dictates. The temporary absence of work is not to be taken to be a redundancy in the circumstances of this industry. It would seem to be an advantage to the employee who is stood down, rather than dismissed for redundancy, that he or she will continue to enjoy the benefit of the obligations of good faith and fair treatment requiring them to be accorded some priority over those who are not employees when work becomes available. The two provisions are directed at different situations and we do not agree that because both are in the contract one therefore becomes harsh and oppressive.

We consider that the Chief Judge would have reached a different conclusion if he had approached the clause by enquiring whether it could operate fairly and reasonably in its context, as properly construed, with regard for the requirement of fair treatment rather than by examining how it might in theory operate to the disadvantage of employees by its use as a substitute for redundancy.

The order setting aside cl 5(b)(ii) having been made on an erroneous basis is quashed.

That does not dispose of the case however. There still must be considered Mr Manu’s personal grievance arising from of the purported stand down pursuant to cl 5(b)(ii) of the contract.

The findings of fact made in the Employment Court, which it is not the role of this Court to review, were that Mr Manu was sent from his workplace by the operations manager of the employer on the afternoon of either 14 or 15 November

1995. The circumstances were such that he thought he had been dismissed. He submitted a grievance alleging unjustifiable dismissal but was told that he had not been dismissed and that further work might be offered to him; that is, he had been stood down. But no further work was afterwards offered to him. On 21 February 1996 the managing director of the employer saw Mr Manu working elsewhere. He claimed he

assumed Mr Manu had abandoned his employment with the employer - on what basis is unclear since the stand down clause did not prohibit taking other work when none was being offered by the employer. The employer then wrote offering to pay to Mr Manu certain moneys owing to him though maintaining that he still remained an employee to whom work might be offered.

After considering the evidence, including the employer’s explanation of why no further work was offered to Mr Manu, the Chief Judge made clear findings of fact. He held that while the employer initially stood Mr Manu down on the basis that he did not need to work out the notice period, subsequently the employer decided not to call on him to work when vacancies arose and ultimately not to invite him back at all. The explanations proffered on behalf of the employer for not offering work to Mr Manu were rejected by the Chief Judge. The dismissal was held to be not on notice pursuant to any contractual right. There had been an indefinite suspension without any notice to terminate. This was unjustifiable. That decision was reached after cl 5(b)(ii) had been set aside and therefore incorrectly disregarded that clause. But we are satisfied that, on the factual findings the Chief Judge made, the same conclusion is inevitable even, as we hold, when the initial suspension was open to the employer by invoking cl 5(b)(ii).

The employer was obliged to act towards Mr Manu fairly and in good faith. While the contract enabled the employer to suspend Mr Manu if the lack of demand for its services meant there was truly no work for him (and that was not established), it was entirely inconsistent with the employer’s obligations for it to decide unjustifiably not to offer him work which later became available and subsequently to leave him nominally as an employee but with no genuine intention to offer further work. The findings by the Chief Judge that Mr Manu was in fact dismissed, and unjustifiably dismissed, were entirely open even on the basis that the initial suspension was in exercise of a valid contractual right to stand him down.

We are not concerned with any question of the quantum of remedies.

Accordingly the appeal is allowed but only to the extent of quashing the order setting aside cl 5(b)(ii) of the contract. In all other respects it is dismissed.

In the circumstances we make no order as to costs.

Solicitors

Till Henderson King, New Plymouth, for Appellant

A J Little, Wellington, for Respondent