Australasian Correctional Management Ltd v Corrections Association of New Zealand Inc [2002] NZCA 181; [2002] 3 NZLR 250; [2002] 1 ERNZ 175 (25 July 2002)

Last Updated: 16 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA46/02

	BETWEEN	AUSTRALASIAN CORRECTIONAL MANAGEMENT LIMITED
		Appellant

	AND	CORRECTIONS ASSOCIATION OF NEW ZEALAND (INC)
		First Respondent

	AND	NEW ZEALAND PUBLIC SERVICE ASSOCIATION (INC)
		Second Respondent

Hearing:	26 June 2002
Coram:	McGrath J Anderson J Glazebrook J
Appearances:	C H Toogood QC and R L Towner for Appellant B A Buckett and A D Sharp for First Respondent
Judgment:	25 July 2002

JUDGMENT OF THE COURT DELIVERED BY GLAZEBROOK J

Introduction

[1] Australasian Correctional Management Limited (ACM) is in the business of managing prisons. In July 1999 it entered into a five year fixed price contract to manage the Auckland Central Remand Prison and, at the beginning of December 1999 (some four months later), into a five-year collective employment contract for the prison (CEC) with the New Zealand Public Service Association (PSA). It was not until July the following year that employees were employed under the CEC.
[2] Meanwhile on 13 March 2000 the Employment Relations Bill had been introduced into Parliament, becoming the Employment Relations Act 2000 (ERA) on receiving Royal Assent on 19 August 2000. After the ERA had come into force on 2 October 2000 the members of the Corrections Association of New Zealand Inc (CANZ), in a ballot conducted pursuant to s246 of the ERA, voted for the CEC to expire on 1 July 2001 insofar as they were concerned. By letter dated 29 April 2001 CANZ sought to initiate bargaining for a collective employment agreement under the ERA. The bargaining notice indicated an intention on the part of CANZ to negotiate new terms and conditions of employment with coverage for all CANZ members and all new employees.
[3] In this litigation ACM’s position is that it cannot bargain with CANZ without being in breach of the CEC. The CEC remains applicable until 31 July 2003 for the remaining employees of ACM who are not members of CANZ and it provides that it shall be the only contract offered to employees of ACM. Before 31 July 2003 ACM submits that it cannot enter into any contract with CANZ that differs from the CEC without being in breach of that obligation. There is nothing in the scheme of the ERA that would require it to bargain in such circumstances.
[4] CANZ’s position is that the CEC does not require exclusivity in the manner contended for by ACM and, even if it did, the provisions of the ERA would override the provisions of the CEC. ACM is therefore required to bargain with it for a collective agreement and is not restricted as to the terms of that new agreement. The decision of the Full Court of the Employment Court dated 17 August 2001 essentially upheld CANZ’s contentions.
[5] ACM appeals against that decision. In this appeal we must first decide which interpretation of the CEC is correct. If ACM’s interpretation of the CEC is upheld then the next question is whether it is nevertheless required to enter into bargaining with CANZ and, if so, the scope of any such bargaining.

Which interpretation of the CEC is correct?

[6] To decide which interpretation of the CEC is correct we first examine the relevant clauses of the CEC and summarise the statutory provisions in force at the time the CEC was entered into. We then set out the Employment Court’s reasoning in more detail and finally give our interpretation of the contract.
[7] Clauses 1 and 2 of the CEC provide as follows:

1. Application of this Agreement

During its term, this agreement will be the only employment contract offered to permanent, fixed-term and casual employees of ACM at the Auckland Central Remand Prison (except managers and management advisors).

2. New Employees

❑ Any employee engaged by ACM, who is not a manager or management advisor, during the term of this contract shall become a party to this contract if the ACM and the employee agree.
❑ The new employee shall from the date of becoming a party to this contract be entitled to all its benefits and be bound by all its obligations.

[8] The relevant legislation at the time the CEC was entered into was the Employment Contracts Act 1991 (ECA). A collective employment contract was defined by s2 of the ECA as an employment contract binding on one or more employers and 2 or more employees. This means that such a contract was primarily between a group of individual employees and the relevant employer. Under s10, however, an employee, in negotiating for either an individual or collective employment contract, could choose to be represented by another person, group or organization and, under s17, that person, group or organisation could become a party to that contract with the agreement of the other parties. Section 21 related to the position of new employees where there was a collective employment contract and provided as follows:

New Employees - If a collective employment contract contains a term allowing the extension of its coverage to other employees employed by an employer bound by it, any such other employee may, in addition to the employees who are parties to it, become a party to, and be covered by, that collective employment contract if that employer and any such other employee so agree.

[9] The Employment Court held that, under the ECA, the form and content of a new employment contract were a matter for negotiation between the employer and a new employee. To preserve that entitlement to negotiation the employer could not lawfully insist on a new employee taking up employment only on the terms of an existing CEC. Nor did the ECA allow other employees to insist that the employer only engage a new employee under the existing CEC.
[10] Against this view of the applicable law, the Employment Court interpreted the term “offered” in cl 1 of the CEC as being used in the contract law sense of making a proposal of contractual terms and conditions that was open to acceptance or rejection by an employee. The Court then went on to hold that the reference to “shall” in cl 2 did not have any mandatory connotation but referred rather to the future. It pointed out that all employees were covered by cl 2 as the first employee was not engaged until some time after the CEC was signed and stated that its interpretation was strengthened by the words referring to ACM and the employee agreeing to the employee becoming a party to the CEC. This meant, said the Employment Court, that ACM was not obliged to engage all employees under the CEC.
[11] We take a different view from the Employment Court, with respect to its interpretation of the law as it existed at the time of entry into the CEC and also its interpretation of the CEC.
[12] In terms of the applicable law we note that the regime under the ECA was a contractual one where parties were free to negotiate and agree any (lawful) terms they wished. It was therefore not unlawful or against the policy of the ECA for parties to a collective employment contract to include a term that all future employees were to be employed under that contract. In addition, in the context of a contractual regime, the freedom to negotiate also includes the freedom not to negotiate. An employer was free to offer contractual terms on a “take it or leave it” basis.
[13] The legal principles the Employment Court set out appear to us to align, in substance if not vocabulary, with the regime under the ERA rather than that under the ECA. In our view the Employment Court’s statement of legal principles influenced its interpretation of the CEC’s terms. The terms of the CEC cannot be interpreted as if it had been entered into under the ERA and not under the ECA.
[14] In our view cl 1 of the CEC means what it says. Under its terms, ACM is obliged to offer only the CEC to all of its employees, both current and future. It is not entitled to offer any other contract to any of its employees, apart from managers and management advisors. Clause 1 is the first clause and its heading is “Application of the Agreement”. This means that it has a role to play when interpreting subsequent clauses.
[15] Clause 2 states that any employee engaged shall become a party to the CEC. The use of the word “shall” does refer to the future, given that at the time of signing no employees were engaged under the CEC. However, in light of cl 1, it also has in our view a mandatory connotation. The words “if the ACM and the employee agree” merely reflect the legal position under the ECA and the wording in s21 of that Act. Under the ECA collective employment contracts were between employers and a group of individual employees. A new employee could not automatically be made a party to a collective employment contract. He or she had to agree to be bound.
[16] ACM was bound by cl 1 to offer only the CEC to all employees. The new employee was not obliged to accept ACM’s offer, but cl 2 does not expressly give ACM the ability to accept any counter offer-made by a prospective new employee. To imply such an ability into the contract would cut across cl 1. It would also cut across the obvious commercial purpose (as reflected in that clause) of ACM and the PSA in entering into the CEC.
[17] This means that we accept ACM’s interpretation of the CEC. Under its terms the CEC was the only contract that could be offered to, and entered into with, any employee of ACM, apart from managers and management advisors.

Is ACM obliged to bargain with CANZ?

[18] The question whether ACM is nevertheless obliged to bargain with CANZ necessitates an examination of the statutory provisions and in particular the transitional provisions of the ERA. As indicated in Bennion, Statutory Interpretation (3rd ed, 1997) at p831, where legislation impinges on a contract existing at the date of commencement, the courts must look to the terms of the Act to ascertain the effect on the contract rather than assuming that the parties are to be treated as having made advance provision in the contract.
[19] The relevant transitional provisions of the ERA are ss243-246. Section 243 provides that, subject to ss244 to 246, every collective employment contract within the meaning set out in the ECA continues in force according to its tenor. For certain limited purposes a collective employment contract is treated as if it were a collective agreement under the ERA with an expiry date at the earlier of the date it is expressed to expire or 31 July 2003 (s244). This means that, subject to s246, the CEC in question in this case expires on 31 July 2003.
[20] Where a union has members who are bound by a current collective employment contract, s246(1) gives that union a right to ballot its members to determine whether a majority are in favour of bringing forward the expiry date of that contract to 1 July 2001 or some other specified date. CANZ conducted such a ballot and the majority were in favour of an expiry date of 1 July 2001. It is accepted by ACM that the ballot was properly conducted in accordance with this provision.
[21] Where the majority of union members balloted are in favour of an early expiry date the chosen expiry date (in this case 1 July 2001) becomes the “date of the expiry of that collective employment contract and that collective employment contract is deemed to have been amended accordingly” - see s246(2).
[22] Section 246(3) provides for the position of employees who were not part of the ballot because they were not members of the relevant union. It provides that, where the date of expiry of a collective employment contract is changed under s246(2), that collective employment contract:

(a) does not expire in respect of any employee of the employer who is covered by the collective employment contract but who, immediately before the new date of the expiry of the collective employment contract, is not a member of the union in respect of whose members the ballot was conducted; but

(b) continues in force according to its tenor in relation to any employee to whom paragraph (a) applies.

[23] Under s246(3)(c), if the union in respect of whose members the ballot was conducted was a party to the collective employment contract, that union ceases, on the new date of expiry, to be a party to the collective employment contract. CANZ was not a party to the CEC so no issue in this regard arises in this appeal.
[24] It is clear therefore from s246(2) and (3) that the CEC expires on 1 July 2001 for all employees who were CANZ members at the time the ballot was conducted. It is equally clear that, for those employees who were not members of CANZ, the CEC continues.
[25] If there is no collective agreement in force between a union and an employer or where such an agreement is in force but is due to expire within 60 days a union can initiate bargaining for a collective agreement – see s41. For the purposes of s41 a collective employment contract that continues in force is deemed to be a collective agreement (s244). Bargaining is initiated by notice under s42. ACM accepts that the notice given by CANZ complies with this provision.
[26] CANZ submits that, as the CEC expired in respect of its members on 1 July 2001 and a valid notice has been given, ACM is obliged to enter into bargaining with it for a collective agreement covering its members, whether current or future.
[27] ACM’s argument is that it cannot bargain with CANZ because it is obliged under the CEC to offer only that CEC to all employees. By virtue of s246(3)(b), the CEC continues in force according to its tenor in relation to employees who are not members of CANZ. ACM cannot therefore, without breaching its obligations under the CEC, enter into any collective agreement with CANZ. It also cannot agree to the coverage provisions (extending as they do to new employees) suggested by CANZ. There is nothing in the ERA that allows contractual provisions to be overridden in this manner and, as ACM cannot agree to any collective agreement, it cannot be obliged to bargain. It could only bargain if the bargaining was conducted on the basis that the collective agreement was to come into force from 31 July 2003, the date the CEC expires for all employees.
[28] In our view the interpretation for which ACM argues would in this case render nugatory the right to ballot for an early expiry date. That cannot have been the intention of Parliament and fails to recognise that the law was intended to intervene in such contracts. Indeed this is clear from the plain terms of the legislation, the process of enactment and the scheme and purpose of the transitional provisions.
[29] Turning to the legislative wording first, under s246(2), 1 July 2001 is deemed to be the date of the expiry of the CEC and the CEC “is deemed to have been amended accordingly”. In our view the concept of expiry and amendment must mean more than merely the substitution of a date. It must also encompass any necessary amendments to ensure that the expiry is a real one with all the consequences envisaged by the ERA. This includes the right of CANZ to bargain on behalf of its members for a collective agreement under the ERA to come into force on 1 July 2001, the new expiry date for the CEC insofar as its members are concerned.
[30] This in turn means that the provision in s246(3)(b) that ensures the survival of the CEC for the other employees must mean that the CEC continues in force according to its tenor but subject to the necessary amendments under s246(2), those amendments being designed both to ensure that CANZ may conduct bargaining as envisaged by the ERA and to protect ACM so that it may enter into a collective agreement (if that is the result of the bargaining) without being in breach of the CEC.
[31] That this is the result intended by Parliament is also clear from an examination of the process of enactment of the ERA. In the Bill as first introduced all collective employment contracts under the ECA were deemed for all purposes to be collective agreements. The provision setting the final expiry date of 31 July 2003 and that allowing ballots to bring forward the expiry date were in the original Bill. Under the Bill as introduced therefore, if an early expiry date was voted for, bargaining for a collective agreement could commence (provided the necessary formalities such as proper notice were observed).
[32] It was realised at Select Committee stage, however, that there were problems with deeming all collective employment contracts to be collective agreements. These arose from the fact that individuals are parties to collective employment contracts under the ECA and could be members of a number of unions or not union members at all. In addition unions were not necessarily parties to the contracts. As unions are the only parties able to bargain for collective agreements under the ERA, a deeming provision such as originally proposed would have caused major difficulties of interpretation.
[33] This led to the present provisions in the ERA where collective employment contracts are deemed collective agreements only for some purposes and where it is recognised that collective employment contracts will continue for some employees even after a ballot has brought forward the expiry date for others. It was noted in the Commentary to the Bill as reported back from the Select Committee, however, that the amendments were merely to clarify without changing the intent of the provisions (see p43 of that Commentary). Parliament, in making the amendments, thus appears to have envisaged that the right to bargain on behalf of union members who had been released from a collective employment contract would be the same as it would have been under the Bill as introduced.
[34] In addition, any curtailment of bargaining would be contrary to the scheme and purpose of the transitional provisions of the ERA. These provisions allow collective employment contracts under the ECA to continue, but only for limited purposes to be deemed collective agreements under the ERA. The scheme of these provisions therefore suggests that such contracts are intended to have a lesser status than collective agreements. The transitional provisions also allow members of a union to vote for an early expiry date with the clear intent that the union would then have the ability to bargain for a collective agreement for its members. To suggest that this legislative purpose could be thwarted by the terms of a contract entered into in accordance with repealed legislation (and one to which CANZ was not even a party) is clearly contrary to the limited life and role envisaged by the ERA for collective employment contracts that had been entered into under the ECA regime.

What is the scope of the bargaining available?

[35] The final question is the scope of the necessary amendments to the CEC under s246(2) and thus the scope of bargaining available. It follows from what we have said above that we consider that the CEC must be amended to the extent that it would allow ACM to enter into a collective agreement with CANZ, including terms that are different from the current CEC, without being in breach of the CEC (if the entry into such a collective agreement is indeed the outcome of the bargaining process).
[36] ACM’s “fallback position” was that ACM should be required to bargain only in respect of a collective agreement that has a coverage clause extending to the CANZ members who voted in the ballot. It should not be required to bargain in respect of a coverage clause extending to other employees, including future employees, because those future employees would then be covered by the collective agreement if they became CANZ members. This would be in conflict with the CEC unless coverage for new employees was to commence after 31 July 2003. ACM submits that the CEC should be amended to the smallest extent possible to give effect to the early expiry date for the CANZ members who were eligible to vote in the ballot.
[37] Such an interpretation would constrain CANZ in its bargaining and would therefore in our view limit the ability of those employees who were CANZ members at the time of the ballot to take full advantage of the expiry of the CEC insofar as they are concerned. This cannot have been the intent of the legislature for the reasons set out above. The necessary amendments under s246(2) must ensure the freedom to bargain for any coverage clause available under the ERA definition. As a result, ACM will not be in breach of the CEC if the result of the bargaining is an agreement to the coverage clause as proposed by CANZ.
[38] We note that in any event the terms of the CEC would be impossible to adhere to for new employees. The transitional provisions of the ERA do not allow new employees to be employed under the CEC. New employees can only be employed in accordance with the ERA. This means that they can be employed either under a collective agreement if their work comes within the relevant coverage clause and they are members of the union that is a party to that agreement or under an individual employment agreement if they are not members of a union or if there is no applicable collective agreement with the union of which they are a member or the collective agreement does not cover their work. Under s63 of the ERA, however, where there is a collective agreement covering the work to be done by a new employee, that collective agreement provides the terms and conditions of employment for the first 30 days for every new employee who is not a member of a union. This provision was intended to provide protection for new employees – see the Explanatory Note to the Employment Relations Bill as introduced (at p5).
[39] It must be against the scheme and purpose of these provisions relating to new employees if bargaining in respect of the coverage clause of any collective agreement with CANZ were artificially restricted at the start of the bargaining process to exclude such new employees.
[40] We have not heard argument on and therefore leave open the question of whether, in the light of the definition in s5 of the ERA, a coverage clause can be limited to certain employees and exclude others who perform the same type of work. We note that the definition of coverage clause requires specification of the work that the agreement covers, although this can be by reference to employees or types of employees.

Result and Costs

[41] The interpretation of the CEC put forward by ACM is correct. By virtue of cls 1 and 2, the CEC is the only contract that can be offered to, and entered into with, ACM’s employees at the prison, apart from managers and management advisors.
[42] Through s246(2) and the ballot conducted by CANZ of its members, the CEC is amended to allow ACM to bargain in respect of and, if that is the result of the bargaining, agree to a collective agreement with CANZ with different terms from the CEC and with a coverage clause including new employees. The amendments to the CEC will ensure that ACM is not thereby in breach of its contractual obligations to its other employees who are still covered by the CEC.

[43] For the above reasons we dismiss the appeal. The appellant must pay the first respondent costs of $5,000 together with its reasonable disbursements, including travel and accommodation costs to be fixed by the Registrar in the absence of agreement. Second counsel is certified for the first respondent.

Solicitors:
Bell Gully, Auckland for Appellant
Barbara Buckett & Associates, Wellington for Respondent