Canterbury Spinners Ltd v Vaughan [2002] NZCA 284; [2003] 1 NZLR 176; (2002) 6 NZELC 96,859; [2002] 1 ERNZ 255; (2002) 1 NZELR 10 (23 October 2002)

Last Updated: 15 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA270/01

	BETWEEN	CANTERBURY SPINNERS LTD
		Appellant

	AND	DARRYL VAUGHAN
		Respondent

Hearing:	20 August 2002
Coram:	Keith J Blanchard J Anderson J
Appearances:	A A Couch for Appellant K S Tifaga for Respondent
Judgment:	23 October 2002

JUDGMENTS OF COURT

Judgments

Para No

Keith J [1] – [25]

Blanchard and Anderson JJ [26] – [55]

KEITH J

Employment institutions with special characteristics

[1] As this Court has often emphasised, the institutions created over the past century or more to deal with employment matters have special characteristics : eg Inspector of Awards v Fabian [1923] NZLR 108, 121, and New Zealand Van Lines v Gray [1999] 2 NZLR 397, 402-405. The Employment Relations Act 2000 continues to require this Court when hearing appeals from the Employment Court to have regard to the special jurisdiction and powers of the Court, as well as the object of the Act and of its relevant parts and certain provisions of the Act (s216). Among those provisions are the equity and good conscience direction to the Employment Court in s189 and the strong (and now very rare) privative clause protecting decisions of the Court from judicial review in s193.
[2] The special character of the institutions reflects the legislative judgment that employment relationships and contracts are distinct in law, at least in part, from relationships and contracts seen generally. I accordingly consider the particular issue presented by this appeal against that distinctive legislative background.
[3] That issue is whether Mr Vaughan, the respondent, who was made redundant by Canterbury Spinners Ltd, the appellant, is able to require the Employment Relations Authority to determine redundancy compensation payable to him. He says that the Authority does have power to do that under cl 28 of his contract, headed Redundancy:

(d) The employer shall negotiate a level of redundancy compensation to be paid to employees to be made redundant (with the employee’s representative), which shall involve the employer making an offer of redundancy compensation to the employees to be made redundant.

[4] The Authority has exclusive jurisdiction under the Employment Relations Act 2000 s161 to make determinations about employment relationships generally, including disputes about the interpretation, application or operation of an employment agreement. The Authority decided that it has no jurisdiction to determine the redundancy compensation under that provision. A full bench of the Employment Court decided to the contrary (Vaughan v Canterbury Spinners Ltd [2001] NZEmpC 112; [2001] ERNZ 399). The employer appeals.
[5] I gratefully adopt Blanchard J’s summary of the facts and of the Employment Court judgment.

“Disputes of interest” and “disputes of rights”

[6] I return to the legislation. Since 1894 the emphasis of New Zealand legislation for the settlement of employment matters has moved from special employment institutions having the power to make awards, that is to act essentially as a legislature, making and changing the rules for parties in areas of employment, to their having the power to resolve disputes about compliance with the employment agreement the parties have negotiated, collectively or individually. They no longer legislate, but only adjudicate. That puts the matter very broadly. That movement is also to be captured, as it has been in New Zealand as elsewhere for more than a century, as the movement from “disputes of interest” to “disputes of rights”. Those very expressions were incorporated into New Zealand legislation in 1973 in the Industrial Relations Act of that year. Under s2(1) they were defined in this way:

“Dispute of interest” means a dispute created with intent to procure a collective agreement or award settling terms and conditions of employment of workers in any industry, whether or not the agreement or award is to be in substitution for an existing agreement or award.

“Dispute of rights” means-

(a) A dispute concerning the interpretation, application, or operation of a collective agreement or award or;

(b) A dispute concerning a matter of the interpretation, application, or operation of an enactment or contract of employment, being a matter related to a collective agreement or award; or

(c) Any dispute that is not a dispute of interest, including any dispute that arises during the currency of a collective agreement or award; or

(d) A personal grievance.

[7] The latter definition was elaborated by provisions of the 1973 Act requiring that awards and registered agreements include clauses for the settlement include disputes of rights. The procedure was to apply to a dispute of rights between the parties to the instrument, including:

Any matter (not being a personal grievance within the meaning of section 117 of the Industrial Relations Act 1973) related to matters dealt with in this instrument and not specifically and clearly disposed of by the terms of this instrument (s116)

(“Personal grievance” claims involved claims of unjustifiable disadvantage or disadvantageous action.) Those provisions had first been enacted in 1970 (Industrial Conciliation and Arbitration Amendment Act 1970 s3).

[8] Separate institutions and procedures were established to deal with the two distinct categories : for disputes of interest there was a conciliation service, a mediation service, and the Industrial Commission, and voluntary settlement proceedings, conciliation proceedings and award proceedings before the Commission leading to a binding award (Part V); and for disputes of rights there was a procedure for final and conclusive settlement of the disputes through the clause inserted by law with a disputes committee having the power to decide the dispute (at the reference of the union or the employer), with a right of appeal to the Industrial Court; provision was also made for individuals to bring personal grievance proceedings, first by submission to the employer, next to a grievance committee and finally to the Industrial Court (Part VII).
[9] The distinction, with some of the associated institutional and procedural provisions, was carried forward into the Labour Relations Act 1987 (eg ss2 and 186(b)). That Act also, however, emphasised the trend towards the resolution of disputes of interest by way of agreement between the parties. In terms of its title, the Act was

An Act to reform the law relating to labour relations and, in particular,-

(a) To facilitate the formation of effective and accountable unions and effective and accountable employers organisations:

(b) To provide procedures for the orderly conduct of relations between workers and employers;

(c) To provide a framework to enable agreements to be reached between workers and employers;

(d) To repeal the Industrial Relations Act 1973 and certain other enactments. (emphasis added)

[10] Four years later that emphasis on the resolution of disputes of interest by contract was taken further by the Employment Contracts Act 1991, as indeed appears from its short title alone : it no longer referred to “conciliation and arbitration” but simply to contract. No longer was there an Arbitration Court or Commission with the power, even with the consent of the parties (as under the 1987 Act) to write the rules of the employment relationship for the parties. No longer was it possible, as it was for Salmond J in New Zealand Waterside Workers’ Federation Industrial Association of Workers v Frazer [1924] NZLR 689, 709, to refer to an industrial award as “judicial in form but legislative in substance and effect”. From 1991 a contract negotiated between the parties was the means for fixing and changing the terms of the employment relationship. And the Employment Relations Act 2000, although introducing some major changes of policy, especially in the direction of collective agreements negotiated by unions which were deliberately not mentioned in the 1991 Act, maintained the centrality of the employment agreement.
[11] Although the two expressions “dispute of interest” and “dispute of rights” disappeared from the 1991 and 2000 Acts (except for a transitional reference to the former in the earlier Act and for a reference to the former in an amendment to the Police Act 1958 in the later Act), central parts of their definition, especially of disputes of rights, remain. That results of course from the powers of the Employment Tribunal (under the 1991 Act), the Employment Relations Authority (under the 2000 Act) and the Employment Court (under both) to resolve matters relating to employment contracts (under the 1991 Act) and employment relationships (under the present Act).

The Employment Relations Act 2000

[12] I now turn to the relevant provisions of the 2000 Act. I also make some reference to the 1991 Act. Under the 2000 Act the Employment Relations Authority “has exclusive jurisdiction [under s161(1)] to make determinations about employment relationship problems generally ...”. That broad conferral of power is emphasised by the width of the definition of “employment relationship problem “in s5”; it

includes a personal grievance, a dispute, and any other problem relating to or arising out of an employment relationship, but does not include any problem with the fixing of new terms and conditions of employment

[13] Mr Vaughan relies in this case not simply on the opening words of s161(1), but also on para (a) in its non exhaustive list which carries forward a basic grant of power included in the 1973, 1987 and 1991 statutes:

161 Jurisdiction

(1) The Authority has exclusive jurisdiction to make determinations about employment relationship problems generally, including—

(a) disputes about the interpretation, application, or operation of an employment agreement (emphasis added)

[14] The exclusion from the definition in s5 of “employment relationship problem” of any problem with the fixing of new terms and conditions of employment is in effect repeated in s161(2) which limits both the introductory conferral of jurisdiction in s161(1) and the particular jurisdiction conferred by para (a):

(2) Except as provided in subsection (1)(d) or subsection (1)(f), the Authority does not have jurisdiction to make a determination about any matter relating to—

(a) bargaining; or

(b) the fixing of new terms and conditions of employment.

(Subsection(1)(d) and (f) concern allegations of unfair bargaining and breach of good faith including bargaining.)

[15] The limit on the jurisdiction of the Authority and the Court or, to put it another way, the distinction between disputes of rights and disputes of interest also appears in the statement of the objects of Part 9, concerned with personal grievances, disputes and enforcement. The particular object is:

(d) to ensure that the role of the Authority and the Court in resolving employment relationship problems is to determine the rights and obligations of the parties rather than to fix terms and conditions of employment (s101).

[16] All these provisions make it plain there is a line still to be drawn between interpreting, applying and operating an employment agreement, on the one hand, and fixing new terms and conditions of employment, on the other. Since 1973 the line has been defined positively by the expression “interpretation, application and operation”. Until 1991 the negative definition was implied by the contrasting functions of the institutions and processes for resolving disputes of interest and of course the definition of that term.
[17] Under the 1991 Act there was a further explicit limit on the dispute of rights jurisdiction which has not been carried forward in the 2000 Act. While the Employment Tribunal and the Employment Court continued to have jurisdiction under the 1991 Act to settle disputes about the interpretation, application or operation of the employment contract (ss44(1) and 104(1) and second schedule), Parliament made it express that the dispute procedure included by law in the contract could not be invoked to settle a dispute about a provision

which does not in itself fix conditions of employment or a formula for fixing such conditions but which provides for the parties to undertake further negotiations, whether on the occurrence of a particular event or otherwise, in order to fix those conditions or such a formula. (s46(1) and (2))

[18] Without limiting the generality of that exclusion, Parliament was also explicit that

Where a provision of any contract deals with the issue of redundancy but does not specify either the level of redundancy compensation payable or a formula for fixing that compensation, neither the Tribunal nor the Court shall have the jurisdiction to fix that compensation or specify a formula for fixing that compensation. (s46(3))

The law in respect of redundancy before 1991

[19] That 1991 exclusion is to be related to and to be seen as a rejection of cases in which this Court upheld Employment Court decisions that the following redundancy provisions fell within the disputes of rights procedures included in the 1973 and 1987 Acts:

1. Where the services of an officer are no longer required on the grounds of redundancy, the employer shall advise the union, where practicable not less than two months, but in no case less than four weeks, before giving written notice to the affected officer. (Wellington Marlborough Westland Nelson and Taranaki Local Bodies Officers’ Industrial Union of Workers v Westland Catchment Board and Regional Water Board [1988] NZCA 241; [1988] NZILR 1708, (1989) 2 NZELC 96, 543.)
2. The employer shall advise the Union of any impending redundancy situation prior to issuing notice of termination to the affected employee. Such notice to the Union and the worker to be not less than four weeks prior to the actual date of termination to enable discussion to take place regarding a redundancy agreement. (New Zealand Says Manufacturing Ltd v South Island Clothing etc IUOW [1990] 2 NZILR 633.)
3. All employees to be declared redundant shall receive not less than four weeks notice of termination of their employment. The Union will be notified before notice of termination of employment is given to the employee. This notification period shall be for the purpose of negotiating a redundancy agreement. (Timbercraft Industries Ltd v Otago and Southland Federated Furniture etc. IUOW [1990] 2 NZILR 626.)

[20] The first case was decided under the 1973 Act, the second and third under the 1987 Act. It is true that the Court in the first case relied in part upon the wording of s116 of the 1973 Act, “any matter ... related to matters dealt with in this instrument and not specifically and clearly disposed of by the terms of the instrument” (para [7] above). The compensation being sought related to redundancy which was one of the “matters dealt with” and which was not “disposed of” by the contract. It is also the case that that wording was not carried into the later Acts, but Parliament in 1973 had plainly treated it as being “include[ed]”within disputes of rights (para [7] above).
[21] That particular complication does not arise with the two decisions given under the 1987 Act, the relevant provisions of which are included without material change in the 2000 Act. Although it is not for this Court on an appeal on a point of law to construe the relevant employment agreement (s214(1)), I may observe a continuum of increasing obligation in the express terms of the four redundancy provisions set out in this judgment. The first expressly required no more than notice; the second requires notice to enable “discussion” to take place regarding a redundancy agreement; the notice period in the third is for the purpose of “negotiating” a redundancy agreement; and that before us requires the employer to “negotiate a level of redundancy compensation ... which shall involve the employer making an offer of redundancy compensation to the employee to be made redundant.”
[22] The critical passage in the reasoning of this Court in the Timbercraft case (the reasoning in which was applicable in the Says case (para [19] 2 above) decided on the same day) is as follows:

[The redundancy provision] does not provide for any addition to or variation of the award. It provides for a particular course of action to follow from a particular event. Resort to the dispute of rights procedure pursuant to it is not for the purpose of introducing a new matter or of securing a redundancy agreement: it is to establish the rights of the workers under such an agreement. A dispute as to that is plainly one as to the application or operation of the award. This conclusion is consistent with this observation of Chief Judge Horn in the Feltex Furnishings case [(1989) 2 NZELC 97,197] at 97,202 as to the meaning of "operation":

The word may simply mean the scope of the award itself as it operates. It may also mean the application of the document in specific fact situation. This is in keeping with the strict division of functions between the Arbitration Commission and the Labour Court.

It may be that some of the difficulty in this case arose from the way in which the issue was defined for the disputes committee. It was not well defined. A requirement that one party to negotiations agree is a contradiction in terms. It is small wonder that the chairman reached the conclusion he did. But in the Labour Court the issue was obviously clarified. So clarified, the dispute was in our opinion one as to both the interpretation and the application or operation of the award. It required an interpretation of the award: whether anything more than negotiation was contemplated, and if so, what. The Labour Court dealt with that matter, adopting the construction put on even less specific words in the Westland Catchment Board judgment, and its conclusion in that respect cannot be challenged. The dispute then required the award as interpreted to be applied to the case of the two workers and to be rendered operative by a determination of the amount that should be paid to them. Thus it is that the dispute was truly one of rights within the jurisdiction of the Labour Court under the 1987 Act. It is for this reason that it is unnecessary to consider the argument as to the effect of this Act on terms of the award incorporated pursuant to the old Act. (631)

The pre-1991 law restored

[23] The immediate question is whether these cases have become authoritative again. The law they stated was plainly rejected by Parliament when it enacted s46 of the 1991 Act. That provision has now however been repealed and the longstanding “interpretation, application and operation” provision is no longer qualified by that limitation. Nothing now appears to stand in the way of the Court’s rulings under the 1987 Act again being the law, unless it is to be found in the limiting words at the end of the definition of employment relationship problem in s5, in the limiting provision of s161(2)(b) or in the final words of the purpose provision in s101(d). I do not think that those cautionary provisions have any effect in the present context. They emphasise, as this Court did under the 1987 Act without needing to be directed by such words, that the employment institutions and procedures were not to be used to “impose” terms (Says 634). What s161(1) continues to permit and require is an interpretation of the agreement (in particular whether more than negotiation is required and if so what) and if the agreement as interpreted by the Authority or the Employment Court does so require then it is to be applied and operated by a determination of the compensation to be paid to Mr Vaughan. The earlier step involving the process of interpretation is of course not for this Court.
[24] I reach the above conclusion about the scope of s161(1), read with ss161(2), 5 and 101(d), without referring to the common law relating to agreements to agree and the like. The character of employment legislation and institutions, the “interpretation, application and operation” phrase (which especially through its inclusion of the word “operation” appears to be unique in the statute book), its established role over a long period and the basing of the earlier decisions of this Court on the wording of the legislation alone, appear to me prevent that common law authority having any relevance.

Conclusion

[25] I agree with Blanchard J that since the Employment Court has not, apparently at least, interpreted cl 28(d) of the contract to require of the employer more than negotiation, the case has to be remitted to the Employment Court to interpret the provision and decide whether it does fall within the jurisdiction conferred on the Authority by s161. I would allow the appeal in those terms.

BLANCHARD AND ANDERSON JJ
(DELIVERED BY BLANCHARD J)

A question of jurisdiction

[26] This is an appeal, by leave of this Court, from a decision of the Employment Court in which it concluded that the Employment Relations Authority had jurisdiction to determine the level of redundancy compensation payable to the respondent, Mr Vaughan, under a clause in his individual employment contract with the appellant, Canterbury Spinners Ltd (the company).

The history of the case

[27] Mr Vaughan had been a party to a collective employment contract entered into between the company and a large number of its employees in October 1998 for a three year term expiring on 25 August 2000. It is common ground that as from that latter date there existed between the parties to this appeal an individual employment contract based on the expired contract. It remained operative when the Employment Relations Act 2000 (the ERA) replaced the Employment Contracts Act 1991 (the ECA) on 2 October 2000.
[28] The contract contained, in cl 28, provisions relating to redundancy including the following subclause:

• (d) The employer shall negotiate a level of redundancy compensation to be paid to employees to be made redundant (with the employee’s representative), which shall involve the employer making an offer of redundancy compensation to the employees to be made redundant.

[29] Canterbury Spinners experienced a downturn in business leading to a number of dismissals for reasons of redundancy which have not been challenged. In late October and early November 2000 negotiations took place under cl 28(d) concerning the basis for determining redundancy payments. The union and the company were unable to reach agreement. In accordance with an offer it made during the negotiation, the company paid Mr Vaughan a sum of $7686.57 for redundancy compensation. Mr Vaughan considers that, based on a formula proposed by his union, the National Distribution Union, he should have received a further $2956.39. He applied to the Authority asking it to determine the level of redundancy compensation to be paid under cl 28(d). The Authority has by virtue of s161(1) of the ERA “exclusive jurisdiction” to make determinations about “employment relationship problems” generally and, in particular, under para (a), “disputes about the interpretation, application, or operation of an employment agreement”.
[30] But, except in relation to alleged unfair bargaining by a party to an individual employment agreement or in relation to questions about whether the good faith obligations imposed by the ERA have been complied with – neither of which situation is said to exist in the present case – s161(2) provides that:

...the Authority does not have jurisdiction to make a determination about any matter relating to –

(a) bargaining; or

(b) the fixing of new terms and conditions of employment.

[31] The company contested the Authority’s jurisdiction. The Authority took the view, in a determination issued on 1 March 2001, that it did not have the ability “to determine what, if any, redundancy compensation payment should be paid” to Mr Vaughan. It considered that the setting of redundancy compensation levels in this instance would amount to the fixing of “new” terms and conditions of employment within s161(2).

The Employment Court judgment

[32] The issue of the Authority’s jurisdiction was then taken to the Employment Court under s179 of the ERA. It gave judgment on 26 July 2001, reported at [2001] NZEmpC 112; [2001] ERNZ 399. After setting out the history of the matter and the submissions of counsel, the Court said that it preferred the view that the use of the word “bargaining” in s161(2)(a) is not limited to bargaining for a collective agreement (as defined in s5) but contemplates bargaining in a wider sense “including bargaining for an individual employment contract or for a variation to either kind of contract”; and that “bargaining” is there used in its ordinary meaning and is synonymous with “negotiate”, the word used in cl 28(d). But the Court also accepted an argument for the employee that the invoking of the disputes procedure to determine the level of redundancy compensation payable under the clause after the negotiations failed to reach an agreement did not involve further negotiations or bargaining. It said that the determination of rights and obligations arising from contractual provisions which have already been negotiated or bargained for by the parties does not involve the Authority in making a determination about any matter relating to bargaining.
[33] Moving to the restriction in s161(2)(b) on the fixing of new terms and conditions of employment, the Court noted that the provision was similar to the exclusion from the definition in s5 of “employment relationship problem”:

Employment relationship problem includes a personal grievance, a dispute, and any other problem relating to or arising out of an employment relationship, but does not include any problem with the fixing of new terms and conditions of employment. [Emphasis added]

[34] The provision was also similar to s101(d) which states as one of the objects of Part 9 [Personal grievances, disputes, and enforcement]:

(d) to ensure that the role of the Authority and the Court in resolving employment relationship problems is to determine the rights and obligations of the parties rather than to fix terms and conditions of employment.

[35] The Court also drew attention to s129(1) which links Part 9 with Part 10 in which s161, defining the jurisdiction of the Authority, appears:

129 Person bound by, or party to, employment agreement may pursue dispute under this Act

(1) Where there is a dispute about the interpretation, application, or operation of an employment agreement, any person bound by the agreement or any party to the agreement may pursue that dispute in accordance with Part 10.

[36] Counsel for the employer had submitted to the Employment Court that s161(2)(b) would prevent the Authority determining a level of redundancy compensation under cl 28(d) because that would be to fix a new term or condition. In rejecting this submission the Court found assistance in the reasoning of this Court in Timbercraft Industries Ltd v Otago and Southland Federated Furniture etc IUOW [1990] 2 NZILR 626, a case decided under the Labour Relations Act 1987 concerning whether a dispute about a clause in an award relating to redundancy could be determined by the Labour Court as a “dispute of rights”. This Court had held that the particular clause did not provide for any addition to or variation of the award. It had provided for a particular course of action to follow from a particular event. Resort to the dispute of rights procedure had not therefore been for the purpose of introducing a new matter or of securing a redundancy agreement: it was to establish the rights of the workers under such an agreement and was plainly one as to the application or operation of the award. So the Labour Court had been held to have jurisdiction to determine the dispute.
[37] The Employment Court said that in the present case it considered that the passage from this Court’s judgment which has just been referred to is effectively mirrored in s101(d) and that the dispute provisions had been invoked by Mr Vaughan for the purpose of determining the rights and obligations of the parties. Clause 28(d) had not been changed or varied in any way or any new provision put in its place. It would remain in force unchanged after the dispute had been dealt with. The Court concluded that the disputes procedure had not been invoked for the purpose of fixing new terms and conditions.
[38] The Court referred to s46 of the ECA, which had been in force when the collective agreement between Canterbury Spinners and its employees had been entered into but which of course was repealed by the ERA along with the other provisions of the ECA:

46. Restriction on scope of procedure – (1) The dispute procedure provided in any contract shall not be invoked to settle a dispute about any provision or part of a provision of a type described in subsection (2) of this section.
    • (2) A provision of the type referred to in subsection (1) of this section is one which does not in itself fix conditions of employment or a formula for fixing such conditions but which provides for the parties to undertake further negotiations, whether on the occurrence of a particular event or otherwise, in order to fix those conditions or such a formula.
    • (3) Without limiting the generality of subsection (1) of this section, where a provision of any contract deals with the issue of redundancy but does not specify either the level of redundancy compensation payable or a formula for fixing that compensation, neither the Tribunal nor the Court shall have the jurisdiction to fix that compensation or specify a formula for fixing that compensation.

The Employment Court said that s46 has not been replaced by any provisions in the ERA which it would construe as cutting across the Timbercraft line of authority in this Court, as, of course, s46 had done. The Court therefore concluded that the Authority had the jurisdiction to deal with the dispute invoked by Mr Vaughan and to determine the level of redundancy compensation payable to him under cl 28(d).

Discussion

[39] It seems to us, as it did to the Employment Court, that Parliament was signalling a significant change in the powers of the specialist tribunal, and of the Employment Court itself, when it did not include in the ERA any provision equivalent to s46 of the ECA. Section 161(2) is to be read with that change in mind.
[40] The Employment Court was clearly correct, as Ms Tifaga accepted for Mr Vaughan, when it held that “bargaining” in s161(2)(a) is not limited to bargaining for a collective agreement (as defined in s5). It encompasses also bargaining for an individual employment contract. Furthermore, as Mr Couch noted in his submissions for the appellant, in s68, which deals with unfair bargaining for an “individual employment agreement”, that expression includes a term or condition of such an agreement. So the Act recognises the concept of bargaining over or for a single term. It could hardly be otherwise. The process of trying to achieve the formation or variation of a contract does not cease to be an attempt to strike a legally binding bargain merely because only one term is or remains in issue. Similarly, although s161(2) refers to the fixing of new terms and conditions, its limitation on the powers of the Authority would apply even if only one new term were involved in the process. The plural includes the singular (s33 Interpretation Act 1999).
[41] We agree also with the Court that “bargaining” has its ordinary meaning in s161(2) and that it is synonymous with “negotiating”. The crucial question is, however, the end to which the bargaining or negotiating is directed. What we now say is subject, necessarily, to other provisions of the legislation such as ss68 and 69 and the obligations of good faith, at common law and under the statute. With, then, that caveat, what s161(2) prohibits the Authority (or the Court if the matter comes before it in terms of the removal or challenge provisions – ss178 and 179) from doing is being involved in the process of creating a new contractual term or terms – either when the parties are starting from scratch and constructing an entirely new agreement or when they are working towards supplementing or varying an existing contract. The Authority may not become involved in the bargaining which precedes the formation or variation of a contract. It may not, for example, intervene in the negotiations and order a party to conduct itself, perhaps by making an offer, in a certain way. Nor may it act as arbiter and, where the bargaining does not lead the parties to agreement, settle for them the outstanding issues and thus complete the new term or terms for them.
[42] But that process of the parties bargaining for and endeavouring to settle new terms and conditions is quite different in its legal significance from the process of trying to reach a consensus over the meaning and effect of an existing contractual term (or terms) already binding upon the employer and employee. This latter process may involve an attempt to reach accord through negotiation on what the existing contract actually requires a party to do in order that the respective rights of the parties can be determined.
[43] Suppose, for instance, an employment contract were to contain a redundancy clause which said:

The employer will pay the employee in the event of termination for redundancy a sum which is, in accordance with industry practice, reasonable in the circumstances, and will negotiate such sum with the employee.

Undoubtedly, in accordance with ordinary principles of contract law, such a clause would create a present right in an affected employee to receive reasonable compensation, which could if necessary be fixed by the Authority if there were to be a breakdown in negotiations between the parties (Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444). The Authority could also, if it thought it appropriate, become involved in the procedure of bargaining (although in practice in such a straightforward case we imagine it would rarely do so). There might well be some uncertainty in the minds of the parties, when they first looked at the clause when a situation of redundancy arose, about the level of compensation which must be paid to the employee, but the clause would not be legally uncertain, i.e incapable because of its vagueness of being adjudicated upon. It would have contractual effect despite doubts about its operation. There might well be a process of bargaining as the parties strove to reach accord on the financial consequence of the clause, but that would not be “bargaining” of the kind contemplated by s161(2), for it would be directed not towards fixing a new term or condition – creating a new contractual right and obligation respectively for employee and employer – but, rather, towards applying or operating (to use the words of s161(1)(a)) an existing term or condition. In this latter process the Authority is empowered to exercise jurisdiction at the behest of a party. In a particular case it may simply be a matter of interpretation of a word or phrase or it may involve giving effect to the contractual intention by discerning what, by implication, the parties must have been intending. Some general guidance on the correct approach, and on the limitations upon it, is to be found in this Court’s decision in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 at paras [50] – [67].

[44] The proper question for the Authority to ask itself, when considering whether the disputed provision brought before it is one upon which it is prohibited from giving a determination is whether, correctly interpreted, the provision already creates rights which are legally enforceable and, if so, what those rights are. Or is it merely an agreement to agree, or an agreement which directs a certain procedure but does not go so far as to indicate sufficiently an end result, so that, in either case, it is incapable of creating contractual rights? If so, any determination would in law create a new term or condition and the Authority may not intervene.
[45] This distinction is apparent in Timbercraft, which, contrary to a submission for the appellant, is not itself distinguishable on the ground that it concerned an award. The difference between disputes of rights and disputes of interest under the 1987 Act was essentially the same as the difference between the situations envisaged respectively in s161(1)(a) and s161(2). We can see no reason why the approach to the question under the ERA should be any different. The Court referred (at p630-1) to what had been called a “permissive clause”, which Chief Judge Horn had defined in Feltex Furnishings of New Zealand Ltd v New Zealand (with exceptions) Woollen Mills etc Industrial Union of Workers [1989] 1 NZILR 552, 557 as one

which directly or indirectly permits one or more of the parties to it to seek to negotiate or renegotiate either a change to an existing document or to add a new term or condition of employment or to provide a means whereby a new term or condition of employment can be negotiated if the problem arises during the term of the document itself.

Such a clause was said to be unenforceable. The subject of the contemplated negotiations would be matters not settled by the award and so beyond the scope of the Labour Court’s jurisdiction in disputes of rights.

[46] But the clause in issue in Timbercraft “as construed by the Labour Court” was said by this Court not to be a permissive clause. It read:

All employees to be declared redundant shall receive not less than four weeks notice of termination of their employment. The Union will be notified before notice of termination of employment is given to the employee. This notification period shall be for the purpose of negotiating a redundancy agreement.

The Court said about this clause:

It does not provide for any addition to or variation of the award. It provides for a particular course of action to follow from a particular event. Resort to the dispute of rights procedure pursuant to it is not for the purpose of introducing a new matter or of securing a redundancy agreement: it is to establish the rights of the workers under such an agreement. A dispute as to that is plainly one as to the application or operation of the award. (p631)

And:

It required an interpretation of the award: whether anything more than negotiation was contemplated, and if so, what. (p631)

We emphasise that the clause in Timbercraft had been construed by the Labour Court and that this Court was concerned with its application, not its construction.

[47] Whether the Authority has jurisdiction to determine the level of redundancy will therefore depend upon the interpretation which can properly be given to the disputed provision. That does not, however, mean that the Authority (or the Court) could by a strained interpretation expand its jurisdiction and, in effect, circumvent the limitations imposed by s161(2). The interpretation adopted must be one which is reasonably open in accordance with normal contractual principles applied in the setting of an employment relationship. Whilst the construction of an employment agreement is properly reserved to the specialist tribunal by s214(1) (an appeal to this Court may not be against “a decision on the construction of any individual employment agreement or collective employment agreement”), a question relating to jurisdiction is certainly a question of law capable of appeal to this Court: see Timbercraft at p630. As the reasoning of this Court in Timbercraft made clear, the Employment Court cannot confer jurisdiction upon itself by declaration where it has been given none by statute.
[48] That brings us back to the judgment of the Employment Court in the present case. The Court has read the relevant provisions of the ERA in a manner with which we have already indicated our agreement. But the Court has then concluded that the Authority has jurisdiction without itself actually interpreting cl 28(d) and thereby determining what the clause actually obliges the parties, and in particular the employer, to do. It is plain that the Court regarded the clause as containing a legally enforceable procedure which will produce an amount of redundancy compensation which Canterbury Spinners is in law obliged to pay to Mr Vaughan. But a step has been missed out.
[49] Before the Authority and the Court could decide if s161(2) denied them jurisdiction they had to reach a view on the character of cl 28(d): whether or not it had any present contractual effect. To decide whether the clause had any such effect they had to be able to give it meaning; they had to be able to interpret it. Consequently, a necessary step before the Court could declare that the Authority had jurisdiction was for the Court to say what the clause meant and what it obliged the parties to do. If the Court was unable to do this, it would be because the clause was legally uncertain.
[50] It would not, we believe, be appropriate for us in the present circumstances of this case to attempt any definitive interpretation of cl 28(d). That should properly be a matter for the Employment Court. Parliament plainly was content to leave questions of the construction of particular contracts, not raising issues of general principle or approach, with the specialist bodies. The following remarks are therefore intended merely to assist the Court by canvassing some of the relevant lines of inquiry that it will naturally consider in the course of interpreting the clause.
[51] Clause 28(d) may be thought to have the appearance of being more favourable, at least in procedural terms, from the employee’s perspective than the clause which was able to be given operation in Timbercraft. But it may still be capable of several interpretations. Two matters do, however, appear to be beyond argument. First, the clause requires the employer to negotiate on the level of redundancy compensation with the employee’s representative. It is not permissive. Secondly, the employer must make an offer of redundancy compensation to the employee. It may be necessary for the Court to consider the point in the negotiations at which the offer must be made. Is it the intention that there be simply an opening offer, which, if unaccepted, is not to have any binding force? Or is it the intention that the negotiations are to culminate in an offer? The latter might well be suggested by the sequence of the wording. Then, as to the offer itself: can the employer, provided always that it is acting in good faith, choose to offer merely such sum as it considers appropriate, or must it be a sum within a range which can objectively be considered to be reasonable in the circumstances of the case? If the latter, is it implicit that an adjudicating body – the Authority – can, in effect, audit the offer by determining whether the offered amount falls within the range of reasonableness? It may possibly be thought to strain the language of cl 28(d) to interpret it in a way which would enable an adjudicating body to do more than substituting for an offered sum which is beyond the reasonable range a sum which is within it. On this interpretation, the Authority could not replace a reasonable offered sum with one which it thinks is even more reasonable. But these are matters for the Employment Court to consider.
[52] We should mention also Mr Couch’s argument that in 1998 when the original collective employment contract was entered into there cannot have been any anticipation by the parties that cl 28(d) would have any binding force; that there could have been no expectation that it would be enforced because s46 of the ECA, especially subs(3), would have prevented the then Employment Tribunal or the Employment Court from fixing compensation or even from directing that negotiations should take place under the clause. It does not necessarily follow, however, that because the parties would have appreciated that there might well be an impediment to obtaining enforcement under the ECA Act, cl 28(d) was not intended to have any definite meaning for the parties. Indeed, Mr Couch conceded that he could not put his argument as high as that. But he did contend that, unlike the rest of the agreement, the provision was never supposed to have any contractual effect. We consider, however, that it is open to the Employment Court to conclude that it does have such effect. It is to be noted that s242(1), one of the transitional provisions in the ERA, has now provided that individual employment contracts within the meaning of the ECA that were in force, as this one was, immediately before the commencement of the ERA are to continue in force according to their tenor and that they are enforceable in the Authority or the Court. Whilst therefore, in interpreting cl 28(d), the Court should not overlook the presence in the ECA in 1998 of s46, it is not on that account unable to conclude that cl 28(d) gives rise to enforceable obligations.

Result

[53] Because of the need for an interpretation of cl 28(d) before there can be a determination of whether the Authority has jurisdiction in the case, we have concluded that we must remit the matter to the Employment Court so that it can give its interpretation and then decide, in light of this judgment, whether the Authority is precluded by s161(2) from resolving the dispute.
[54] The appeal is therefore allowed. The determination made by the Employment Court is set aside and the matter is remitted to the Court accordingly.
[55] In the circumstances where both parties have succeeded in part, there will be no award of costs in this Court.

Solicitors:
Brookfields, Auckland for Appellant
National Distribution Union, Christchurch for the Respondent