UNISYS NEW ZEALAND LIMITED v RUDDLESDEN and Ors CA CA219/04

UNISYS NEW ZEALAND LIMITED v RUDDLESDEN and Ors CA CA219/04 9 December 2004IN THE COURT OF APPEAL OF NEW ZEALAND CA219/04BETWEEN UNISYS NEW ZEALAND LIMITED Applicant AND SCOTT RUDDLESDEN, ANA KATAE, GARY LEWIS AND SAM YOUNG Respondents Hearing: 6 December 2004 Court: Anderson P, McGrath and Glazebrook JJ Counsel: W M Wilson QC and A H Benefield for Appellant J J Cleary for Respondents Judgment: 9 December 2004JUDGMENT OF THE COURT The application for leave to appeal is dismissed. The applicant must pay costs of $3000 to the respondents together with reasonable disbursements to be fixed by agreement or failing agreement by the Registrar. REASONS(Given by McGrath J) [1] Unisys New Zealand Limited applies for leave to appeal under s 214 of the Employment Relations Act 2000 against a decision of the Employment Court holding that it had breached the terms of individual employment agreements it hadentered into with the respondents in relation to obligations to pay market remuneration. [2] At all relevant times the respondents were employed by the applicant as help desk analysts, under standard form employment agreements. These comprise an individual employment agreement together with an offer of employment which confirms the individual's starting remuneration and job description. The employment agreement incorporates the applicant's Policies and Procedures Manual stipulating it to be part of the terms and conditions of employment between the parties. It also provides that key objectives of the applicant's remuneration policy are to "establish and maintain fair and competitive market remuneration". As well it provides that performance reviews will be carried out at least annually in accordance with procedures applying from time to time, and that remuneration decisions will be made by the applicant according to stipulated factors following performance reviews. [3] The remuneration policy of the applicant sets ranges of salaries for different employee roles. A "market reference point" (MRP) is regularly set for each role based on market research into salaries for equivalent positions. MRP is defined by the policy as being a norm when the person in the role applies the required skills at the appropriate level of competency to the position, meets its performance requirements, and matches exactly the role summary. The policy goes on to provide:Since market reference points are norms, actual salaries that are 10% above or 10% below a market reference point are considered at market.[4] Later the policy provides that market reference points give managers flexibility in decision-making about pay and do not represent what any particular person should be paid. [5] The employment dispute between the respondents and the applicant arose because the percentage of the current market rate that the respondents were being paid differed from that fixed for persons in the same positions who subsequently joined the company. There was no suggestion that this was due to the respondents' job performance.[6] In a judgment delivered in the Employment Court on 22 September 2004 Judge Shaw observed that it was necessary to consider all of the documents that formed the conditions of employment of the respondents in order to determine the nature of the applicant's obligations to pay remuneration to the respondents. The Judge said of the provisions stipulating the objectives of the applicant's remuneration policy:[43] The remuneration section of the policy commits the employer to an objective of a remuneration that is fair and competitive in the market and the maintenance of that. This means Unisys NZ aims not only to establish the fair remuneration but to maintain it. In other words, a continuing obligation. [44] As these obligations are expressed as objectives, without more they would be unlikely to have full binding force. However, the objectives inform the rest of the agreement and at the very least are a guide to the interpretation of other parts of the agreement which deal with remuneration.[7] Judge Shaw went on to consider what obligations the agreements imposed on the applicant in relation to adjustment of the respondents' remuneration. She concluded that the applicant was obliged to undertake regular salary reviews based on the performance of the respondents and the MRP for their positions. There was also an obligation to pay market salary and in effect no discretion to go below 90% of MRP. The Judge considered that to be stipulated in the policy. The Judge summarised her findings as to the terms as follows:[49] I find that the terms of the agreement require the employer to:• Set the MRP for each role.• Pay at market salaries that are in a range between 10 percent above or below the MRP for each role.• When considering where a particular salary sits within the 10 percent range it must take into account the employee's performance and its annual financial performance.• By consistently paying the plaintiffs outside the market range stipulated by the employment the defendant is in breach of its contract of obligation to them.[8] The Judge also observed that the applicant's decisions were contrary to the objective of paying fair remuneration and reward for performance. She held that to the extent that the respondents were paid salaries falling outside the 10% range of the MRP the applicant was in breach of its employment agreement with them.[9] There was no dispute between counsel as to the principles to be applied to the application for leave to appeal. Senior counsel for the applicant, Mr Wilson QC, accepted the burden of showing that it was arguable that there had been an error of law by the Employment Court in the approach it took to interpretation of the provisions of the employment agreement rather than a mere error in its ultimate construction. He also accepted that it was necessary for him to establish that the appeal was of importance beyond the terms of the particular agreement between the parties. [10] Mr Wilson argued that the issue in the appeal, if leave were given, would be whether an objective in an employment agreement could found an obligation, rather than merely be a guide to interpretation of the terms of the agreement. He said that the orthodox approach to interpretation was to use recitals as an aid to ascertaining the meaning of the substantive provisions rather than as terms which carried binding effect in themselves. He argued that the Judge's observations at [44] of her judgment were indicative of an erroneous approach. In response to questions from the Bench he added that the Judge had given excessive weight to the policy objectives which amounted to an error of principle. A particular criticism related to the way the Judge had dealt with the objective of fair and competitive market remuneration which he said could not have binding force. [11] In relation to the level of importance that a matter had to have before the Court would in general give leave for a second appeal Mr Wilson argued that it was sufficient to show that the matter went beyond the terms of the particular relationship. He said that would be the case if the Employment Court's position that objectives included in a contract might be given binding force were allowed to stand. [12] Counsel for the respondents, Mr Cleary, emphasised that the provisions of the applicant's policy manual had been incorporated into the contract by its terms. The market reference points had been taken from the policy document and the obligations drawn from its provisions that the Judge had identified were contractual terms, rather than something outside of the contract. From that point, the issue in any appeal would simply be whether what the Judge had decided to be the meaning of thoseterms was correct. That, Mr Cleary submitted, was precluded by s 214(1) of the Employment Relations Act 2000 which provides:(1) A party to a proceeding under this Act who is dissatisfied with a decision of the Court (other than a decision on the construction of an individual employment agreement or a collective employment agreement) as being wrong in law may, with the leave of the Court of Appeal, appeal to the Court of Appeal against the decision; and section 66 of the Judicature applies to any such appeal.[13] He also argued that paragraph [44] of the judgment had set out the relevant principles of interpretation correctly. Although the policy had been incorporated into the contract, the Judge had not used it to give the objectives provision contractual force. That had been done by the contract itself. Overall his argument was that if there was an error in the judgment it concerned only application of principle to the employment agreement and not the principle itself. [14] In her judgment Judge Shaw found that the applicant's employment agreements with the respondents had stipulated that it was a key objective of the applicant's remuneration policy to establish and maintain fair and competitive market remuneration. The agreements also incorporated the applicant's policy manual as part of their terms and conditions. In [43] and [44] of the judgment the Judge concluded that there was a continuing commitment by the applicant to its objective of paying fair and competitive remuneration throughout the agreement. We read [44] as indicating that she saw the status of the objectives provision as the equivalent of a contractual term, its content requiring that it be applied as a guide to interpretation of other provisions of the agreement. It was not a term that was in itself directly enforceable. This is consistent with the way in which the Judge proceeded in her judgment. [15] Judge Shaw went on to consider the more specific provisions in the offer, the agreement, and the incorporated policy relating to remuneration. She identified statements in the offer that starting remuneration would reflect the current market salary for the position, and that there would be annual performance reviews following which the applicant would make decisions on remuneration of the employee, according to criteria which included their performance in relation to theMRP for their role. She referred also to provisions in the incorporated policy documents which elaborated on the applicant's system for reviewing pay. [16] There had been an issue at the Employment Court hearing concerning the range within which the company could make decisions as to appropriate remuneration pursuant to the employment agreements. The Judge resolved this by reference to the provision in the policy that said that actual salaries would be at 10% above or below the market reference point (see [3] above). She did not accept that provisions entitling the applicant to take into account what it could afford were intended to give a discretion to pay salaries outside of the 10% below MRP range. On this basis the Judge decided that by consistently paying the plaintiffs below that margin the applicant was in breach of its "contract of obligation" to them. [17] This analysis represents an orthodox approach to identifying and ascertaining the meaning of the terms of an agreement, in a context in which the standard form of agreement had conferred the status of terms on the provisions in the applicant's manual of Policy and Procedures. It is true that the Judge also considered a further question, concerning whether the defendant had met the objectives of fair remuneration, but we do not read that element of her approach as involving any fundamental departure from what until then had been a straightforward application of the terms of the contract as she had identified them. By that point in any event she had concluded that there was a breach of the terms of the employment agreement. [18] In these circumstances there is no error of approach or principle in the Judge's decision on the interpretation of the employment agreements with the respondents. It is well established by decisions of this Court on earlier legislative provisions expressed in very similar terms that s 214(1) of the Employment Relations Act 2000 requires that this Court not grant leave to bring an appeal which would do no more than raise an argument that the Employment Court's interpretation of an employment agreement was wrong: Wellington College of Education v Scott[1999] 1 ERNZ 98, 101. This appeal raises no wider ground and on that account alone leave must be refused.[19] It is unnecessary in those circumstances to consider the further issue as to whether the Court should in any event permit a second appeal in a case which largely turns on the particular provisions of the employment agreements used by one employer. [20] The application for leave to appeal is dismissed with costs of $3000 together with reasonable disbursements to be fixed by agreement or failing agreement by the Registrar.Solicitors: Bell Gully Buddle Weir, Wellington for Applicant P H Surridge, Wellington, for Respondent