FEDERAL COURT OF AUSTRALIA Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Skilled Engineering Ltd [2003] FCA 260 INDUSTRIAL LAW – certified agreement – principles of construction – circumstances in which term should be implied – whether casual award rates superseded by new rates in certified agreement Workplace Relations Act 1996 (Cth), ss 170LY, 170LZ, 178 Ali v Christian Salvesen Food Services Ltd [1997] 1 All ER 721 distinguished Aron Salomon (Pauper) v A Salomon and Company Limited [1897] AC 22 referred to Australian Municipal, Administrative, Clerical and Services Union v Treasurer of the Commonwealth of Australia (1998) 82 FCR 175 cited BP Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 applied Byrne v Australian Airlines Limited (1995) 185 CLR 410 cited Chorlton v Lings (1868) LR 4 CP 374 referred to Construction, Forestry, Mining and Energy Union v Henry Walker Eltin Contracting Pty Ltd (2001) 108 IR 409 distinguished Dinch v Dinch [1987] 1 WLR 252 considered Geo A Bond & Co Ltd (In Liquidation) v McKenzie [1929] AR (NSW) 498 referred to Glover v Glover (1964) 6 FLR 262 referred to Hawkins v Clayton (1988) 164 CLR 539 cited Hawkins v Commonwealth Bank of Australia (1996) 66 IR 322; AMASCU (1998) 82 FCR 175 cited Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 cited Kainhofer v Director of Public Prosecutions (No.2) (1996) 70 FCR 184 referred to Prenn v Simmonds [1971] 1 WLR 1381 applied Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 185 ALR 335 followed Seamen's Union of Australia v Adelaide Steamship Co Ltd (1976) 46 FCR 444 cited Short v FW Hercus Pty Ltd (1993) 40 FCR 511, 520 referred to St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No. 2) [1975] 1 WLR 468 applied Warramunda Village Inc v Pryde (2001) 105 FCR 437 distinguished AUTOMOTIVE, FOOD, METALS, ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION v SKILLED ENGINEERING LIMITED V 1139 of 2001 FINKELSTEIN J 27 MARCH 2003 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 1139 of 2001 BETWEEN: AUTOMOTIVE, FOOD, METALS, ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION Applicant AND: SKILLED ENGINEERING LIMITED Respondent JUDGE: FINKELSTEIN J DATE: 27 MARCH 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 In July 1998 the Metal, Engineering and Associated Industries Award came into force. The award is binding on a number of employee organisations, including the applicant union, several employer organisations and their members, one of whom is the respondent employer, and on certain categories of employees. On 1 June 2001 the Skilled Engineering Limited, Pilkington Geelong Site Maintenance Certified Agreement 2002-2003 was certified by the Australian Industrial Relations Commission. The parties bound by the certified agreement are the employer, those of its employees who work at the Pilkington site in Geelong and whose terms and conditions are regulated by the 1998 award or another award known as the National Electrical Electronic and Communications Industry Award 1998, and the organisations that represent those employees namely the union and the Communications, Electrical, Electronic, Information, Postal, Plumbing and Allied Services Union of Australia. There is a controversy between the union and the employer concerning the wages to be paid to casual employees. The controversy is whether those wages must be calculated in accordance with the award (which is what the employer contends) or whether the award rates have been superseded by the new rates in the certified agreement (which is the union's position). The union has brought this application pursuant to s 178(1) of the Workplace Relations Act 1996 (Cth) seeking (1) the imposition of penalties for breach of the certified agreement and (2) an order that the underpayment of wages be paid under s 178(6). 2 The resolution of the controversy depends upon the meaning to be attributed to the certified agreement. For these reasons the parties requested, and I agreed, to deal with the issue of construction separately from and before hearing evidence to determine the quantum of the alleged underpayment of wages and before hearing submissions on what penalties (if any) should be imposed on the employer if it has breached the certified agreement. At the conclusion of this part of the proceeding I will make orders declaring the rights of the parties, notwithstanding that this approach has sometimes been frowned upon: Warramunda Village Inc v Pryde (2001) 105 FCR 437, 441 per Gray, Branson and North JJ. 3 It is convenient to begin with an examination of the award. It is a comprehensive document containing provisions dealing with, amongst other things, categories of employment, rates of pay, hours of work, rights and obligations on termination, severance entitlements, allowances, overtime and leave entitlements. 4 The award provides for three categories of employee: full-time; part-time; and casual. For the purposes of the award an employee who is not engaged as a part-time or casual employee is a full-time employee: cl 4.2.2. A part-time employee is a person who is "engaged to work on a part-time basis involving a regular pattern of hours which shall average less than 38 hours per week": cl 4.2.4(a). A casual employee is one who is "employed by the hour": cl 4.2.3. 5 A full-time employee's "ordinary hours of work" are 38 hours per week averaged over the period of the work cycle that applies in the employees particular enterprise: cl 6.1. The rates of pay are set out in Part V of the award. Subject to certain immaterial exceptions an employee is entitled to the applicable rate for his classification. A schedule sets out both the weekly and the hourly rates of pay; in each case the hourly rate is 1/38th of the weekly rate. Special provisions are made for apprentices, trainees and other categories of employees who are not on the ordinary award rate. Overtime is payable "for all work done outside ordinary hours": cl 6.4.1. 6 A part-time employee (that is, an employee who is engaged to work less than a 38 hour week) is entitled to receive pro-rata that which is paid to a full-time employee "on the basis that ordinary weekly hours for full-time employees are 38": cl 4.2.4(c). A casual employee who works "ordinary time" is to be paid "an hourly rate calculated on the basis of one thirty-eighth of the weekly award wage … for the work which [he] perform[s] plus a casual loading of [25] per cent": cl 4.2.3. (The loading was increased from 20 per cent by an award variation which came into effect on 9 February 2001.) 7 Turning now to the certified agreement the first point to note is that it provides for a number of over-award benefits. Important for present purposes is the wage increase for three classifications of employee: C8, C10 and C12. The new rates are found in cl 13. They are expressed as weekly rates. No hourly rate is mentioned. The evidence does not reveal whether any employee at the Geelong site is not within one of these classifications. There is also a change to the ordinary hours of work. Clause 25.1 provides "[t]hat the ordinary hours … will be an average of 35 hours per week, Monday to Friday, ie 9 day fortnight". 8 The certified agreement also provides for benefits which are specifically directed to casuals or to "all employees" which necessarily includes casuals. Clause 11 provides that "[e]ach employee being (casual or permanent) will receive a [severance] payment of $49.00 per week or part thereof". Clause 16 provides that "all employees" will be covered by a "Sickness and Accident Income protection Plan" (sic). Clause 21 makes provision for a "travel allowance of $17.95 per day" to be paid to "all employees". Improved superannuation benefits are found in cl 18. By that clause the employer must pay for "all it's permanent and casual employees at [the] Pilkington Geelong Site, a minimum of $60.00 into an agreed fund … or the SCG, whichever is the greater". Clause 18 states that one component in determining a casual's superannuation entitlements is his "full wage specified in this [Certified] Agreement". Clause 22 outlines the circumstances in which casual employees are to be engaged. It provides: "Casual Labour is engaged for high peak workload, shutdowns, and to cover full time employees absences. Casuals will be only be engaged (sic) for a maximum of 4 weeks. Where the Company needs an extension due to unforeseen circumstances, a 2 week extension may be agreed by delegates. This should not be unreasonably withheld. Casual/permanent labour replacing a full time employee will be paid the same classification up to level G7 Electrical (ETU) or C8 Mechanical (AMWU)." 9 The Workplace Relations Act provides that a certified agreement will prevail over an award (State or Federal), orders of the Commission and State laws: see generally ss 170LY and 170LZ. Conformably with these provisions cl 6.1 of the certified agreement stipulates that: "[w]here there is any inconsistency between [the] agreement and the awards mentioned … [the] agreement shall take precedence to the extent of any inconsistency." 10 The certified agreement does not cover the range of subject matter that is found in the award. Consequently many of the terms in the award continue to apply to the respondent's employees. In view of the fact that both the award and the certified agreement govern the entitlements of employees at the Geelong site, cl 6.1 of the certified agreement provides that the agreement "shall be read wholly in conjunction with the [1998 award] as amended during the life of the [Certified] Agreement." 11 The issue in this proceeding is whether the certified agreement changes the rates of pay to which a casual employee is entitled. This will only occur if the certified agreement imposes an obligation on the employer to pay wages at a rate which is higher than the award rate. In the absence of an express provision increasing the wages payable to casuals, the union's success depends on it demonstrating that the obligation exists by implication as a matter of construction or by the inclusion of a term. 12 This immediately raises the question whether it is permissible to imply a provision into a certified agreement. The answer might depend upon the nature of such an agreement. On one view a certified agreement is no different from a private contract (a binding exchange of promises) between two or more persons, save that the machinery for its enforcement is conferred by statute. On this view the ordinary rules according to which a term can be implied into a contract will apply to a certified agreement. Terms can then be implied as a rule of law, as representing the imputed intention of the parties or by custom. 13 An alternate view is that a certified agreement is not a mere contract but an instrument which seeks in a way to legislate for the terms and conditions of employment in much the same way as an award: compare Geo A Bond & Co Ltd (In Liquidation) v McKenzie [1929] AR (NSW) 498, 503. This view suggests that the principles applicable to the construction of statutes (which it has been said are "not inapplicable to an award": Short v FW Hercus Pty Ltd (1993) 40 FCR 511, 520) should be applied to the certified agreement. This would also permit the implication of a term, but the circumstances in which the implication can be made are more limited than in the case of a contract: Chorlton v Lings (1868) LR 4 CP 374, 387 per Willes J: (an enactment includes "what is necessarily or properly implied by the language used"); Aron Salomon (Pauper) v A Salomon and Company Limited [1897] AC 22, 38 per Lord Watson ("what the Legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication"). 14 A third possibility, which derives from the fact that we are dealing with an agreement which has been certified by the Australian Industrial Relations Commission, is to apply by analogy the approach taken to the construction of court orders. In this instance it would still be permissible to imply a term into the certified agreement for that is sometimes done with orders. For example in Dinch v Dinch [1987] 1 WLR 252, 263 Lord Oliver said that "[o]ne has, … simply to look at the order and any admissible material available for its construction, and determine what the court intended – or, in the case of [a] consent order, what the parties intended – to effect by the order". See also Glover v Glover (1964) 6 FLR 262, 263 per Selby J: ("It cannot be assumed that the court intended its orders to be meaningless but since, if constructed literally, they are meaningless, they must be construed liberally in an endeavour to ascertain the court's intention."); Kainhofer v Director of Public Prosecutions (No.2) (1996) 70 FCR 184, 186 per Lockhart, Hill and Keiffel JJ: ("No order dismissing the cross-appeal was made, although this is implicit in other orders made at the time by their Honours, including an order for the costs of the cross-appeal".). 15 The prevailing view seems to be that the rules applicable to the construction of contracts should be applied to both awards and certified agreements. The cases do not explain why this is so in the case of an award: see by way of example Seamen's Union of Australia v Adelaide Steamship Co Ltd (1976) 46 FCR 444; Hawkins v Commonwealth Bank of Australia (1996) 66 IR 322; Australian Municipal, Administrative, Clerical and Services Union v Treasurer of the Commonwealth of Australia (1998) 82 FCR 175. 16 I have found two cases, an English decision (where the legislation is analogous but not precisely the same) and one from the Federal Court which have considered whether a term might be implied into a certified agreement. The English decision, Ali v Christian Salvesen Food Services Ltd [1997] 1 All ER 721 concerned a collective agreement which introduced a system of annual pay where employees were to receive a standard wage for working a total of 1,824 hours in a twelve month period: effectively a 40 hour working week. There were no provisions for the eventuality that an employee might cease his employment before the expiry of the twelve month period. The plaintiff was made redundant after working twenty-two weeks. He claimed that the hours he worked had exceeded 40 hours per week and he applied for a determination that he be paid pro-rata for the excess based on an alleged implied term which he constructed to cover his situation. His application was refused. Waite LJ, with whom Saville and Otton LJJ agreed, said (at 726): "Should there be any topic left uncovered by an agreement of that kind, the natural inference, in my judgment, is not that there has been an omission so obvious as to require judicial correction, but rather that the topic was omitted advisedly from the terms of the agreement on the ground that it was seen as too controversial or too complicated to justify any variation of the main terms of the agreement to take account of it." As Waite LJ highlighted, it would be extremely difficult to devise a term to cover the different circumstances in which an employment contract would be terminated prematurely. He instanced the employee who fell sick and was dismissed for incapacity, the employee who was dismissed for misconduct, and the "zealous latecomer". He then went on: "Once it is apparent that the situation for which it is sought to imply a term is only one of the numerous eventualities on which the agreement is silent, it becomes difficult, if not possible to devise for any particular eventuality, a term of which it can be predicated with certainty that the negotiating parties would inevitably have been of one mind about it if a decision had been taken to make specific provision for it in the agreement." 17 The second decision is Construction, Forestry, Mining and Energy Union v Henry Walker Eltin Contracting Pty Ltd (2001) 108 IR 409. The certified agreement in that case made provision "for a 2 panel 5˝ day roster working 2 x 12 – hour shifts". The employer introduced a different roster to meet its changed needs. The union contended that the certified agreement should be construed as to allow a change in salary to cover the case of a change in the roster. In the alternative, it submitted that there was an implied term of the certified agreement which provided for the alteration of salary in accordance with any change in the work done due to an alteration in the roster. Neither the construction argument nor the putative implied term nominated a salary that was to be paid in changed circumstances. Presumably the salary was one that that was fair and reasonable. Branson J rejected both submissions, substantially for the same reasons. Some of her reasons were dependent upon the particular terms of the certified agreement. However two were more general. Branson J said (at 419): "It would, in my view, be contrary to the intention of the legislature as disclosed by these provisions of the Act [s 178 and s 179], for the amounts payable to an employee under a certified agreement to be other than certain and capable of determination by reference to the agreement itself. And later (at 420): "[T]he implication of [an alleged implied] term would not be reasonable and equitable, it is not necessary to give business efficacy to the Agreement, would not be an obvious reflection of the apparent intention of the parties to the Agreement, is not capable of clear expression and would contradict the express terms of the Agreement (see Codelfa Construction Pty Ltd v State Rail Authority of (NSW) (1982) 149 CLR 337 per Mason J at 347)." 18 These cases suggest that the general approach is to apply the principles of contract construction, but with a predisposition against the implication of a term. For example, it was accepted in Ali v Christian Salvesen Food Services that there was a gap in the agreement which produced unfairness. However, this was not sufficient to convince the court that the gap should be filled. As a collective agreement is usually a carefully negotiated compromise between parties who have equal bargaining power, the tendency is to assume that the omission is intentional. 19 In Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 185 ALR 335, 349 Gummow J said that the first task in implying terms is to consider the evidence and to find the relevant express terms. Here there is a disagreement regarding the evidence to be considered. The employer contends that the history of the certified agreement can be considered. This is uncontroversial. It also says that extrinsic facts can be taken into account in construing the agreement. So far so good. The employer then says that those intrinsic facts should include the submissions filed by the union in support of its application for the award variation previously referred to as well as the decision of the Full Bench of the Australian Industrial Relations Commission granting the increase. The employer seeks to rely on these documents to submit that the union's current contentions are inconsistent with those put to the Commission. 20 Surrounding circumstances are admissible in all cases in order to place the contract in its correct setting. In St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No. 2) [1975] 1 WLR 468, 477 Sir John Pennyquick (with whom Russell and Orr LJJ concurred) said it was contended: "[T]hat the proper method of construction is first to construe the words of the instrument in isolation and then look at the surrounding circumstances in order to see whether they cut down the prima facie meaning of the words. It seems to us that this approach is contrary to well-established principle. It is no doubt true that in order to construe an instrument one looks first at the instrument and no doubt one may form a preliminary impression upon such an inspection. But it is not until one has considered the instrument and the surrounding circumstances in conjunction that one concludes the process of construction." In Prenn v Simmonds [1971] 1 WLR 1381, 1383-1384 Lord Wilberforce said: "The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. … We must … inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view." He continued (at 1385): "[E]vidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the "aim" of the transaction." 21 The object as always is to objectively determine the intention of the parties from the words of the document. That intention can manifest itself not only from words used but from words considered in light of the circumstances surrounding the transaction. 22 The circumstances to which the employer wishes to refer do not surround the transaction. They cast no light on the genesis of the certified agreement and are so far removed from the agreement that they could not, on any view, speak of the "genesis" or "aim" of the transaction. While the evidence was received, I pay it no attention. 23 It is common ground that full-time employees in classifications C8, C10 and C12 are entitled to the weekly rate specified in cl 13 of the certified agreement for working the ordinary hours set out in cl 25.1. It is to be noted, however, that this entitlement does not arise because of cl 13 if read in isolation: the clause make no reference to the payment of wages to full-time employees. The obligation exists when the certified agreement is "read wholly in conjunction with the [1998 award]": (cl 6.1). When the two documents are read together it is abundantly clear that a full-time employee's wages have been increased and his hours of work have been reduced. A contract lawyer would say this is implicit. 24 And what of the part-time employee? In order for him to be entitled to any benefit under the certified agreement he must point to the imposition of an obligation upon the employer to provide that benefit. It will be remembered that the award defines a part-time employee as an employee engaged to work "a regular pattern of hours which shall average less than 38 hours per week" and, by reason of cl 4.2.4(c) he is entitled to wages pro-rata to those payable to a full-time employee who work a 38 hour week. There is no express provision in the certified agreement which alters the pay entitlements of a part-time employee. Nor is there any provision which changes his hours of work. But that is not to deny that there has been an implicit alteration to the wages payable to a part-time employee. Indeed it is apparent that there has been such a change. I will explain why. Let it be assumed that a person is employed to work a 37 hour week. According to the award that person is a part-time employee because he is engaged to work less than a 38 hour week. But according to the certified agreement that same person is a full-time employee because he is working more than 35 hours per week. This inconsistency must be resolved. One approach is to ask this question: Is it to be supposed that this imaginary employee is to receive the wages specified in the award? Plainly the answer must be: No. The hypothetical worker is a full-time employee and therefore should receive a full-time wage. But where does one find the obligation to pay that wage, presumably in our example with 2 hours on overtime rates? The certified agreement does not impose that obligation by an express provision. It nevertheless does so in its proper construction, but if it does not and there is a gap, that gap must be filled by the implication of an appropriate term into the certified agreement. 25 We can now deal with the casual employee. As a general proposition one can say that, when appropriate, benefits provided to full-time and part-time employees are also provided to casuals. Turning to specific provisions, cl 22 is important. It contemplates that a casual employee will usually be engaged to work the same hours as the full-time employee whose absence he is "covering". That is to say, a casual employee is likely to be engaged to work at least 35 hours per week. He is to "be paid the same classification up to level C8". This suggests that the rate of pay is to be based on the new rates. So also does cl 18 which provides that wages payable to casuals for the purposes of calculating their superannuation contributions is to the "wages specified in this [Certified] Agreement." Then there is the fact that part-time employees are to receive the new rates for reduced hours of work. It would, to say the least, be incongruous if the new rates are payable to both full-time employees and part-time employees but not to casuals who are likely to work the equivalent of a full-time week. All in all, the indications are that the parties intended that casuals were to be paid an hourly rate of pay for each hour worked calculated as 1/35th of the weekly rate prescribed by cl 13 in addition to the casual loading of 25 per cent. If this is not the proper construction of the certified agreement then there is an unintended gap which can be completed by an appropriate term. If it be necessary to imply a term, it is justified by the principles established in BP Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266, 283. Moreover, as Deane J noted, the BP Refinery (Westernport) Pty Limited case was concerned with whether a term should be implied in a formal contract "which was complete upon its face". Sometimes a more flexible test is called for: Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41, 121; Hawkins v Clayton (1988) 164 CLR 539, 571. See also Byrne v Australian Airlines Limited (1995) 185 CLR 410, 422-423 (per Brennan CJ, Dawson and Toohey JJ). On the basis of these cases, a term may be implied if it is necessary for the reasonable or effective operation of a contract in the circumstances of the case. In my opinion, that test is satisfied in this case. 26 It will be necessary for the union to bring in short minutes of the orders (including declarations) to give effect to these reasons and to provide for the future disposition of this case. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 27 March 2003 Counsel for the Applicant: Mr S Moore Solicitor for the Applicant: Maurice Blackburn Cashman Counsel for the Respondent: Mr F Parry Solicitor for the Respondent: G.W.P. Aarons & Co Date of Hearing: 18 & 19 September 2002 Date of Judgment: 27 March 2003