Shop, Distributive and Allied Employees' Association v Toys 'R' Us (Australia) Pty Ltd [1997] IRCA 171

DECISION NO:171/97 CATCHWORDS INDUSTRIAL LAW - INTERPRETATION OF AN ENTERPRISE FLEXIBILITY AGREEMENT - general principles of interpretation - use of extrinsic materials - application of the contra proferentem rule - whether ambiguity in an enterprise flexibility agreement should be construed against the employer Industrial Relations Act 1988 (Cth), s 413 SHOP, DISTRIBUTIVE AND ALLIED EMPLOYEES' ASSOCIATION v TOYS 'R' US (AUSTRALIA) PTY LTD NI 1912 of 1996 MADGWICK J SYDNEY 30 JUNE 1997 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. NI 1912 of 1996 BETWEEN SHOP, DISTRIBUTIVE AND ALLIED EMPLOYEES' ASSOCIATION Applicant AND TOYS 'R' US (AUSTRALIA) PTY LTD Respondent CORAM: MADGWICK J PLACE: SYDNEY DATE: 30 JUNE 1997 MINUTES OF ORDER THE COURT DECLARES THAT: 1. Upon its true interpretation, subclause 10.4 of the enterprise flexibility agreement known as the "Toys 'R' Us Associate Enterprise Flexibility Partnership Agreement" entitled all employees bound thereby to a wage increase on account of an arbitrated safety net adjustment in wage rates upon the first variation of any of the three awards named in the subclause. 2. Those of the said employees employed in New South Wales and Victoria were entitled to such a wage increase as from 28 March 1996. IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. NI 1912 of 1996 BETWEEN SHOP, DISTRIBUTIVE AND ALLIED EMPLOYEES' ASSOCIATION Applicant AND TOYS 'R' US (AUSTRALIA) PTY LTD Respondent CORAM: MADGWICK J PLACE: SYDNEY DATE: 30 JUNE 1997 REASONS FOR JUDGMENT MADGWICK J: This is an application by the Shop Distributive and Allied Employees Association (the Association) under s 413 of the Industrial Relations Act 1988 (Cth) (the Act) for an interpretation of subclause 10.4 of the "Toys 'R' Us Store Associate Enterprise Flexibility Partnership Agreement" (the Agreement). The Agreement is an enterprise flexibility agreement made under Division 3 of Part VIB of the Act. Subclause 10.4 of the Agreement states: "There shall be no movement in wages as a result of any National or State Wage Determination, or Test Case except that if anyone [sic] of the Shop Distributive and Allied Employees' Association/Toys 'R' Us (NSW) Interim Award 1994, Retail and Wholesale Shop Employees (ACT) Award 1983 or the Shop Distributive and Allied Employees' Association/Toys 'R' Us (Victoria) Interim Award 1994 is varied to provide for an arbitrated safety net adjustment increase in wages rates, then the rates in the Agreement will be increased by the amount of the award adjustment, from the date of the award adjustment." On 28 March 1996, the Retail and Wholesale Shop Employees' (ACT) Award was varied to provide for what was known, under the Australian Industrial Relations Commission's then wage fixation principles, as the third safety net adjustment in wage rates. The only issue between the parties is whether, upon the variation of the ACT award, all of the employees covered by the Agreement, some of whom were employed in the ACT, some in Victoria and some in New South Wales, were entitled to the benefit of the increase, or whether only those employees formerly covered by the ACT award were entitled to the increase from that date. The Association's position, on behalf of the employees, is that in the event of any one of the awards being varied according to an arbitrated safety net adjustment, the proper construction of subclause 10.4 requires the respondent to vary the wage rates of all employees bound by the Agreement from the date of that variation. The respondent's position is that the intention of the subclause, on its proper construction, was that employees would only be entitled to a wage increase resulting from a safety net adjustment, if the variation applied to the award operating in their State. All of the three named awards were in time varied in accordance with the third safety net adjustment, the New South Wales and Victorian awards being varied after the ACT award. The outcome of the dispute will thus determine whether the employees who would have been covered by the New South Wales and Victorian awards are entitled to the wage increase between 28 March 1996 and the respective dates on which their respective awards were varied. The Agreement In written submissions, the Association asserts that the meaning of subclause 10.4 is clear on its face. On the face of subclause 10.4 itself, there is much to be said for this. However, subclause 10.4 should not be read as standing alone; rather, it is trite law that the Agreement is to be read as a whole. Subclause 10.1 of the Agreement requires wages to be paid in accordance with Annexure A, which breaks down the rates of pay according to the State in which the employee is employed. Subclauses 10.5 and 10.6 relate to a requirement imposed by the Commission that the original Agreement be amended to provide for a comparative calculation between the rates contained in the Agreement and each award. The terms of these subclauses are as follows:- "10.5 At the end of 12 months after the commencement of their employment any employee covered by this agreement may, within 2 months request a comparison of their remuneration under the agreement with what would have been remunerated under the relevant Federal Award. If the comparison discloses any shortfall the difference will be made up by the Company. 10.6 Every employee shall within two months of either resignation or termination have the right to request a comparison of their wage under the Agreement and the relevant Federal Award. If the comparison discloses any shortfall the difference will be made up by the Company. (emphasis added)" It seems to me that the requirement that the comparison should refer only to the terms of "the relevant" award is an indicator that the parties' intention was to distinguish between the operation of the Agreement on a geographical basis. Safety net adjustments were not made universally, but only upon an application to vary a particular award which satisfied the requirements set down by the Commission (56 IR 114). If, for example, in accordance with subclause 10.5 or 10.6 of the Agreement, an employee in New South Wales made an application for a comparison after the ACT award had been varied to account for the third safety net adjustment, but prior to an application for the adjustment of the New South Wales award, then it is clear that the company would (under the terms of those subclauses) only be required to compare the wage rates under the Agreement with the wage rates under the New South Wales award. Accordingly, an employee in New South Wales would not be entitled to count, in the comparison, the third safety net adjustment as from the date at which the ACT award was varied to account for the third safety net adjustment; rather, looking to the operation of subclauses 10.5 and 10.6, the safety net adjustment would only be taken into account for such a comparison once the New South Wales award had itself been varied to account for the adjustment. The Association submitted that such an interpretation of subclause 10.4 would be artificial, because the NSW and Victorian awards are only temporary or interim awards, so that employees who might have been covered by these awards are now covered by the provisions of the Agreement. Although the interim awards can be varied, it is submitted that in practice they no longer have any direct effect. However that may be, subclauses 10.5 and 10.6 make it an irrelevant consideration. If the awards were not kept up to date, then it would be impossible to implement the reconciliation mechanism required by the Commission. To enable the Agreement to be approved by the Commission, it had to be agreed to in a ballot of the employees concerned: s 170NC(1). It can be inferred, given that the addition of subclauses 10.5 and 10.6 was agreed to prior to that ballot, that it was not the assumption of the contracting parties that the interim awards would cease to have effect. This interpretation would also be consistent with the operation of subclause 10.1 and Annexure A, which sets out the different wage rates. As earlier mentioned, Annexure A sets out the rates payable according to each State. The most notable differences between the schedules are that although there is a commonality between the New South Wales and ACT rates, the Victorian rates are slightly lower, and the schedules relating to Victoria and the ACT include a separate Saturday rate for part-time and casual employees. These variations apparently reflect historical differences between the various awards. More importantly, the different wage rates in the Agreement tell against an intention that a variation in one award would automatically entitle employees previously covered by the other two awards to the same benefit. If this had been the parties' intention, then one would expect that under the terms of the Agreement the Victorian wage rates would have been increased to coincide with the wage rates in New South Wales and the ACT, or that the New South Wales rate would have been adjusted to include a Saturday loading. The evidence is, however, that the Agreement provides for above-award wages, which have been determined by reference to the rates under each award. It follows that, considering certain aspects of the regulatory context of the Agreement in which subclause 10.4 is found, it would be a more consistent interpretation if wage increases in accordance with an arbitrated safety net adjustment were to be paid to employees as of the date when each award relevant to a particular State is varied, and not simply when the ACT award was first varied. As will be seen, however, there are other considerations. Extrinsic Materials The wording of the subclause (particularly the reference to "anyone" of the mentioned awards) remains ambiguous. It could accommodate either of the interpretations offered by the parties, and there are competing inferences as to the parties' intentions. On the one hand, it would be a sensible approach, from the employer's perspective, if the wage rates were varied only on a State-by-State basis, as would have been done on application to the Commission for the safety net adjustment under the award system. On the other hand, it would also make sense if the Agreement were to confer on all employees, now subject to the terms and conditions of a single agreement, the benefit of the safety net adjustment at the same time. It was argued that if subclause 10.4 is ambiguous, then resort might be had to extrinsic materials to clear up the ambiguity. In my opinion, the subclause is sufficiently ambiguous to require consideration of other evidence in order to ascertain its true meaning. The Evidence Before the Commission In November 1994 the respondent made an application to the Australian Industrial Relations Commission, pursuant to s 170NA(2) of the Act, seeking approval of the implementation of the Agreement. Subclause 10.3 of the Agreement in its original form provided that- "Wages will be subject to review by the Company on the basis of individual performance assessment undertaken on an annual basis. There shall be no movement in wages as a result of any National or State Determination, or Test Case unless to meet minimum standards." During the proceedings before the Commission, Mr Shaw QC, counsel for the Association, which opposed approval being given, asked Mr Bashinsky, Human Resources Director of the respondent, what the company understood to mean by "minimum standards". The evidence was as follows:- "MR SHAW: Now, in relation to wages you are saying, of course, that the base rate is higher under the EFA. The wages rates prescribed by the EFA would be tied up for a period of two years in the absence of consent; would they not? ...if you go to 10.3: they will also be subject to a review by the company on the basis of individual performance assessment undertaken on an annual basis. There will also be reviews - and I just quote again from 10.3: there shall be no movement in wages as a result of any national or state wage determination or test case unless to meet minimum standards. So there is two opportunities for wage reviews to occur. What does that mean, unless to meet minimum standards? MR BASHINSKY: Well, again, if the commission varies the minimum standards we'll be obliged to pass that on to our employees. HIS HONOUR: Do you mean by that, what, the arbitrated safety net adjustments? MR BASHINSKY: Correct, yes. HIS HONOUR: Have the relevant awards already been varied for the first safety net adjustment? MR BASHINSKY: Yes, they have, yes. HIS HONOUR: So if any of those awards are varied for the second or third--- MR BASHINSKY: Correct. HIS HONOUR: Two lots of $8? MR BASHINSKY: Yes. I think what we - we had the same question asked of us by our employees and probably what we needed to do is put, unless, in bold capitals to make sure it stands out in the EFA but that is the intention of the agreement." For reasons given on 3 February 1995, the Commission did not approve the original Agreement. Partly this was because the Commission was not satisfied that the requirements of the "no disadvantage test" set out in s 170NC(1)(d) had been met. The Commission held, however, that subject to a number of qualifications, the reductions in award entitlements and protections were not contrary to the public interest (s 170NC(2)(b)). One of the qualifications which had to be addressed by the respondent before any agreement would be approved included the following:- "Minimum wages - subclause 10 of the Agreement should be amended to reflect the company's intention that if one of the relevant awards was varied to provide for an arbitrated safety net adjustment then the rates in the Agreement would be increased by the amount of the award adjustment [reference was made to the evidence of Mr Bashinsky as set out above]. subclause 10.3 should also be amended to reflect the company's intention that the wage rates specified in the Agreement will not be reduced on the basis of individual performance assessment." The revised Agreement, including a substituted subclause 10.4 in its present form, was subsequently approved by the Commission on 20 April 1995. The Commission was evidently satisfied that the respondent had adequately addressed its concerns about the variation of minimum wages. Unfortunately, the terms of the Commission's qualification do not shed any light on the question whether the Commission understood Mr Bashinsky to mean that wage rates would only be varied on a State-by-State basis. When one looks to the evidence given by Mr Bashinsky, to which the Commission specifically referred, he stated only that the respondent would be obliged to "pass on" any variations in minimum standards to its employees, but he did not address how, in terms of a time-frame, the company would implement these increases. The Commission's reference to "one of the relevant awards" in the above paragraph is at least as ambiguous as the disputed phrase in subclause 10.4. The course of proceedings before the Commission is not, therefore, of much assistance for present purposes.