Bruce White, Ian Harrison, Peter Katz, Peter Ledingham and David Archer v Reserve Bank of New Zealand

• Jurisdiction: New Zealand
• Judge: A D FORD
• Judgment Date: 17 February 2012
• Court: Employment Court
• Docket Number: WRC 17/10
• Date: 17 February 2012

[2012] NZEmpC 20

IN THE EMPLOYMENT COURT WELLINGTON

WRC 17/10

In The Matter Of proceedings removed in full from the Employment Relations Authority

Between

Bruce White, Ian Harrison, Peter Katz, Peter Ledingham And David Archer

Plaintiffs

and

Reserve Bank Of New Zealand

Defendant

Appearances:

Geoff O'Sullivan and Nikkii Flint, counsel for the plaintiffs

Peter Chemis and Andrea Pazin, counsel for the defendant

JUDGMENT OF JUDGE A D FORD

Introduction

1 In a determination1 dated 1 June 2010, the Employment Relations Authority ordered the removal of this proceeding to the Court for hearing at first instance without any further investigation by the Authority. The application was made pursuant to s 178 of the Employment Relations Act 2000. In terms of the criteria for removal set out in s 178, the Authority concluded that the case involved an important question of law and that it was appropriate in all circumstances that the Court should determine the matter.

2 The Authority specifically rejected an additional claim by the plaintiffs that the case was of such a nature and of such urgency that it was in the public interest that it should be removed immediately to the Court. In this regard, the Authority correctly noted that the issues between the parties had existed for approximately 20 years, that the statement of problem had not been filed until December 2008 and it was not until April 2010 that the plaintiffs had filed their application for removal. The Authority did, however, accept that the issues involved were complex and involved potential jurisdictional difficulties.

3 The plaintiffs, with the exception of Mr Ian Harrison, are all former employees of the defendant, who for convenience I shall refer to simply as “the Bank” or “the defendant”. Mr Harrison continues to be a Bank employee. All the plaintiffs were members of the Bank's Staff Superannuation and Provident Fund (the Fund).

4 The plaintiffs allege that in 1988 the Bank introduced a new remuneration structure under which their salary for superannuation and retirement gratuity purposes (“superable salary”) would be fixed at a specified percentage of total remuneration, including certain non-salary benefits. They claim that at the same time, the Bank undertook “regularly to review and adjust the percentage to maintain appropriate market relativity”. The plaintiffs plead that the undertaking to regularly review and adjust the percentage became “an integral element of the defendant's superannuation scheme, membership of which is established as a term of employment in the respective individual employment agreements” which they subsequently entered into.

5 It is alleged by the plaintiffs that the Bank failed to fulfil its obligation to periodically review and adjust the superable salary percentage, despite its contractual undertaking to do so. An order is sought requiring the Bank to “retrospectively review and recalculate annual superable salary percentages until the cessation of the respective employment of each of the plaintiffs.”

6 Counsel for the defendant, Mr Chemis, described the Bank's case as “a very simple one”. Counsel submitted that the superable salary percentage issue was agreed to between the parties and is recorded in their respective employment contracts and individual employment agreements entered into in 1992 and beyond which state “that salary for superannuation purposes (ultimately referred to as “superable salary”) would be a certain percentage (or dollar figure) “unless otherwise agreed in writing”. Mr Chemis submitted that any obligations arising out of the alleged 1988 undertaking did not survive or override this specific contractual provision in the plaintiffs' employment agreements.

7 Although the Limitation Act 1950 was pleaded, Mr Chemis accepted that if the plaintiffs were able to establish that the undertaking in question had survived as an additional term in their employment agreements then there was no Limitation Act issue except in relation to the assessment of any damages.

The Fund

8 The evidence indicated that the Fund was created in the 1930s, at the same time as the Bank was established. It is operated by a group of trustees in accordance with the Fund rules. Currently, it has a defined benefit and a defined contribution division but in the early 1980s the Fund constituted only the defined benefit division. Membership of the Fund was compulsory for most of the staff. The evidence was that during the relevant time period, staff numbers at the Bank, which had been in the order of 400, reduced to a little over 200. The rules provided that staff were to contribute at the rate of 6 per cent of their salary. Prior to 1994, the Bank contributed for each member an amount equivalent to 12 per cent of their salary. In 1994 the rules were changed so that the Bank became liable only to make contributions to the Fund as the actuary considered necessary to provide the benefits payable to members.

9 One of the witnesses the Court heard from was Mr Peter Cornish a director of Hay Group Limited. Hay Group was described as a global human resources consulting firm with over 2,000 professional staff in 47 countries. Mr Cornish has an impressive background, including a detailed and practical knowledge of remuneration issues faced by New Zealand employers, in particular by banks, since the mid-1980s. Mr Cornish described the mid 1980s as “a time when far reaching changes to human resources and remuneration practices occurred”. He told the Court that typically at that time remuneration for organisations such as the Bank would have taken the form of cash salary and a range of non-cash benefits but in the late 1980s the government introduced Employer Superannuation Contribution Withholding Tax which, the witness explained, “significantly increased the cost to employers of providing defined benefit super schemes. This caused employers to look at the whole basis of superannuation provision.”

10 Mr Cornish explained how the introduction of the withholding tax and other developments, such as a more mobile workforce, “caused defined benefit superannuation schemes (usually with long vesting scales and requiring many years of service with one employer) to become unworkable and banks began to replace them in the late 1980s and early 1990s with defined contribution schemes.” He described how defined contribution schemes were, “based on the premise that the employee chooses his or her level of contribution and the value of their interest in the Fund is dependent upon those contributions, the employer's contribution, and the performance of the Fund, rather than a defined pension. The benefit to employees was a greater transportability of contributions.”

Superable salary

11 Evidence was also given about the introduction of the “superable salary” concept. When banks first introduced remuneration packages (around the late 1980s) the general practice was to deem a percentage of the package as salary for superannuation purposes and the term “superable salary” was sometimes used to describe the resulting figure. Up until that point, salary for superannuation purposes had been based on ordinary salary. Mr Cornish explained that, “Superable salary generally remained constant even though an individual's cash salary, as a proportion of a total remuneration package, could go up and down.” The witness continued:

4.2 The purpose of superable salary was to protect the actuarial soundness of defined benefit schemes. This was because pensions were typically based on final salary over the three to five-year period before the employee retired. Without this protection, employees had the opportunity to manipulate final salary by reducing their take-up of non-cash benefits in those final years. Deeming a percentage of their remuneration package as superable salary, irrespective of the actual cash/non-cash benefit mix, prevented abuse and protected the integrity of the superannuation fund.

12 Mr Cornish said that at the time total remuneration packages were first introduced around the late 1980s it was possible for his company to make comparisons for superable salary purposes because banks and other employers were still offering a range of non-cash benefits and still providing defined benefit superannuation schemes. But he stressed that each bank made its own determination of the percentage of total remuneration that constituted “superable salary”. The witness then went on to state that the situation changed during the early 1990s as defined benefit schemes were replaced with defined contribution schemes and most employers were no longer concerned with the concept of superable salary. He said that: “From the mid-1990s onwards Hay has advised clients not to rely on a simple comparison between market based salary and total package data for the purpose of assessing a “market” superable salary.”

The 1988 Executive Remuneration paper

13 The “undertaking” by the Bank which the plaintiffs' case is based on is said to have been contained in a paper written by Mr Richard Lang. Mr Lang retired in 1991 after 41 years' of service with the Bank. Over the years, he had held a number of senior positions with the Bank including the post of Deputy Governor. Not surprisingly perhaps, as with many of the former and present Bank employees who gave evidence in the case, I found Mr Lang to be a most impressive witness with, seemingly, a remarkable recollection of relevant historical events. The paper he produced is headed “EXECUTIVE REMUNERATION” and it appears to have first been published on 28 October 1988. It was referred to by counsel as the “ERP” and for convenience I will continue to use the same description.

14 The ERP explained that its objective was to introduce total remuneration packages for the Bank's senior staff. The intention was to provide remuneration packages which were at least as...