White and Others v The Reserve Bank of New Zealand
| Jurisdiction | New Zealand |
| Judge | Miller J |
| Judgment Date | 17 December 2013 |
| Neutral Citation | [2013] NZCA 663 |
| Docket Number | CA404/2012 |
| Court | Court of Appeal |
| Date | 17 December 2013 |
[2013] NZCA 663
Harrison, White and Miller JJ
CA404/2012
IN THE COURT OF APPEAL OF NEW ZEALAND
Appeal from Employment Court (“EC”) decision which found that there was no implied term in the appellants' employment contracts requiring review of their superable salary levels — employees were retired former employees of Reserve Bank who had contributed to superannuation fund — pension was calculated using the final average earnings during the five years before retirement — Bank converted its salary packages to ascribe a cash value to benefit packages (including loans and use of cars) — set superable salary percentage and reviewed it regularly until in 1991 when it moved its senior employees onto individual employment contracts — contracts set superable percentage at specific level, “unless otherwise agreed in writing”, and also contained entire agreement clause — whether the EC erred by not considering prior history to agreements, appellants reliance on Bank's actions, and the good employer obligation — whether a term could be implied that superable salary percentage would be reviewed in accordance with market data.
I R Millard QC and N E Flint for Appellants
A R Galbraith QC and J B Opie for Respondent
A The appeal is dismissed. B The first question is:
Did the Employment Court fail to apply orthodox interpretation principles by failing to take into account the words “unless otherwise agreed in writing” in the applicants' employment contracts and by failing to consider what was implicit in those words against the background of past dealings and the obligations of good faith that arise in the context of an employment contract?
This question is answered “no”. We need not answer the second.
C The respondent is entitled to costs and usual disbursements for a standard appeal on a Band A basis. We certify for two counsel.
REASONS OF THE COURT
(Given by Miller J)
The appellants are longstanding former employees, now retired, of the Reserve Bank of New Zealand, and members of its Staff Superannuation and Provident Fund. Their retirement benefits under the Fund's defined benefit division are calculated by reference to a percentage – known as “superable salary” – of their total annual remuneration before retirement.
The appellants sued the Bank in the Employment Court, claiming that it had breached their individual employment contracts by failing after 1994 to review their superable salary from time to time. They lost. 1
This appeal was brought by leave 2 on a question of law. 3 The questions were formulated by counsel as follows:
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1. Did the Employment Court fail to apply orthodox interpretation principles by failing to take into account the words “unless otherwise agreed in writing” in the applicants' employment contracts and by failing to consider what was implicit in those words against the background of past dealings and the obligations of good faith that arise in the context of an employment contract”
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2. If the answer to question one is yes, was the respondent required periodically to review the percentage of the total remuneration package that was deemed to be superable salary and to adjust the percentage having regard to the material revealed by the review.
The first of these is the question of law. It is settled that on an appeal under s 214(1) of the Employment Relations Act 2000 this Court may review the Employment Court's methodological approach to contract interpretation. 4 Only if that Court erred in principle may this Court interfere.
The Reserve Bank of New Zealand Staff Superannuation and Provident Fund was established in September 1935 at the same time as the Bank itself. It is controlled and managed by a group of trustees, of whom two are Bank representatives, one Board-appointed, and two elected by eligible members. Membership was at one time compulsory for all employees.
The rules of the Fund provided that employees were to contribute at a rate of six per cent of their salaries. For this purpose salary originally meant cash salary – that is, exclusive of all non-cash benefits or “perks” – and later superable salary. The Bank also contributes and it must keep the Fund sound; to that end it traditionally contributed at an actuarially assessed rate of about 12 per cent of cash salaries.
Several retirement benefits were calculated by reference to the employee's salary at retirement. Notably, a pension was calculated using the final average earnings during the five years before retirement.
The trustees might amend the rules of the Fund, but not so as to affect benefits adversely.
By the 1980s staff were receiving part of their overall remuneration in non-cash benefits such as low interest rate loans, company car usage, expense accounts, telephone accounts and professional club memberships. After interest rate controls ended in 1984, the loans were of substantial value to employees who were financing their houses, but of no utility to those who were not.
In 1988 the Bank began to reform its executive remuneration arrangements, moving to “total package remuneration”. This regime was designed to value non-cash benefits (notably the low-rate mortgages and use of cars), to increase overall remuneration packages so as to attract and retain staff, and to relate total remuneration more closely to “comparator institutions”. Accordingly, non-cash benefits were ascribed a cash value which was treated as part of total remuneration.
The reform was introduced in a paper entitled “Executive Remuneration” written by Richard Lang, then Deputy Governor of the Bank. It is known as the ERP. Its salient features were:
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(a) The proposals were said to provide a “framework rather than a rigid structure” for fixing remuneration.
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(b) The Banks's primary policy objective was identified as that of recruiting and retaining “a good quality highly motivated staff” of at least equal quality to those in comparable organisations. That meant paying remuneration at least equal to that paid for similar positions in comparable organisations.
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(c) For the purpose of fixing retirement benefits, the paper proposed a base salary of 70 per cent (excluding bonuses) of “total package entitlement”, regardless of the form in which employees chose to structure that entitlement. The percentage would “need to be reviewed from time to time in line with market indicators”.
The Bank used a percentage of total remuneration packages for superannuation purposes because its liabilities for pensions and other retirement benefits were linked to salaries on retirement, and it did not want to add to those liabilities by moving to a total remuneration approach. The percentage of total remuneration that counted for superannuation purposes became known as superable salary. It was broadly equal to previous cash salaries, and it was used to calculate not only retirement benefits but also staff and Bank contributions.
The Fund rules originally defined salary as the “ordinary salary” of a member in respect of his or her service to the Bank. This definition excluded non-cash benefits. On 28 June 1988, several months before the ERP was issued, the definition was changed to reflect total remuneration and the superable salary concept.
Around 22 May 1989 executive staff were advised that the superable salary was currently 70 per cent of their packages. In 1990 it was reviewed but not changed, and in 1991 it was moved to 75 per cent. In that year the definition of salary was again changed, this time to provide that the superable salary percentage was to be agreed between the Bank and the employee:
(a) in the case of any contributor whose ordinary salary per annum takes the form of a remuneration package (consisting partly of payment in cash, with the remainder being provided by way of non-cash benefits), means:
(i) the contributor's ordinary salary per annum; or
(ii) some specified proportion of the contributor's ordinary salary per annum; as determined from time to time by agreement between the Bank and the contributor; and
(iii) in any other case, means the contributor's ordinary salary per annum.
The Bank established a defined contribution division of the Fund in 1991, and the defined benefit division was closed to new members, apparently at the same time.
It appears that before 1991 the terms of employment of Bank executives were not recorded in individual employment agreements. Junior employees had a collective agreement with the Bank, but the appellants, senior executives all, did not.
In anticipation of the Employment Contracts Act 1991 the Bank negotiated employment contracts with its senior staff. The negotiations were protracted, extending for more than a year between April 1991 and mid–1992. Counsel highlighted two features of the negotiations. First, by letter of 6 September 1991 the Bank's personnel manager responded to a request for details of the executives' existing terms and conditions by listing “the major documents” containing such terms. The list began with the ERP. Second, the Bank reminded the employees on 3 October 1991 that the ERP stated that it provided a “framework rather than a rigid structure” for fixing remuneration.
The employment contracts were executed for the most part in 1992, though one appellant did not sign his until 1995. Over succeeding years some signed new contracts which replaced the earlier ones. The contracts exhibit some variations. We need not discuss the differences, because it was not suggested that any given...
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