Awards v Contracts: How have the Courts Interpreted the Role of Industrial Awards and Employment Contracts?


Current Issues Brief 18 1995-96

Steve O'Neill
Economics, Commerce and Industrial Relations Group

Contents

Introduction

Summary

Endnotes

Introduction

The industrial dispute at the CRA mine at Weipa (Queensland) in 1995 highlighted the interplay of industrial awards and individual contracts of employment (hereon called employment contracts). The company contended in hearings before the Australian Industrial Relations Commission that the above-award payments paid to employees who agree to certain conditions (including agreement to forego union representation) are legal, and consistent with Australian labour law. The contracts, it was argued, did not undermine award entitlements, indeed they provided much greater benefits.

This focus on award conditions and other employment obligations gives rise to the question: how do awards interact with employment contracts? How can employment contracts and awards coexist? An employment contract should be freely entered into and should specify the nature of the employment arrangement. It may be, but often is not, a written document. Awards on the other hand, contain employment standards (eg pay rates) which contracts may not infringe. They normally represent the outcome of negotiations between employers and unions, and they have the force of law and are therefore binding on the respondents (ie the union/s, its members and the employers).

This paper reviews the key legal cases which have considered the interaction of awards and employment contracts. It is intended to act as a guide to the leading cases but is not a comprehensive analysis. It shows that the High Court in 1995 reaffirmed the legal position held on awards and employment contracts established in the early part of this century: that is that awards (known as minimum rate awards) set minimum standards, but are independent from employment contracts. A certain proportion of federal awards specify the actual rates of pay received by the employees and are called paid rates awards. Unauthorised payments (ie higher than those specified) under these awards may constitute a breach of the award. This paper, however, is concerned with the broader issues of the relationship between awards and employment contracts. Sources for this paper discuss the interaction of awards and employment contracts in greater detail(1) .

Development of the orthodoxy: awards and contracts operate independently

Wage fixation by the (then) Commonwealth Court of Conciliation and Arbitration is accepted as having commenced with the famous Harvester judgement in 1907 (although the first President of the Court, Justice O'Connor, had earlier made declarations affirming that the wage rates of certain agreements were 'fair and reasonable'). The Harvester decision recommended a basic wage (7 shillings a day) plus a small margin for skill (for male workers), but the judgement did not take the form of an industrial award. Soon after, Commonwealth awards were made to resolve interstate industrial disputes. The number of federal awards increased gradually after the Harvester decision, initially in the maritime industry, but they were resisted by employers and the States in other industries.

In Merchant Service Guild v Commonwealth Steamship Owners Association (1913) 16 CLR 664, Justice Higgins, President of the Commonwealth Court of Conciliation and Arbitration referred a question to the High Court. It was asked to rule on whether, in an industrial dispute, there was 'power by award to compulsorily fix terms and conditions to be incorporated (or deemed to be incorporated) in agreements of service made by [the parties]?' The High Court found in the affirmative, and adopted Justice Isaacs' view that the parties could be forced to have certain terms and conditions 'incorporated in a written agreement between them'. Awards were characterised in the decision as involuntarily written contracts.

This view of the relation between employment contracts and awards was dismissed however soon after in Josephson v Walker(1914) 18 CLR 691. There, the High Court considered s.49(3) of the NSW Industrial Disputes Act 1908 which provided for claiming wages due under an award. It held that the award and arbitration system had excluded common law jurisdiction and had supplanted it with a statutory code for making and enforcing awards. The High Court departed from the earlier notion of awards being incorporated into employment contracts and acknowledged that awards were statutory instruments which stood and operated independently from employment contracts. On this occasion, Justice Isaacs held:

the right to the statutory rate of wages is not part of the contract, but a new right (and) is a right which was unknown before the law: a right to receive from the employer more than was bargained for (and) no man is capable of contracting himself out of his rights or obligations in this respect.

In other words, the employment contract and the award operated independently of each other. This general view of the relationship between awards and private sector employment contracts held for most of the years up to the late 1980s.

So, in Mallinson v The Scottish Investment Company Limited (1920) 28 CLR 66, the importance of the employment relation was emphasised by the High Court:

An employees' right to remuneration was based on not only the Act, but the existence of a relationship of master and servant and the performance of services ... all the Act has done in this respect is to substitute another method for determining the amount of the remuneration.

True's case: obligations may be imported into contracts

Amalgamated Collieries of WA Ltd v True (1938) 59 CLR 417 included an opinion that award obligations could be imported into employment contracts. Justice Dixon contended that the right to payment of award wages 'is really a term imported by statute into the contract of employment, and imported independently of the parties'. The larger question as to whether award terms were imported into the employment contract was not determined. True's case also confirmed that 'over-award' benefits were enforceable in the civil courts (but not through the relevant award).

In disputes where award terms conflicted with employment contracts it was established that industrial awards operate over employment contracts. To the extent that they are not in conflict, contracts are enforceable under common law (Fletcher v A H McDonald & Co (1927) 39 CLR 174).

In Gapes v the Commercial Bank of Australia Limited (1980) 41 FLR 27, the Full Bench of the Federal Court investigated the interaction of contract and award provisions concerning the 'no work as directed, no pay principle'. The common law upholds the 'no work, no pay' principle. The relevant award was silent on the question (ie, the award did not include a 'bans' clause which would have supported the employer's action). The award did provide certain wages for certain classifications. The court construed that this stipulation precluded the no work - no pay principle involved. It had been understood that unless there was patent inconsistency between an award and the contract, the principles of common law would apply. Gapes gave rise to new uncertainties as to how awards and contracts interact.

In Alexander v Australian National Airlines Commission (1987) 74 ALR 285, Alexander sought to be re-employed after his health allowed him to resume the responsibilities of an airline pilot. His union had exchanged a 'letter of agreement' with the employer which allowed its members to resume their duties in such circumstances, and this memorandum was registered under s.28 of the Conciliation and Arbitration Act. The employer refused re-employment and Alexander sued for breach of contract. The Supreme Court of Queensland wrested with the jurisdictional issues (of breach of award) but, in passing, suggested that an employee may be able to sue for damages at common law for breach of an industrial agreement (or as in this case, a collateral term thereof) which had by reason of certification, the status and force of an award.

Award terms can be incorporated

In Gregory v Philip Morris Ltd (1988) 80 ALR 455, Justice Gray of the Federal Court referred to the comments of Justice Dixon in True's case and contended that award provisions were automatically 'incorporated' into employment contracts in the sense of becoming terms of a contract which could then be sued upon for breach and damages at common law, as well as for the imposition of a statutory penalty for breach of award.

Gregory's employment required him to be a member of the appropriate trade union. This obligation was considered to be a term of his contract of employment, although it derived from a 'local agreement' between the employer and certain unions. His award prevented unfair or harsh terminations, ie it contained a termination, change and redundancy (TCR) clause. Gregory was dismissed because he was denied union membership and the enterprise operated as a closed shop - but having regained membership he was refused reinstatement because other workers refused to work with him. Justice Gray inquired as to whether collective agreements made between trade unions and employers became terms of employment contracts - he found that they did not in a general sense but did in this particular instance. He also found that the employee had not been unfairly dismissed.

On appeal, Wilcox and Ryan JJ in the majority judgement agreed that the content of the award was incorporated in the contract of employment. They hinged this consideration on Mallinson's case - that an employee is entitled to sue to recover monies payable under an award and from the comments of Justice Dixon in True's case - the terms of an award were imported into the contract of employment. Also, relying on R v Gough: Ex parte Meat and Allied Trades Federation of Australia (1969) 122 CLR 237 it was held that the award creates new rights superimposed on the common law.

Their honours found that Gregory had been wrongly dismissed and he was able to sue on the award for breach of contract. The third member of the Full Bench, Justice Jenkinson, however dissented on the point that award terms could be imported into employment contracts. He agreed that the employee had been unfairly dismissed and agreed that damages should be paid, but not for breach of the award as part of the contract, but for breach of the award in the form of a breach of statutory duty.

From the views contained in Gregory, according to de Merrick, 'awards could be characterised as contractual in their operation' (referenced in endnote 1). A breach of an award could be sued for both statutory penalty and contractual damages. On this view, awards could only override the terms of a contract of employment where those terms were inconsistent with those of the award(2). But, for the award to be a comprehensive code on an employment relation, the award would need to cover every aspect of the employment relationship.

It was the question of damages which generated interest in these later cases. Principles set in Gregory were adopted in Georgevski v Bostik (Australia) (1990) 39 IR 229, where Georgevski was awarded a considerable sum in damages over his termination.

Gregory's case rejected in Byrne and Frew

The Gregory view of the contractual nature of awards was overturned in Byrne v Australian Airlines Ltd (1992) 45 IR 178. Byrne (and his work colleague, Frew) had been dismissed for pilfering goods from baggage in transit. He applied for a penalty against their employer for breach of the relevant award's TCR provision, and following Gregory also sought damages. These applications were dismissed by Justice Hill in the Federal Court who found that the employer had carried out a proper investigation of the facts and had specified the nature of the misconduct to the employees as well as providing an opportunity for the employees to respond to the allegations.

Byrne and Frew appealed Justice Hill's decision. The employer filed a notice contending that if it was to be found that there had not been procedural fairness in the conduct of the terminations (causing the award to be breached), then it should be held that the award was not a term of the employment contract and its breach could not therefore be the basis of damages.

A Full Bench of five judges heard the appeal (Byrne and Frew v Australian Airlines Limited, (1994) 120 ALR 274). Three judges gave separate judgments and two delivered a joint judgment. All found procedural unfairness and upheld the appeal, and the matter of determining a penalty (under s.178 of the Industrial Relations Act 1988) due to breach of an award was referred back to the court below. Four judges rejected the notion that award provisions were automatically imported into the contract of employment, thus supporting the position of the employer.

The question of whether award terms could be implied into the employment contract was rejected (at least not without the contract so stipulating). The ability of an aggrieved terminated employee to seek damages due to a TCR provision being infringed was also rejected. A majority of the judges also questioned Justice Jenkinson's approach to damages in Gregory which he allowed on the basis of breach of statutory duty.

The matter was then taken to the High Court in which five judges handed down a decision on 11 October 1995 (131 ALR 422). There were two joint decisions. These agreed on certain principles:

  • that the Federal Court was wrong to overturn Justice Hill in respect of the harshness of the terminations without first determining whether the two were guilty of the allegations
  • the award TCR provision was not imported into the employment contract, therefore no action re damages could be sustained
  • nor was there an action available for breach of statutory duty

The High Court found that awards operate independent from employment contracts and secure conditions by virtue of the statute. Accordingly, there was no basis for the employment contract having been varied to include award terms, since the two operate independently.

The Court also found that where the parties have not spelt out all the terms of an employment contract, a court can imply a term only for the reasonable, effective operation of the contract, subject to the qualification that past course of dealing, mercantile practice or professional practice may justify a term being implied.

Summary

This decision of the High Court has been welcomed by the legal profession. The outcome of this case is that many of the principles established in Josephson v Walker have been reaffirmed. Thus,

  • awards and contracts of employment operate in parallel and award terms are not incorporated into contracts.
  • Where award terms are breached, the remedies available are contained within the Industrial Relations Act 1988.
  • The scope for a dismissed employee obtaining an order for substantial damages based on a breach of contract has been reduced by the High Court.

The legal firm Blake Dawson and Waldron welcomed this return to 'common sense' and neatly summarised the importance of the High Court's decision against the unorthodox developments of the 1980s:

The High Court has struck a decisive blow for orthodoxy and common sense in its recent decision in the long running case of Byrne and Frew v Australian Airlines Limited ... Along the way, the Court has declared the law on many important issues relevant in employee relations. The Court has both reinforced a balanced approach when considering what is a harsh, unjust or unreasonable termination of employment, and halted the galloping development of judge-made employment law which has characterised some decisions of the federal courts in recent years(3).

Endnotes

  1. A more detailed account of the legal opinion on the relation between awards and contracts of employment can be found in 'The interaction of awards and contracts' by John de Merrick in Australian Journal of Labour Law v.8, n.1, 1995 and in McCallum, R. and Pittard, M. Australian Law, Cases and Materials (Butterworths 1995).
  2. Note that the task of proving inconsistency is not always straightforward. The issues encountered in proving inconsistency have arisen more often between State and federal awards, as discussed by Creighton, W.B., Ford, W.J. and Mitchell, R.J. in Labour Law: Text and Materials (The Law Book Company Ltd, 1993): 755-787.
  3. Blake Waldron Dawson Industrial and Employment Brief December 1995.
 
 

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