Thursday, June 02, 2005

It is fairly common practice for employers to enter into collective agreements with a registered trade union with the aim of establishing uniform conditions of service for all employees falling within the scope of the agreement. A collective agreement is a written agreement concerning terms and conditions of employment or any matter of mutual interest concluded between an employer and/or employers’ organisation and registered trade unions. For example, a collective agreement would address issues like overtime, family responsibility leave, ordinary hours of work, remuneration, medical aid, pension fund, etc. There are, however, certain limits to the parties contractual freedom, i.e. the provisions agreed to in the collective agreement must be enforceable and not contra bona mores.

The legal effect of a collective agreement is that it will supercede the affected employees’ individual contracts of employment. In certain circumstances, the collective agreement can also apply to employees who are not members of the trade union. Where a collective agreement is concluded in a bargaining council for the industry, the Minister of Labour can, in certain circumstances, extend the terms of the agreement to non-parties.

The collective agreement is binding for the whole period of the collective agreement and thus, even if a member of the trade union were to resign from the trade union, the terms of the collective agreement would still apply to that person for the duration of that agreement.

In terms of the Act, where a business or a part of a business is sold as a going concern in solvent or insolvent circumstances, the new employer is bound by the collective agreement that was binding on the old employer.

The Act specifically requires that a collective agreement (except for an agency and closed shop agreement) must provide for a procedure to resolve disputes about the interpretation and application of the collective agreement. The procedure must first require the parties to attempt to resolve the dispute through conciliation and, if the dispute remains unresolved, to resolve it through arbitration.

Invariably, a collective agreement would be the product of several months of negotiations between the parties but in our experience the final agreement does not always accurately reflect the true intention of the parties. Consequently, disputes frequently arise over the interpretation and application of the collective agreement. The question then arises to what extent can an adjudicator adjudicating the dispute have regard to extrinsic evidence?

A dispute over the interpretation of a collective agreement exists when the parties disagree over the meaning of a particular provision; a dispute over the application of a collective agreement arises when the parties disagree over whether the agreement applies to a particular set of facts or circumstances. The role of an arbitrator is, however, not to create a new contract for the parties.

In NUMSA v VW South Africa, the parties agreed to private arbitration over the correct interpretation of the collective agreement and the manner in which it should be applied. Applying the "reasonable bystander" test, the arbitrator held that the probabilities favoured the company’s version and found in favour of the company. This approach has been criticised on the basis that "a collective agreement in terms of the Act [Labour Relations Act] is not an ordinary contract, and the context within which a collective agreement operates under the Act is vastly different from that of an ordinary commercial contract." Notably, the Labour Appeal Court has made it quite clear that the primary objects of the Act, namely, the effective, fair and speedy resolution of labour disputes would be better served by "a practical approach to the interpretation and application of the collective agreement …… rather than by reference to purely contractual principles."

Related to this is whether it is possible for the parties to lead evidence on the bargaining history that culminated in the collective agreement.

The parole evidence rule holds that evidence cannot be admitted for the purpose of varying or contradicting written language recording the agreement between two parties. Parole evidence can, however, be considered if the party offering it can establish that the relevant language in the agreement is ambiguous and such language relates to the disputed issue.

A form of parole evidence relied upon by arbitrators to interpret ambiguous language in collective agreements is evidence of bargaining history. Such evidence may be oral or documentary and is quite useful in construing ambiguous language.

Where practice has established a meaning for the language contained in past contracts and continued by the parties in a new agreement, the language will be presumed to have a meaning given to it by that practice. In this instance it will be incumbent on the parties to demonstrate that the practice has been consistently applied in line with the collective agreement.

It would thus appear that in considering a collective agreement our courts while taking cognisance of the ordinary principles of interpretation of contract, will also apply a purposive approach in order to ensure that the interpretation is consistent with the primary objects of the Act. We believe that parties can in most instances avoid litigation over the interpretation and application of the collective agreement where such agreements are carefully drafted and examples, guidelines, interpretation notes which may have been relied on in the negotiations are attached as annexures to the agreement for purposes of clarification.