VOLTA ALUMINIUM CO LTD v. TETTEH AKUFFO & ORS

VOLTA ALUMINIUM CO LTD v. TETTEH AKUFFO & ORS

Citation: [2003 - 2004] SCGLR 1158 Court: Supreme Court of Ghana Judges:

• KPEGAH, J.S.C. (PRESIDING)
• ATUGUBA, J.S.C.
• MISS AKUFFO, J.S.C.
• BADDOO, J.S.C.
• DR. DATE-BAH, J.S.C

Nature of the case: Appeal against the majority decision of the Court of Appeal, which had reversed the High Court's dismissal of the employees' claims for additional redundancy benefits.

Facts of the case

The plaintiffs were former employees of Volta Aluminium Company Ltd (VALCO) and members of the Industrial and Commercial Workers' Union (ICU) of the Ghana Trades Union Congress. Their employment was governed by a collective bargaining agreement entered into between VALCO and ICU on 7 April 1993. By virtue of section 10(2) of the Industrial Relations Act, 1965 (Act 299), the provisions of the collective agreement were incorporated into the employees' individual contracts of employment.

In May 1994, a shortage of electricity resulting from the low water level of the Volta River led the Volta River Authority (VRA) to require VALCO to shut down some of its pot lines. This resulted in the redundancy of a number of employees, including the plaintiffs, whose employment was terminated on 16 May 1994.

Article 15(e) of the collective bargaining agreement provided that employees declared redundant were to receive two months' notice or be paid in lieu of that notice. VALCO exercised the latter option and paid the plaintiffs two months' salary calculated at their existing rates as at the date of termination. The employees also received end-of-service benefits and a separate redundancy package, which included six months' salary described as a goodwill payment.

The dispute arose because the collective agreement also provided for a wage review under article 52, effective from 1 July 1994. Although the employees had no contractual entitlement to a particular increase before the review took effect, a substantial increase was anticipated because senior staff had received a 60% pay increase in January 1994. Following negotiations between ICU and VALCO, the unionised employees received an across-the-board wage increase of 71.52%, effective from 1 July 1994.

The plaintiffs argued that their redundancy and terminal benefits should have been calculated on the basis of the remuneration they would have received had they been given two months' notice, which would have extended their employment to 15 July 1994. They contended that this would have brought the wage increase into account.

The High Court dismissed their claims. On appeal, the Court of Appeal, by a majority, reversed that decision and granted the employees' reliefs. The majority considered that articles 13 and 15 of the collective agreement should be read together, that the union had negotiated unfairly by giving away the employees' rights, and that the negotiated arrangement was void under section 10(4) of Act 299.

VALCO appealed to the Supreme Court.

Issues for determination

The Supreme Court was required to determine the following issues:

1. Whether the union's negotiations with VALCO concerning the redundancy package were void because the union allegedly waived the employees' rights under section 10(4) of Act 299.

1. Whether there was sufficient evidence to support the Court of Appeal's finding that ICU had failed to negotiate fairly for the employees.

1. Whether paragraph 33(9) of the Labour Decree, 1967 (NLCD 157), which dealt with payment in lieu of notice under certain oral employment agreements, applied to the plaintiffs' employment arrangements.

1. Whether articles 13 and 15(e) of the collective bargaining agreement should be read together so that payment in lieu of redundancy notice would include remuneration accruing during the notice period, including the subsequent wage increase.

1. Whether VALCO's decision to calculate the plaintiffs' redundancy payments using their salaries as at 16 May 1994 amounted to an unlawful diminution of their contractual emoluments.

1. Whether the Court of Appeal was justified in interfering with the negotiated redundancy package and substituting its own assessment of what would have been fair to the employees.

Holding and decision

The Supreme Court unanimously allowed the appeal and restored the High Court's judgment dismissing the plaintiffs' action.

The Court held, in substance, that:

• Section 10(4) of Act 299 prevented individual employees from waiving rights conferred by a collective agreement; it did not prevent their trade union from negotiating or modifying collective arrangements on their behalf.
• There was insufficient evidence to conclude that ICU had negotiated unfairly.
• Paragraph 33(9) of NLCD 157 was inapplicable because the plaintiffs had not established that their individual employment agreements were oral agreements within the scope of that provision.
• Articles 13 and 15(e) addressed distinct situations and did not have to be treated as one provision.
• Article 15(e) gave VALCO the contractual option to provide two months' notice or pay two months' salary in lieu. VALCO validly exercised the latter option.
• The plaintiffs' anticipated wage increase was not an existing contractual right on 16 May 1994. Consequently, their redundancy payments did not have to be recalculated using the increased wages that became effective on 1 July 1994.
• The Court could not invalidate a valid contractual arrangement merely because its operation appeared unfair to one party, in the absence of a legal basis for intervention.

The principal judgment was delivered by Dr Date-Bah JSC, with Atuguba JSC and Baddoo JSC concurring.

Reasoning of the Court

A. Statutory interpretation: Section 10(4) of Act 299 Dr Date-Bah JSC rejected the Court of Appeal majority's conclusion that the union's negotiations were void under section 10(4) of the Industrial Relations Act, 1965.

Section 10(4) provided that rights conferred on an employee by a collective agreement could not be waived by the employee and that the collective agreement prevailed over conflicting terms in an individual employment contract.

The Supreme Court distinguished between an individual employee waiving a collective bargaining right and a trade union negotiating on behalf of its members. The provision restricted the former; it did not deprive a trade union of its authority to negotiate or modify arrangements within the scope of its collective bargaining mandate.

The Court explained that collective bargaining was designed to protect employees through the collective strength of their union. It would therefore be incorrect to interpret the statutory prohibition on individual waiver as preventing the union itself from negotiating on matters within its authority.

Furthermore, the plaintiffs had not established that the union had surrendered an existing contractual entitlement to the anticipated wage increase. At the date of redundancy, the employees had an expectation of a salary review, but no enforceable right to a particular percentage increase.

Principle: A statutory prohibition against individual employees waiving rights under a collective agreement does not, without more, prohibit their authorised trade union from negotiating terms on their behalf.

B. The fairness of collective bargaining

The Court rejected the finding that ICU had negotiated unfairly.

The majority of the Court of Appeal had reasoned that the union's negotiations deprived employees of the benefits they would have obtained from the anticipated wage increase. However, Dr Date-Bah JSC observed that the fairness of the negotiations was not one of the issues set down for trial, and the parties had not led sufficient evidence on that question.

The Court also considered that the union had negotiated a redundancy package in circumstances where the employees' anticipated wage increase had not yet become an enforceable entitlement. The union could not therefore be said to have surrendered a right that the employees did not yet possess.

The Court emphasised that employers and trade unions are generally better positioned to determine the terms of their collective bargains than courts are to determine what would have been fair for them.

Principle: A court cannot invalidate a collective bargaining arrangement merely because it considers the negotiations unfair. There must be an established legal basis for setting aside the agreement, supported by the relevant evidence.

C. Application of the Labour Decree, 1967 (NLCD 157)

The Court considered whether paragraph 33(9) of NLCD 157 applied to the plaintiffs' employment arrangements.

Paragraph 33(9) provided for the payment of a sum equivalent to the remuneration that would have accrued during the notice period in relation to agreements governed by that paragraph. Paragraph 33(10), however, defined an agreement for that purpose as an oral engagement to work.

The plaintiffs argued that their individual employment contracts should be treated as oral agreements notwithstanding the written collective bargaining agreement.

The Supreme Court rejected that argument. The collective agreement was a written instrument regulating the employees' terms and conditions of employment, and the evidence suggested that individual employment arrangements were also contemplated in writing. The plaintiffs had not discharged their burden of proving that their individual contracts were oral agreements falling within paragraph 33.

The Court applied section 14 of the Evidence Decree, 1975 (NRCD 323), which places the burden of persuasion on the party asserting a fact essential to its claim or defence.

Principle: A party relying on a statutory provision applicable only to a particular category of employment agreement must establish that the agreement falls within that category. The court cannot extend the provision to a different contractual arrangement without the necessary evidential foundation.

D. Interpretation of the collective bargaining agreement

This was the central issue in the appeal.

Article 13 governed leaving the service of the company through ordinary termination or resignation. Article 15 dealt specifically with redundancy. Under article 13(a), an employee was entitled to notice or a sum equivalent to the remuneration that would have accrued during the notice period. Article 15(e), by contrast, provided for two months' notice or payment in lieu, without expressly incorporating the calculation formula in article 13(a).

The plaintiffs argued that both articles should be read together because redundancy was also a form of leaving the company's service. They relied on the principle in Boateng v Volta Aluminium Company Ltd [1984–86] 1 GLR 733 that contractual provisions should be construed as a whole.

The Supreme Court accepted the general rule that an agreement must be read as a whole but rejected the plaintiffs' proposed interpretation. Dr Date-Bah JSC reasoned that the agreement contained separate provisions for distinct situations and that the court should not import a specific calculation formula from article 13 into article 15(e) without sufficient textual justification.

Article 15(e) was clear: VALCO could either give two months' notice or pay two months' salary in lieu. The appropriate salary was the salary to which the employees were entitled at the date their employment was terminated.

Atuguba JSC similarly emphasised that a court must examine the entire agreement and consider the relationship between its provisions, but it cannot discard the ordinary meaning of a contractual term unless other provisions necessarily require that result. He further reasoned that the remuneration contemplated by article 13(a) had to be ascertainable using the facts reasonably foreseeable at the date of termination, rather than uncertain future developments.

Baddoo JSC agreed that articles 13 and 15 addressed different situations and that their distinct wording and structure should be respected.

Principle: A contract must be read as a whole, but this does not authorise a court to merge distinct provisions or import a formula from one provision into another where the contractual language and structure do not justify doing so.

E. Freedom of contract and judicial non-interference

The Court rejected the argument that VALCO's exercise of its contractual option was invalid because it resulted in the plaintiffs receiving less than they might have received had their employment continued through the notice period.

Dr Date-Bah JSC distinguished between enforceable contractual rights and expectations arising from past practice or anticipated future events. Although the employees reasonably expected a salary increase, that expectation did not become a contractual entitlement until the relevant wage review took effect.

The Court referred to Lord Denning MR's discussion of freedom of contract in Lloyds Bank Ltd v Bundy [1975] QB 326 at 336–337. The underlying point was that courts generally do not reopen valid bargains merely because their operation produces a harsh result. Intervention requires an appropriate legal basis, such as statutory authority or another recognised ground for invalidating the agreement.

The Court considered that VALCO had exercised an option expressly granted by article 15(e). The fact that another option might have produced a more advantageous financial outcome for the employees did not invalidate the option actually exercised.

Principle: Under the common law of contract, courts generally enforce valid contractual rights according to their terms rather than substitute what they consider to be a fairer bargain.

F. Contractual rights distinguished from future expectations

The Court held that the plaintiffs' anticipated wage increase did not constitute an enforceable right at the time their employment ended.

The increase became effective on 1 July 1994, whereas the plaintiffs' employment had been terminated on 16 May 1994. Had VALCO given them two months' notice, their employment would have continued into the period when the increase took effect. However, VALCO was entitled under article 15(e) to pay two months' salary in lieu of notice instead.

The Court therefore rejected the contention that the payment in lieu had unlawfully diminished the employees' emoluments. The plaintiffs received the amount due under the option exercised by VALCO. Their inability to benefit from a subsequent wage increase did not mean that their existing contractual rights had been reduced.

The goodwill payment also did not establish that VALCO admitted liability for the subsequent wage increase. It formed part of the negotiated redundancy package and could not, by itself, be treated as an admission that the employees had a contractual right to the increased wages.

Principle: A future benefit that an employee expects to receive does not automatically become an enforceable contractual right. The court must distinguish what the contract guarantees from what might have occurred if the contractual relationship had continued.