Download PDF
IN THE NATIONAL INDUSTRIAL COURT HOLDEN AT LAGOS BEFORE THEIR LORDSHIPS Hon. Justice B. A. Adejumo President Hon. Justice B. B. Kanyip Judge Hon. Justice M. A. B. Atilola Judge DATE: JUNE 7, 2007 SUIT NO. NIC/7/2004 BETWEEN Dolphine Fisheries Limited - Appellant AND Agricultural & Allied Workers Union or Nigeria (AAWUN) - Respondent REPRESENTATION J. A. Kester, with him is A. O. Afuye, for the applicant T. S. Adewuyi, for the respondent JUDGMENT The applicant, by way of an originating summons pursuant to section 15 or the Trade Disputes Act (TDA) Cap. 432 LFN 1990, is praying this court to determine the following issues/questions – 1. The proper construction, interpretation and meaning or the term 'gross salary/wages' contained in Article 50 of the Collective Agreement between Dolphine Fisheries Limited and AA WUN i.e. the Dolphine fisheries Limited Employees Handbook dated 261h April, 2002 (Exhibit GOM I attached to the affidavit in support of the originating summons). 2. Whether in law any of the terms or the aforesaid Collective Agreement (including Article 50) that have not been incorporated into the individual contract' or employment of any worker are binding either on the company (Dolphine Fisheries Limited) or on the said worker. The originating summons is supported by a 12-parngraphed affidavit sworn to by Ginger Otum Mba, Engineer/Company Director as well as the deputy Managing Director of the applicant company, with two exhibits attached. In response, the respondent filed an l l-paragraphcd counter-affidavit sworn to by Yetunde Aina, a Legal Practitioner in the firm of the solicitors representing the respondent in this matter. The parties agreed and filed written briefs or arguments, which they orally adopted. The applicant presented its arguments based on the two issues it framed for the determination or this court. The first issue deals with the construction or Article 50.0 I or the Employees Handbook, which states - 1 - 9 years - one month gross salary for each service year. 10- 14 years - two months gross salary for each service year. 15 years and above - three months salaries for each service year. For the purpose or computing benefits Oil the basis of this schedule, any period or service in excess or (6) months after (5) years service shall count as one year. To the applicant, the dispute between the parties is that while the position of the respondent is that the term 'gross salary/wages' should include all allowances and other benefits without the deduction of taxes, the position of the applicant is that the phrase does not include all allowances and other benefits and that taxes must be deducted. That the term 'gross' used in the Article means without any deductions. The applicant then submitted hat it is a well known rule of construction that words used in a document should be given their natural and ordinary meaning unless to do so would lead to manifest absurdity or would he repugnant, citing Oviawe v, Integrated Rubber Products Nigeria Ltd [1997] 3 NWLR (Pt. 492) 126 at 130 Ratio 4 and 139F - G. That the use M the word 'gross' implies that taxes will not be deducted when calculating the gratuity. That this would lead to manifest absurdity and would be repugnant as everyone has a civic duty to pay tax and non-deduction thereof by the company would be illegal. The applicant then prayed this court to order the deduction of lax before payment, citing Re: Hiscott’s Indenture, Hiscott v. Hiscott 158 L. T. 368, where the deed of separation between a husband and a wife provided that the wife was entitled to the hushands 'gross income'. It was held that commission payable to the agents by the husband for the purposes of his business should be deducted in arriving at his gross income. The applicant submitted further that the words 'salary' and 'wages' are synonymous and basically mean the same thing i.e. payment for work done or services rendered, the difference being that while salary is usually paid monthly or weekly to employees whose employment is permanent or substantially permanent in character for work other than manual or relatively unskilled labour, wages is used to describe the earnings or labourers and artisans paid daily or on weekly basis, citing Gordon v. Jennings 51 LJQn 417. The applicant continued that the words 'salary' and 'wages' used in Article 50 should be given their natural and ordinary meaning. That if the framers of Article 50 had intended that all allowances and other benefits should be included in calculating gratuity, they would have clearly stated 'salaries, wages, allowances and other benefits'. That the framers, however, limited the yardstick for calculation or gratuity to 'salary' and 'wages' only thus expressly excluding 'allowances and other benefits'. That it is wrong for the respondent to seek to read into or exclude what has been expressly excluded from Article 50. The applicant then cited Nigerian Union of Construction & Civil Engineering Workers v. Construction & Civil Engineering Employers' Association of Nigeria [1982 - 83] NICLR 94 line 27 where this court stated that . .. if the intention of the parties that the method of calculation of the benefits should be as they existed in the former collective agreement, the new agreement would have said so expressly (emphasis is the applicant's). The applicant then submitted that' if the intention of the parties in the present matter was not only, salaries and wages, but all other allowances be used in the calculation of benefits, it would have been so expressly stated in the collective agreement (emphasis is the applicant's). On the second issue it framed, the applicant contended that the locus classicus on the construction of collective agreements is the Supreme Court decision in Chukwumah v. Shell Petroleum development Co. of Nig. Ltd [1993] 4 NWLR (Pt. 289) 512 at 521 Ratio 7, where it was held that an extraneous agreement not entered into by the parties to a contract of service cannot be made the basis of an action by an employee unless it is incorporated into the contract of service of such employee (emphasis is the applicant's). That this decision has been followed by other court, for instance the Court of appeal cases of Abalogu v, The Shell Petroleum Development Co, of Nig. Ltd [1999] 8 NWLR (Pt. 613) 12 at 20A - D, and Afribank (Nig.) Plc v. Osisanya [2000] I NWLR (Pt. (42) 598 at 605 Ratio II. On these authorities, the applicant then submitted that only employees who have had the provisions of the collective agreement (Exhibit GOM I) expressly incorporated into their contracts of service can enforce the provisions thereof. The applicant then urged the court to enter judgment in its favour. The respondent's response to the arguments of the applicant is that the wordings of section 50.01 of the Collective Agreement are clear and unambiguous, and that there was no problem with the interpretation of the said Article since it was prepared until recently when the applicant started complaining about its poor financial predicament brought about by high cost of diesel. The contention of the respondent is that the intention of the parties at the time the Collective Agreement was executed was that gratuity should be calculated based on the gross salary/wages, allowances and other benefits without any deductions as this is the practice everywhere .. That the applicant was advised to go by this interpretation at reconciliation meetings held at the instance or the applicant by the parties with officers of the Ministry of Labour and Productivity in attendance. The respondent contended Further that gratuity is not taxable and as such the contention of the applicant, that not to deduct tax from gratuity payable to a retiring worker is illegal, is totally wrong and absurd. The respondent then argued that the words "salary' and 'wages', if broadly defined would be found to include not only periodic monetary earnings but all compensation for services rendered without regard to the manner in which such compensation is paid, relying on the definition of the words in the Black's Law Dictionary 5th Edition at p. 1200. To the respondent, this dictionary defines 'salary' as- A reward or recompense for services performed. In a more limited sense, a fixed periodic compensation paid for services rendered. A stated compensation paid periodically as by the year, month, or other fixed period, in contrast to wages which are normally based on an hourly rate. That 'wages' is defined by the same dictionary as- A compensation given to a hired person for his or her services. Compensation of employees based on time worked or output of production. Every form of remuneration payable for a given period to an individual for personal services, including services, commissions, vacation pay, dismissal wages, bonuses and reasonable value of board, rent, housing, lodging, payments in kind, lips, and any other similar advantage received from the individual's employer or directly with respect to work for him. The respondent then submitted that it is clear that from the above definition of 'salary' and 'wages', the intention of the parties is that 'all allowances and other benefits should be included in calculating gratuity notwithstanding the fact that the phrase 'gross salary/wages' was used in the Collective Agreement. In consequence, that the applicant should honour the terms of the Collective Agreement freely entered into by the parties. The respondent then urged the court to rule in its favour. The respondent did not, however, say anything on the second issue framed by the applicant, namely, whether the collective agreement is even binding on the parties. We have carefully considered the processes and submissions of the parties in this matter. As framed by the applicant, there are two issues for the determination of this court: the interpretation of Article 50.01 or Exhibit GOM 1 particularly the phrase 'gross salary/wages' used therein and whether the said Exhibit GOM 1 is even binding on the parties. The applicant's argument in relation to the first issue is essentially to the effect that when calculating the gratuity of workers deduction of allowances, other benefits and tax should be made before the final payment is made to the workers. That even if allowances and other• benefits are not to be so deducted, tax must be deducted before gratuity is paid. In this respect, the applicant centered its argument on the phrase 'salary/wages', forgetting the word gross which qualified 'salary/wages'. This explains why the applicant would submit that if the framers of Article 50.01 had wanted the phrase 'salary/wages' to be nil inclusive, they would have added the words 'allowances and other benefits' to it. The applicant then recounted that the use of the phrase 'salary/wages' must be read to expressly exclude 'allowances and other benefits'. This is a warped construction of Article 50.01. We cannot separate the term 'gross' from 'salary/wages' in the construction of Article 50.01 as the applicant did and hope to arrive at the true construction of the said Article. What should be construed is the term 'gross salary/wages'. Even taking the word' gross' on its own, The Chambers Dictionary, 1998 Edition defines the word as 'total, including everything, without deductions .. .' and the Chambers 21st Century Dictionary, 1999 Revised Edition defines it as 'total, with no deductions ....' Ordinarily, the term gross salary/wages' or its more usually defined variant, 'gross income' is used in contradistinction to the term 'net income' to depict in the one sense earnings from which no deduction whatsoever have been made ('gross earnings or income'), and those earnings from which all deductions including tax have been made ('net income or earnings'). In relation to salary or wages, therefore, 'gross salary/wages' depict remuneration or emolument that an employee or worker is entitled to when no deduction whatsoever has made been made. Once deductions have been made, it becomes net salary/wages', which in ordinary usage translates to the 'take home pay' of the employee or worker in question. Seen in this light, Article 50.01 must be construed in that regard i.e. as depicting that gratuity will be calculated based on the gross earnings of the workers (meaning, basic salary, allowances and all other benefits accruing to the workers) when no deduction whatsoever has been made. This is the sense in which the term 'gross salary/wages' is used in the said Article. The applicant, however, argued that tax should be deducted before gratuity can be paid, and that this court should make a specific order to that effect. The manner in which the applicant presented its argument here suggests that the applicant is not familiar with the Tax law of the country. Subject to certain exceptions, para. 18 of the Third Schedule to the Personal Income Tax Act (PITA) No. 104 of 1993 dealing with exempt income, exempts from tax. Gratuities payable to an employee in the private sector in respect of services rendered by him under a contract of service with his employer and described as gratuities either in the contract or some other document issued by or on behalf of the employer in connection with such contractor. If generally, i.e. subject to some exceptions, gratuity is tax exempt, how can this court order that tax be deducted before members of the respondent union are paid their gratuities by the applicant? It is for the applicant to liaise with the appropriate Revenue Authority to determine if the gratuity payable its workers is tax exempt or it falls within the exceptions and so is not tax exempt. And any question arising from this issue cannot be answered by this court given that its jurisdiction does not extend to taxation. All that this court can hold at the moment, and which we now hold, is that the 'gross salary/wages' upon' which gratuity is paid means gross earnings where no deduction (including tax deduction) whatsoever has been made. This is the true import or Article 50.01 of Exhibit GOM 1, the collective agreement that this court has been asked to interpret. Whether or not the workers should pay tax on their gratuities is not an issue for this court. The second issue framed by the applicant relates to binding nature of collective agreements. The applicant's argument here is that for Exhibit GOM 1 to be made binding on the parties, it needs to be specifically incorporated in the individual contracts of service of the workers. In support, the applicant cited a number of cases decided by the Supreme Court and the Court of Appeal. Arguments along this line have generally been raised in this court. The problem, however, is that such arguments have been raised out of context. In all of the decisions cited by applicant, none dealt with the binding nature of collective agreements taking into account the provisions of the TOA 1990. The cases have all been decided based on the common law principles of master and servant. The TOA 1999 in sections 3, 15 and 20 is very clear as to the effect of a collective agreement and the power of this court to interpret it. This court has been statutorily empowered to interpret collective agreements under sections 15 and 20 of the TOA 1990, the law applicable when, this matter arose in 2004. This court cannot be empowered to interpret collective agreements if the intention or the law makers is not that the collective agreement should be binding on the signatories to it. The power of this court to interpret collective agreements by this court has never been challenged in either the Court of Appeal or the Supreme Court. Instead it has been affirmed as can be seen in cases such as Kalango v Dokubo [2003] 15 WRN 32. In any event, the first prayer of the applicant relates to the interpretation of Article 50.01. We wonder why the applicant would be seeking such an interpretation if it sincerely believed that the document sought to be interpreted is not even binding. We think that the second issue framed by the applicant and the argument it proffered on it is merely an afterthought by the applicant In the circumstance, therefore, the applicant's case on both issues it framed must fail. For the avoidance of doubt, we hereby hold that- 1. Gratuity payable by the applicant to its workers is to be based on the gross earnings (gross salary/wages), with no deductions made whatsoever, of the workers. Tax may be deducted if the gratuity falls within any of the three exceptions provided for under para. 18 of the Third Schedule to PITA 1993. 2. Exhibit GOM 1, the Collective Agreement between the parties, the document sought to be interpreted before this court, is binding on the parties in accordance with the provisions of the TDA 1990. Incorporation of this document into the individual contract of service of the workers of the applicant company is not a requirement under the TDA before this court call interpret and hold as binding the said collective agreement. Judgment is entered accordingly. ……………………………….. Hon. Justice B.B. Kanyip Presiding Judge ……………………………. ………………………………. Hon. Justice M.B. Dadda Hon. Justice M.A.B. Atilola Judge Judge