Air New Zealand has won a Supreme Court pay fight with the country's biggest pilots' union.

The dispute concerned whether the New Zealand Air Line Pilots Association was able to take clauses from collective agreements Air New Zealand made with other unions and incorporate these into its own members' agreement with the national carrier.

The New Zealand Air Line Pilots Association (NZALPA) was formed in 1945 and about three quarters of the country's pilots are members. Eighty four per cent of Air New Zealand's pilots are NZALPA's members.

The NZALPA's collective agreement contains a ratchet clause, where the parties agree that "any agreement entered into by the company with any other pilot employee group which is more favourable than provided for in this agreement will be passed on to pilots covered by this agreement."

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The union invoked this clause when it wanted to claim a more favourable pay rise for pilots of Boeing 737s and second officers after Air New Zealand had agreed with the Federation of Air New Zealand Pilots (FANZP), a newer and smaller union, to provide a pay rise of 13 per cent, more than the NZALPA collective agreement provided for.

Air New Zealand declined on the basis that the proper interpretation of this clause was that it allowed passing on the whole of the collective agreement and not just of particular parts.

While the Employment Relations Authority accepted Air New Zealand's interpretation, the Employment Court found the ratchet clause was proposed to address the union's fears of shedding members to its rival.

Employment Court Chief Judge Graeme Colgan interpreted the phrase "any agreement" in the NZALPA collective as encompassing both a collective agreement in total and its individual provisions.

On this basis, Air New Zealand was required to pass on the higher pay rates for pilots flying Boeing 737s and second officers.

The national carrier then took the case to the Court of Appeal, which in April last year reversed the Employment Court's decision.

The NZALPA challenged this before the Supreme Court, focusing on whether the Court of Appeal had jurisdiction for this case.

In a majority decision released today, Justices Terence Arnold, Mark O'Regan and Ellen France found that the Court of Appeal did have the appropriate jurisdiction.

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"The majority has held that the Court of Appeal did have jurisdiction to hear the appeal because the approach of the Employment Court comprised errors in interpretive principle. Namely, the Employment Court judge wrongly took into account negotiations between the parties and the subjective intentions of the parties," a statement from the Ministry of Justice said.

Supreme Court Justice William Young agreed with the majority's decision but released separate reasons.

Tim Robinson, president of the NZALPA, said the members were disappointed.

"Taking this series of legal actions is not an easy decision for any membership organisation, but this issue is fundamentally important for our pilots, particularly when it comes to issues of fairness and treating all pilots equally regardless of what membership group they belong to," Robinson said.

Robinson said that Air New Zealand pilots are proud of working for the national carrier and playing their part in the success of the airline as a global brand.

"Such is the loyalty members feel to the company, a continuing two-tier contractual approach remains an upsetting issue for many pilots, who feel they are treated differently to their colleagues just because they choose to belong to a highly supportive professional organisation."

Robinson said the union will be consider having the contractual interpretation issue re-examined by the Employment Court.

Justice Susan Glazebrook released a dissenting judgment and said she would have allowed NZALPA's appeal.

While agreeing that appellate courts have jurisdiction to consider appeals, Justice Glazebrook said that the Court of Appeal did not identify any error of interpretive principle by the Employment Court and also that the "errors of principle identified by the majority were not operative", the Ministry of Justice said.

additional reporting: BusinessDesk