A pilots' union is "considering its options" after the Supreme Court ruled in favour of Air New Zealand in a dispute over its collective employment agreement.

The dispute centred on one clause in the New Zealand Air Line Pilots' Association's (NZALPA) collective agreement, described as 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".

The union invoked this clause when it wanted to claim a more favourable pay rise for pilots of Boeing 747s and second officers, after Air NZ 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 NZ argued that each of the terms agreed to in the FANZP collective was conditional on the total deal being struck, meaning NZALPA would have to take the concessions made by the other union in order to get the benefits it desired.

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Four of the Supreme Court's bench of five judges yesterday ruled in favour of Air NZ, dismissing an appeal by the New Zealand Air Line Pilots' Association.

Justices Terence Arnold, Mark O'Regan, Ellen France and William Young dismissed the appeal, while Justice Susan Glazebrook would have allowed it.

The ruling would normally mean the case would be sent back to the Employment Court, but it has not been in this case, because the two groups had not pursued arguments over the possible meanings of the clause in NZALPA's collective agreement and because the appeal had only been approved on the question of jurisdiction, the majority judgment said.

Justice Glazebrook, in her dissenting ruling, said the appeal court had not identified any errors of interpretive principle by the Employment Court, and even if it had, the case should have been sent back to the Employment Court to determine the proper interpretation of NZALPA's contract.

The majority also stressed that, while the finding meant the NZALPA claim failed, it had only found that the union's interpretation was incorrect, not that Air NZ's interpretation was correct.

NZALPA says that point means the union "will be considering our options for having the contractual interpretation issue re-examined by the Employment Court".

"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," said NZALPA president Tim Robinson.

Some 84 per cent of Air NZ's pilots are NZALPA members, and Robinson said the "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".

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The case was originally heard by the Employments Relations Authority, which agreed with Air NZ, while the Employment Court in 2014 found in favour of NZALPA. The airline then sought to appeal the Employment Court's decision in the Court of Appeal, which the court allowed, but which NZALPA disputed as it said the appeal court does not have the jurisdiction to hear it. The Supreme Court ruling yesterday affirms that the Court of Appeal has jurisdiction.

The NZALPA appeal was based on the Employment Relations Act, which says the appeal court can't hear an appeal on the construction of a collective employment agreement. The Supreme Court said the dispute was a matter of interpretive principle which went beyond the construction of the particular collective agreement, and the majority found the Employment Court judge had wrongly taken into account negotiations between the two parties and their intentions.