Direct pay offer was not ‘unlawful inducement’

Employers with unionised workforces will welcome the Court of Appeal judgment in Kostal UK Ltd v Mr D Dunkley and Others. 

The court held that laws on unlawful inducement relating to collective bargaining do not give trade unions a general veto over any variations being agreed by an employer directly with its workforce.

Pursuant to section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), it is unlawful for an employer to make an offer directly to members of a recognised trade union (or a trade union seeking to be recognised) where the sole or main purpose in doing so is to induce them to cease collective bargaining. This is known as the ‘prohibited result’.

The intention of this legislation is to prevent employers from undermining the collective bargaining arrangements in place. Where an employer is found to have contravened section 145B by making an unlawful offer, each affected worker can claim a mandatory award (currently £4,193) from the Employment Tribunal. There is no statutory basis on which an Employment Tribunal can reduce this award.

In this case, the Court of Appeal considered for the first time whether an employer’s attempt to bypass a recognised trade union by negotiating directly with individual employees amounted to an unlawful inducement contrary to section 145B.

Kostal, an automotive parts company, had a collective bargaining agreement in place with Unite which provided for, among other things, pay negotiations to commence in October each year with a normally effective date of 1 January and for any proposed changes to employment terms to be negotiated with Unite.

Pay negotiations for 2016 began with Unite in October 2015 but broke down. Kostal sent letters to every employee in December 2015 setting out its proposed pay offer. This included a 2% increase (or 4% increase for employees earning less than £20,000 a year) and a Christmas bonus in return for a reduction in Sunday overtime and sick pay for new starters and changes to breaks. This offer was identical to that put to Unite and had been rejected. The letters explained that if the offer was not accepted by 18 December, employees would not receive the Christmas bonus, even if a revised offer was subsequently agreed with Unite.

In January 2016 Kostal wrote to those employees who had not yet accepted the offer, this time offering a 4% pay increase (backdated to 1 January 2016) if they agreed to the proposed changes, and threatening dismissal if they did not.

A collective agreement was eventually reached as to pay and the amended terms and conditions on 3 November 2016. However, a large group of employees (all of whom were Unite members) brought claims in the Employment Tribunal, alleging that both letters constituted an unlawful inducement contrary to section 145B. The tribunal upheld the employees’ claims and awarded compensation of £3,830 (the mandatory award in place at the relevant time) for each unlawful inducement (that is, a total of £7,660 per employee and approximately £433,000 in total).

Kostal appealed to the Employment Appeal Tribunal, arguing that its intention had never been to induce employees to opt out of collective bargaining. Rather, it had simply wanted to inform employees that they would lose the Christmas bonus if they did not agree to the changes by the December deadline. Kostal argued that its intention in making the offers was therefore not to achieve the ‘prohibited result’.

Referring to section 145B of TULRCA, the EAT upheld the Employment Tribunal’s decision in finding that by making a direct offer to employees, Kostal had sidestepped collective bargaining with Unite and had offered an unlawful inducement to employees. It held that this was the case even though collective bargaining had been attempted and had failed, and even though the bypassing of collective bargaining had been temporary (in the sense of being a one-off direct agreement rather than being permanent) – the fact that Kostal had intended to resume collective bargaining in the future was, in the EAT’s view, irrelevant.

Kostal again appealed to the Court of Appeal, arguing that both the Employment Tribunal and EAT had incorrectly construed the ‘prohibited result’. Overturning the EAT’s decision, the CoA held that both the Employment Tribunal and the EAT had incorrectly taken a literal interpretation of section 145B, and it was extremely unlikely that parliament had intended the legislation to prohibit any direct offers to employees outside a collective bargaining process. The court commented that if this wide interpretation was taken it would ‘amount to giving a recognised trade union… a veto over even the most minor changes in terms and conditions of employment, with the employers incurring a severe penalty for overriding the veto’.

Instead, the court favoured a narrower interpretation, holding that the legislation was designed to prohibit direct offers aimed at permanently bypassing collective bargaining; a direct offer designed to bypass collective bargaining on a one-off basis only, as was the case here, was outside the scope of the ‘prohibited result’. The court noted that Kostal had not been motivated by hostility to Unite, the offers had been made to the whole workforce, and each employee would continue to be represented by the union under the collective agreement.

The Court of Appeal’s decision will be welcomed by employers who have collective bargaining arrangements in place as it weakens the previously understood scope of section 145B of TULRCA.

The decision confirms that an employer is able to propose new terms directly to employees where an impasse in collective negotiations is reached, provided that there is no intention of bringing to an end collective bargaining of those terms in the longer term. There is a need for caution, however, and employers are well advised to ensure that they follow agreed collective bargaining procedures as a matter of course wherever possible. 

We understand that Unite has applied for permission to appeal to the Supreme Court.

Chris Tutton is a partner at Synchrony Law Limited, London