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Supreme Court: When does a direct pay offer bypassing collective bargaining constitute an unlawful inducement?

03 November 2021

In the case of Kostal UK ("Kostal") v Dunkley the Supreme Court found that a direct pay offer to workers did constitute an unlawful inducement, bypassing a challenging collective bargaining process.  

The legal background

The case considered section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULR(C)A"). Section 145B states:

(1) A worker who is a member of an independent trade union which is recognised, or seeking to be recognised, by his employer has the right not to have an offer made to him by his employer if:

(a) acceptance of the offer, together with other workers' acceptance of offers which the employer also makes to them, would have the prohibited result, and

(b )the employer’s sole or main purpose in making the offers is to achieve that result.

(2) The prohibited result is that the workers' terms of employment, or any of those terms, will not (or will no longer) be determined by collective agreement negotiated by or on behalf of the union.

Lord Leggatt in the Supreme Court judgment succinctly summarises the section as follows: "Its object, broadly stated, is to penalise offers made by employers to workers who are trade union members which, if accepted, would have the result that one or more terms of their employment will not (or will no longer) be determined by collective bargaining".  Such a consequence is known as the "prohibited result".

The rule is designed to prevent employers undermining collective bargaining.  The employer does have a defence if it can show that its sole or main purpose in making the offers was not to achieve the "prohibited result".

When there is a breach of section 145B of TULR(C)A each affected worker can bring a claim in the Employment Tribunal, the mandatory award currently stands at £4,341 for each affected worker. 

Facts

Kostal manufactures electromechanical and electronic products for the automotive industry.  The 57 Claimants were all members of Unite the Union and were employed as shop floor or manual workers.  Unite is recognised by Kostal for collective bargaining purposes. 

The pay negotiations

In 2015 Kostal tabled a pay offer comprising:

  • A 2% increase in basic pay.
  • An additional 2% increase for those earning less than £20,000.
  • A Christmas bonus to be paid in December 2015 equating to 2% of basic pay.

In addition Kostal sought to introduce several detrimental changes including reducing sick pay for new starters, reducing the Sunday overtime rate and consolidating two separate 15 minute breaks into a single 30 minute break. 

The offer was rejected by Unite's members in a ballot.  Following the rejection, Kostal wrote to its employees to make the same offer to them directly.  The letter confirmed that if they did not accept the offer they would not receive the Christmas bonus.  By January 2016, 91% of eligible employees had accepted the offer, according to Kostal.  Kostal wrote to those employees who had not accepted the offer, making a similar offer but stating that if no agreement could be reached, the company may have to serve notice of termination.  

A number of employees brought claims in the Employment Tribunal arguing that Kostal had breached section 145B of TULR(C)A. 

The journey up to the Supreme Court

The Employment Tribunal upheld the claims finding that Kostal had consciously decided to bypass further meaningful negotiations and contact with Unite in favour of making direct offers to employees.  The Employment Appeal Tribunal dismissed Kostal's appeal.  However, Kostal subsequently successfully appealed to the Court of Appeal.  The Court of Appeal held that section 145B of TULR(C)A would only be engaged if Kostal's purpose is to achieve the result that one or more of the terms of employment will no longer be determined by collective agreement on a permanent basis.  The Court rejected the view that the "prohibited result" included a one-off occasion. 

The Supreme Court

The Supreme Court allowed the Claimants' appeal. 

The Supreme Court disagreed with the Court of Appeal on the distinction between an inducement to trade union members to agree not to be represented by their union in collective bargaining indefinitely (or for a long period of time) or for a very short period of time.  The Supreme Court said that the notion that section 145B can only be contravened when union members surrender collective bargaining rights "on a permanent" basis cannot be justified. 

The Court held that, rather than focus on the content of an employer's offer,  under section 145B consideration should be given to whether or not the offer will have the "prohibited result", namely that one or more terms of employment will not (or will no longer) be determined by collective bargaining.  In order for the "prohibited result" to be met there must be a real possibility that, if the offers were not made and accepted, the workers' relevant terms of employment would otherwise have been determined by a new collective agreement.  If there is no such possibility, it cannot be said that making the individual offers has produced the result that the terms of employment have not been determined by collective agreement for that period.

The Supreme Court went on to state that there is nothing to prevent an employer from making an offer directly to its workers in relation to a matter which falls within the scope of a collective bargaining agreement providing the employers has first followed, and exhausted, the agreed collective bargaining procedure.  However, what an employer must not do, as Kostal did in the current case, is make a direct offer to its workers before the collective bargaining process has been exhausted.  Kostal was therefore found to have breached section 145B of TULR(C)A.

The 57 Claimants are now entitled to a total of £421,800 in compensation. 

Comment

This case provides clarity for employers as to when a direct offer can be made to the workforce.  The key point to note for employers is that any collective bargaining process must be exhausted before a direct offer can be made.  Employers will need to consider how they will evidence this should they need to.  It may not always be straightforward as to whether a collective bargaining process has been exhausted, it is advisable for employers to limit the scope for exposure by clearly defining the parameters of the collective bargaining procedure. 

If we can be of any assistance with regard to the issues raised in this update please do not hesitate to get in touch.   

Further Reading