28.10.2021

In Kostal UK v Dunkley and others, the Supreme Court has held that an employer breached s145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A) by making a direct pay offer to workers, which had the effect of bypassing stalled collective bargaining with the recognised trade union and therefore amounted to an unlawful inducement.

Legal background

Under s.145B TULR(C)A, an employer is prohibited from making a direct offer to workers who are members of a trade union, if acceptance of the offer would have a ‘prohibited result’, and the employer's sole or main purpose in making such an offer is to achieve this ‘prohibited result’.  The ‘prohibited result’ is that the workers' terms of employment will not (or will no longer) be determined by collective agreement negotiated by or on behalf of a recognised union, (or a union seeking recognition). 

A worker (or former worker) may present a claim in an employment tribunal on the ground that their employer has made an offer contrary to s145B. The claim must normally be presented within three months from the date the offer was made or, where the offer is part of a series of similar offers, the date when the last such offer was made. If the tribunal upholds the claim, the worker is entitled to a lump sum award.

Kostal UK Ltd v Dunkley and others is the first case in which the appeal courts have had to consider the nature and extent of the operation of s145B. 

Facts

Kostal, a manufacturer of electro-mechancial and electronic products for the automotive industry, recognised Unite for collective bargaining purposes. Under their recognition agreement the parties agreed to enter into annual formal pay negotiations and to negotiate any proposed changes to the terms and conditions of employment. Kostal and Unite began formal pay negotiations in October 2015. Kostal proposed a 2% increase in basic pay, an additional 2% increase for employees earning less than £20,000, and a Christmas bonus equal to 2% of basic pay. In return Kostal sought to decrease sick pay for new starters, reduce Sunday overtime rates and consolidate various rest breaks. Unite told Kostal that it could not recommend the proposed package but would ballot its members and give them a ‘free vote’ on the offer.  80% of Unite members who took part in the ballot rejected Kostal’s offer. In December 2015 Kostal wrote directly to all employees offering the same proposed package and seeking each employee's individual signed acceptance of the proposed terms. Kostal advised employees that a failure to accept the terms would lead to no Christmas bonus, and no annual pay increase.  In January 2016, Kostal sent a second letter to employees stating that if no agreement could be reached, it could lead to notice of termination being served.

A number of Unite members brought claims in the employment tribunal alleging that Kostal had breached their rights under s.145B of TULR(C)A in sending them the two direct pay offer letters.

Employees succeed in tribunal and EAT

The tribunal upheld the employees’ claim, taking the view that the pay offers contained in the letters of December 2015 and January 2016 were both made in breach of s145B and were unlawful. Kostal appealed to the EAT, but was unsuccessful.

The EAT found that the wording of s145B was unambiguous, and although it did not act to stop employers from making direct offers to employees where collective bargaining had broken down, there had to be a proper (i.e. ‘not unlawful’) purpose for making such offers. The EAT rejected Kostal’s argument that it had never been its intention to induce employees to opt out of collective bargaining. In the EAT's view, if a direct offer to workers meant that at least one term of employment would be determined by direct agreement, rather than collectively in accordance with a collective agreement, that would be sufficient for there to be a breach of s145B; it was immaterial whether the effect of the ‘one-off’ direct offer would be to temporarily rather than permanently result in the ‘surrender’ of collective bargaining.

Court of Appeal allows employer’s appeal

In what appeared to be a reassuring turn of events for employers, Kostal was successful in its appeal to the Court of Appeal. In overturning the EAT’s decision, the Court of Appeal limited the application of s145B to two cases: 

• where a union is seeking recognition and the employer makes an offer to employees with the sole or main purpose of achieving the result that terms and conditions will not be determined by collective agreement; and
• where a union is already recognised with workers’ terms of employment determined by collective agreement and the employer makes an offer with the sole or main purpose of ensuring that the terms of employment (as a whole) or one or more of those terms will no longer be determined by collective agreement, i.e. on a permanent basis.

The Court specifically rejected the assertion that s145B applied to a third case, contended for by the employees and the union – namely, when the employer makes an offer in circumstances where the purpose is merely to ensure that one or more of the terms of employment will not, on this one occasion, be determined by collective agreement.

Supreme Court reverses Court of Appeal decision

The Supreme Court unanimously upheld the employees’ appeal, although the five justices were split on the reasons for their decision.

The majority held that an employer will contravene s145B if it makes an offer to workers in circumstances where there is a real possibility that, if the offers were not made and accepted, the terms of the workers’ employment would have been determined by a new collective agreement for the period in question. If there is no such possibility, then making the offer cannot be said to have produced the ‘prohibited result’ (i.e. that the terms of employment have not been determined by collective agreement for that period). Accordingly, there is nothing to prevent an employer from making an offer directly to its workers in relation to a matter that falls within the scope of a collective bargaining agreement provided that the employer has first followed, and exhausted, the agreed collective bargaining procedure. In the present case, however, the collective bargaining process had not yet been exhausted when Kostal made its offers to the workers, so the employment tribunal was entitled to conclude that Kostal had breached s145B.

The minority reached the same conclusion but applied different reasoning. They did not accept that an employer should necessarily be able to escape liability just because it has exhausted the collective bargaining process (that would not be appropriate, for example, in circumstances where the employer has been determined to thwart the bargaining process from the outset). Instead, they took the view that, in order to avoid liability for breach of s145B, an employer would need to show that its sole or main purpose in making the offer was not to achieve the ‘prohibited result’ but was rather a genuine business purpose. 

Comment

There is a mandatory lump sum award in relation to each breach of s145B (currently £4,341).  In the present case, because Kostal was found to have made two offers in breach of s145B (one for each letter sent directly to employees), each affected individual was awarded two mandatory penalties, amounting to £7,600 each (in accordance with the rate applicable at the time).  As there were 57 claimants, the total award that Kostal had to pay amounted to just over £420,000! 

Clearly, employers should not make direct offers to employees with the intention of restricting, or bypassing, an ongoing collective bargaining process. However, even if it seems to you that a collective bargaining process has broken down, you should still proceed with extreme caution.   

It is essential to absolutely exhaust the collective bargaining process before making any attempt to negotiate directly with employees. As noted above, the cost of breaching s145B can be substantial, so we strongly recommend that you seek legal advice if you find yourself considering making individual offers to employees where collective bargaining is proving difficult.

How we can help

Make UK members can speak to their regular adviser for guidance on managing their relationship with recognised trade unions and handling collective bargaining negotiations.

Non-members who need assistance in this area should contact us by email or telephone (0808 168 5874) for information on the support we can provide.