Employment Law Cases
Direct pay offer to employees was an 'unlawful inducement'
Kostal UK Ltd v Dunkley
An employer who directly offered its employees a package of revised terms and conditions - going over the head of the recognised trade union – unlawfully induced them to cease collective bargaining.
Section 145B of the Trade Union and Labour Relations Consolidation Act 1992 (TULR(C)A) prohibits employers making offers to workers who are members of a recognised union if acceptance of the offer would have ‘the prohibited result’ and the employer’s sole or main purpose in making the offers is to achieve that result. 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’. The offer needs to be made to a worker and at least two fellow workers to be covered by s. 145B.
This case is the first time that this statutory provision has been considered at appellate level, progressing from the tribunal through to the Supreme Court.
Unite was the recognised trade union for collective bargaining purposes at Kostal. The collective bargaining agreement set out a four-stage process for negotiating terms and conditions of employment and agreed that changes to terms would not be imposed while negotiations were continuing.
Unite and Kostal failed to reach agreement on the firm's proposed pay offer for 2016. Kostal had proposed a 2% increase in basic pay plus an additional 2% for those earning less than £20,000, along with a substantial Christmas bonus, payable at Christmas 2015. In return, it sought various things such as a reduction in sick pay for new starters and a reduction in Sunday overtime. Unite didn’t recommend the offer to its members and in a subsequent ballot, 80% of those balloted rejected the offer. Kostal then wrote to every employee setting out the pay offer in identical terms. The letter 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. The following January, Kostal wrote to employees who had not accepted, this time offering a 4% increase in basic pay if they agreed to the proposed changes in terms and conditions, and threatening dismissal if they did not.
Several employees (all Unite members) brought tribunal claims alleging that each letter constituted an unlawful inducement contrary to s. 145B. The tribunal upheld the employees’ claims and awarded compensation of £3,830 for each unlawful inducement (i.e. a total of £7,660 per claimant and circa £433,000 in total). Kostal appealed, arguing that it had never intended to induce its employees to opt out of collective bargaining. Rather, it wanted to inform them that they would lose their Christmas bonus if they did not agree to the changes in time. Its purpose therefore in making the offers was not to achieve the ‘prohibited result’. A collective agreement was eventually reached on pay and amended terms and conditions on 3 November 2016, by which time the issue of the Christmas bonus was no longer relevant.
The EAT rejected the appeal, endorsing the broad interpretation of s. 145B adopted by the tribunal. The Court of Appeal disagreed, applying a narrower scope to the provision. The claimants appealed.
Supreme Court decision
The appeal was unanimously allowed.
The purpose of the unlawful inducement provisions is to secure employee rights under the European Convention on Human Rights to be represented by unions.
The majority found that the Kostal’s direct pay offer to workers, bypassing stalled negotiations with the union, constituted an unlawful inducement. The focus must be on the result of the offer, rather than its contents. A tribunal must ask itself whether, had the offer to the individuals not been accepted, the new terms would ultimately have been determined by the collective bargain. In other words, was that process exhausted by the time the offer was made?
Unite was wrong to suggest that any offer made by an employer directly to workers asking them to agree to changes that had not been collectively agreed would be a breach of the provisions. Kostal was also wrong to suggest that the protection of s. 145B applied only where an employee was effectively being asked to opt-out of collective bargaining, either permanently or temporarily.
Kostal had made pay offers directly to its workforce, by-passing the recognised trade union during collective bargaining, so workers’ terms were determined outside the collective bargaining process - ‘the prohibited result’.
The majority interpreted s. 145B as allowing direct offers to be made to workers if the collective bargaining process has been followed and the employer has a genuine belief that it has been exhausted. Offers made before that point would ‘jump the gun and bypass the agreed process.
Kostal had not exhausted the collective bargaining procedure. The Recognition Agreement set out a series of steps which included a potential referral to ACAS for conciliation if both parties agreed. The agreement expressly stated that ‘if the parties do not agree to refer the matter to ACAS the procedure is exhausted’. However, the parties had agreed to refer the matter to ACAS therefore the collective bargaining procedure was still ongoing at the time that the two offers were made, so the offers would have given rise to the prohibited result and were therefore in breach of s. 145B.
Such an interpretation respects the right of unions to have ‘a seat at the table’ for collective bargaining, but also reflects that the law was not intended to give them a right to have changes agreed through that bargaining process (or a veto) nor does it impose a restriction on an employer making direct offers to workers where no collective agreement can be reached.
Link to judgment: http://www.bailii.org/uk/cases/UKSC/2021/47.html
This is a decision which strikes the balance between respecting the rights of the unions to collectively bargain and equally not preventing employers from approaching employees directly when the bargaining process has been exhausted. It is very important for employers to be fully familiar with the bargaining process before making direct approaches – sometimes easier said than done in circumstances where the union has been recognised for many years and no one can find a copy of the recognition agreement!