Direct pay offer to employees was not 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 - did not unlawfully induce them to cease collective bargaining.

The law

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.

In 2014 a council was ordered to pay more than £64,000 in compensation to 18 of its staff after an employment tribunal ruled it had offered employees cash incentives to sign new contracts that took them out of existing collective bargaining agreements (Budgen v London Borough of Bromley).

This case is however the first time that this statutory provision has been considered at appellate level.

Background

Unite was the recognised trade union for collective bargaining purposes at Kostal. 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.) Kostal also appealed against the award, arguing that the tribunal shouldn’t have made two awards per claimant.

EAT decision

By a majority (with a lay member dissenting), the EAT dismissed Kostal’s appeal. The ‘prohibited result’ envisaged by s. 145B includes a situation where any of the terms of employment – even if just one of many – will not (or will no longer) be determined by collective bargaining. The fact that the result is temporary (in the sense of being a one-off direct agreement) rather than permanent is irrelevant.

Such a result does not, said the EAT, give unions a veto over changes to terms and conditions:

If collective bargaining breaks down, to the extent that the employer has a proper purpose for making offers directly to workers, there is nothing to prevent such offers being made. What the legislation seeks to prevent is an employer going over the heads of the union with direct offers to workers, in order to achieve the result that one or more terms will not be determined by collective agreement with the union if offers are accepted’.

As to the making of two awards, the EAT (this time unanimously) also upheld the tribunal. Here there were two different offers made: the first referred to the Christmas bonus and the second did not; the second also included a threat of dismissal whereas the first didn’t. This wasn’t a case of an identical offer being repeated which could be seen as a single offer (and attract only one award). The legislation is clear: it states that a tribunal is obliged to make an award ‘in respect of the offer complained of’. Here the tribunal had found that two distinct offers were made - and it had done nothing wrong in making the award it did. Kostal appealed.

Court of Appeal decision

The appeal was unanimously allowed.

While the construction of s. 145B favoured by the tribunal and EAT was ‘possible as a matter of literal interpretation of the words used’ the Court of Appeal held that it was ‘extremely unlikely’ to have been what Parliament intended – and would amount to giving a union with such collective bargaining rights ‘a veto over even the most minor changes in terms and conditions of employment’.

The statutory changes effected by s. 145A-F were made by the Employment Act 2004 and were introduced as a response to an ECJ ruling (Wilson v UK) concerning the offering of inducements to opt out of collective bargaining altogether. There the parties had argued that UK law as then drafted inadequately secured their rights under art. 11 of the European Convention on Human Rights (freedom of assembly and association).

The result of the tribunal (and EAT’s) decision would, said the Court of Appeal, go far beyond curing the defect in UK law identified by the Wilson case. The right of workers in art. 11 is to be represented by a union and for that union’s voice to be heard in negotiations with the employer. There is however no art. 11 right for workers, acting through their union, to impose their will on the employer. The Court of Appeal noted that Kostal was not motivated by hostility to trade unions, that the offers were made to the whole workforce, and that each individual would continue to be represented by the union under the collective agreement.

The Court of Appeal limited the reach of s. 145B (specifically the ‘prohibited result’) to 2 types of case:

  1. where a union was seeking recognition and the sole or main purpose of the employer’s acts was to ensure that terms wouldn’t be determined by collective agreement, and
  2. where in respect of a recognised union, the employer’s sole or main purpose was to remove terms from collective bargaining permanently

The Court of Appeal decided against adding a third category – where the inducement relates to one occasion rather than having the purpose of permanently removing the relevant term(s) from collective bargaining. This led inevitably to this appeal being allowed.

Link to judgment: https://www.bailii.org/ew/cases/EWCA/Civ/2019/1009.html

Comment

This decision seriously weakens the previously understood scope of the protection of union members provided for in s. 145B. Employers will doubtlessly welcome this judgment. If an employer has reached the end of the road with a recognised union, this decision allows it to seek agreement directly with its staff without the risk of stringent penalties. However, the union has indicated that it’ll seek to appeal to the Supreme Court so this may not be the end of the matter.

The Court of Appeal rejected the notion that its interpretation left a union powerless – it remains open to a union to ballot its members on industrial action, as happened in this case.