Key takeaways

• Although the employer lost this particular case, this was a decision that was very much decided on its particular facts and the majority of the Supreme Court rejected the employees' broader arguments on collective bargaining which would have effectively given trade unions a right to veto changes to terms and conditions when negotiations have failed. 
• The decision confirms that employers can legitimately make direct offers to employees so long as they first exhaust their collective bargaining processes, and provides useful clarity on when they can engage directly with the workforce on changing terms and conditions. 
• Employers should therefore ensure that the collective bargaining process has been properly followed, including any applicable dispute resolution processes, before directly engaging with the workforce on changing terms and conditions.
• Where the collective bargaining process is not clearly defined (as is the case particularly with longstanding, historic collective arrangements) it would be useful to keep a document trail of the process that has been followed and any internal decisions as to whether that process has been exhausted. This will help to evidence the employer's genuine belief that the collective bargaining process has been exhausted.
• For those employers that are negotiating a new or revised collective bargaining arrangement, it would be worth setting out expressly the process that will be followed, the time frames, and when the process will conclude. 

For advice or to discuss what this means for you and your business, please contact your usual Baker McKenzie contact.

In more detail

Background

Section 145B of TULRCA prohibits an employer from making a direct offer to a worker who is a member of a recognized trade union where the employer's sole or main purpose in making the offer is to achieve the "prohibited result" i.e. acceptance of the offer would mean that any of the worker's terms and conditions of employment "(or any of the terms) will not or will no longer" be collectively bargained by the union. Where section 145B is breached, each affected worker can accept or reject the offer and claim a mandatory award of compensation, currently GBP 4,341, "in respect of the offer complained of".

Facts

Towards the end of 2015, Kostal UK Ltd and union Unite began negotiations on pay. Kostal made an offer of a 2% increase in basic pay together with a lump sum Christmas bonus in return for a variation of some other terms. Unite did not recommend the offer, which was subsequently rejected by its members in a ballot. Shortly afterwards, Kostal sent a letter direct to the employees offering the same package and stating that if they did not accept they would not receive a Christmas bonus. The following January, Kostal wrote to the employees who had not accepted, offering a further increase of basic pay if they agreed to the proposed package and threatening dismissal if they refused. Negotiations with Unite continued, and they eventually reached a collective agreement some months later.  

A group of employees who were all members of Unite argued that the two offers in December 2015 and January 2016 each constituted unlawful inducement contrary to section 145B. The employment tribunal agreed and ordered Kostal to pay each employee the mandatory award in respect of each offer (at the time, a total of GBP 7,660 per employee). The Employment Appeal Tribunal (EAT) dismissed Kostal's appeal ruling that it had made two unlawful inducements for employees to cease collective bargaining. The EAT held that if acceptance of a direct offer would mean that only one term of employment would be determined by direct agreement, that was sufficient to amount to an unlawful inducement, even if the other terms continued to be deemed collectively. The EAT stated that employers are entitled to make offers directly to employees where they have a proper purpose in doing so, but only where collective bargaining has broken down. 

The Court of Appeal upheld Kostal's appeal. They identified two situations in which the "prohibited result" would be achieved and would therefore be unlawful: 1. Where an independent trade union is seeking recognition and the employer makes an offer whose sole or main purpose is to achieve the result that the workers' terms of employment will not be determined by collective agreement; and 2. Where an independent trade union is already recognised, the workers' terms of employment are determined by collective agreement negotiated by the union, and the employer makes an offer whose sole or main purpose is to achieve the result that the workers terms (as a whole) or one or more of those terms will no longer be determined by collective agreement i.e. on a permanent basis. Where, as in this case, the employer's sole or main purpose of making the offer was to achieve the result that one or more terms would not, on this particular occasion, be determined by collective agreement, that would not give rise to the "prohibited result" and therefore Kostal had not breached section 145B. 

Supreme Court decision

The Supreme Court allowed the employees' appeal finding that the two pay offers were unlawful inducements in breach of S145B. The majority decision, led by Lord Leggatt, held that the parties had wrongly limited their focus to the content of the offer. The key question is what is the result of making the offer i.e. a test of causation. For the prohibited result to arise, there must be a "real possibility that, if the offers were not made and accepted, the workers' relevant terms of employment would have been determined by a new collective agreement reached for the period in question". If the collective bargaining procedure with the recognized trade union has been followed and exhausted, there is nothing to stop the employer from making a direct offer to its employees - this would not give rise to the prohibited result and therefore a breach of S145B as the term(s) would not have been determined by collective agreement if the offers had not been made and accepted. 

On the facts of this case however, 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 S145B. 

Kostal UK Ltd v Dale Dunkley and others, Supreme Court