Case update (2):  Trade unions – Collective bargaining

Summary:  Is it unlawful for an employer to make direct offers to employees in connection with pay and changes to terms and conditions of employment while the collective bargaining process is still continuing?

Yes, says the Supreme Court in Kostal UK Ltd v Dunkley and ors available here.  The employer should have followed and exhausted the collective bargaining process before it made the direct offers to its employees.

Background: Section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) states that if there is a union which has collective bargaining rights over a group of employees, those employees who are members of that union cannot be approached directly by their employer with any offer where its acceptance would result in the terms of the worker’s employment no longer being determined by collective agreement. If an employer does make such offer it amounts to an unlawful inducement and a Tribunal can order the payment of an award to each relevant employee of (currently) £4,341. The intention of the legislation is to prevent employers from undermining collective bargaining arrangements.

However, an employer does have a defence if it can show that the sole or main purpose of that offer is not to avoid the workers’ terms of employment from being determined by collective agreement.

Facts:  The employees were members of the trade union Unite, recognised by the employer, Kostal, for collective bargaining purposes. Towards the end of 2015 Kostal entered negotiations with Unite over pay and proposed changes to terms and conditions.  Kostal made an offer via Unite which was rejected in a ballot. Kostal then wrote directly to its workers in December 2015 pre-empting the collective process and offering a Christmas bonus to accept the pay award and revised terms and conditions.  Then in January 2016, Kostal sent a further letter to employees who had not yet agreed the new terms offering to backdate the pay increase and warning that it might terminate their contracts if they could not reach agreement.  In November 2016, by which time over 97% of employees had accepted one or other of the direct offers, Kostal and Unite reached a collective agreement for 2015 (on similar terms to the direct offers).

However, as a result of the direct offers that Kostal made to the employees, 57 of those individuals brought Tribunal claims, arguing that each letter was an unlawful inducement, as its sole or main purpose was to end collective bargaining.

Tribunal, EAT and Court of Appeal decisions

The Tribunal upheld the claim and made an award to each employee to whom the offer was made.  The EAT dismissed Kostal’s appeal. However the Court of Appeal allowed it and the employees appealed to the Supreme Court.

Supreme Court decision

The Supreme Court allowed the employees’ appeal and restored the awards made by the Tribunal. The Court held that Kostal’s direct offers to its workers were an unlawful inducement and in breach of s145B TULRCA, because Kostal had made a direct offer to its workers, including union members, during the collective bargaining process and before it had been exhausted.

Importantly, the Supreme Court held that the focus should not be on the content of the employer’s offer but on the result.  Section 145B TULRCA will only apply where there is a real possibility that, had the offer not been made and accepted, the workers’ relevant terms of employment for the period would have been determined by a new collective agreement. It this case, given that Kostal and Unite did eventually reach a collective agreement for 2015, there was a breach.

However, the Court said that if an employer genuinely believes that the collective bargaining procedure has been exhausted, then it cannot be said that the purpose of making direct offers was to bypass collective bargaining.  In this case, if Kostal had made the direct offers at a later stage, when it could argue that the collective bargaining procedure had already been exhausted, the outcome would likely have been different.

Implications:  Employers will be acting unlawfully if they make a direct offer to employees before the agreed collective bargaining procedure has been exhausted.

On the other hand, where an employer has first followed and exhausted its agreed collective bargaining procedure, it can make a direct offer to workers in respect of something which falls within the scope of a collective bargaining agreement, and deal with them direct.

Going forwards, employers should revisit their collective agreements and ensure that there is a set procedure within any collective bargaining agreement which sets out how the employer will negotiate or consult with the union, the stages and escalations and what is considered to be the end of the collective bargaining process. This will assist employers in being able to show that they have followed the process and that, when appropriate, such a process has been exhausted.

It would also be a good idea to provide or refresh training for managers who are responsible for collective bargaining negotiations in light of this judgment.

Given the complexity of this area of law, if you have concerns about collective bargaining or any other trade union issues, or otherwise, please do contact Luke Menzies or any member of the team on 0117 325 0526 for further advice.