Last week the Supreme Court handed down its decision in Kostal UK Limited v Dunkley & Others. This is a case we previously covered at our Annual Review of Employment law when the matter was considered by the Court of Appeal.

Any employer who recognises a Trade Union for collective bargaining purposes needs to be aware of this important decision.

Please note this decision and the advice below is in respect of making offers to the workforce (e.g. in respect of pay) and is not in relation to the process of enforcing changes to terms and conditions of employment.

The Facts

The employees were all members of Unite the Union working for Kostal UK Ltd. Kostal and Unite signed a (non-legally binding) Recognition and Procedural Agreement in February 2015. In October 2015, they began formal annual pay negotiations.

In November 2015, following two meetings with Unite representatives, the Company put a pay offer of 2% plus a £270 Christmas bonus to Union members. Unite balloted and rejected the offer. The Company did not continue negotiations with Unite. On 10 December 2015 the Company made the same offer to its employees directly, bypassing Unite and stating if employees did not accept it by 18 December 2015 they would not receive the Christmas bonus.

On 29 January 2016, the Company made another similar offer to those employees who had not yet accepted the first offer. The Company stated that if no agreement was reached, “this may lead to the company serving notice on your contract of employment“.

Almost a year later in November 2016, when over 97% of employees had accepted one or other of the direct offers, the Company and Unite reached a collective agreement for 2015 on similar terms to the direct offers.

The Claim

57 employees brought Employment Tribunal claims against the Company. The claims alleged each letter constituted an “unlawful inducement” contrary to Section145B of the Trade Union and Labour Relations (Consolidation) Act 1992.

Equivalent legislation exists in Northern Ireland under Article 77B of the Employment Rights (Northern Ireland) Order 1996.

The Law

Section 145B sets out that a direct offer to employees that bypasses collective bargaining arrangements will be an unlawful inducement if it produces the “prohibited result.” The “prohibited result” is that some or all of the workers’ terms of employment will not be determined by the collective agreement negotiated by the Union and the employer’s sole or main purpose in making the offers is to achieve that result.

The penalty for taking this step in GB is currently £4,341 per person; in Northern Ireland the penalty is higher at £4,552 per person.

The purpose of the legislation is to ensure employers adhere to collective bargaining agreements by limiting the employer’s ability to bypass a recognised Trade Union and make offers directly to its workforce.

The Supreme Court’s Decision 

The Supreme Court found the Company had breached s.145B and each Claimant was awarded £3,830 (the statutory limit at the time) in respect of each unlawful inducement. The Supreme Court found that each letter amounted to a separate offer and thereby awarded £7,660 per Claimant (over £436,000 in total.)

In finding against the Company, the Supreme Court noted the recognition agreement specified when the collective bargaining process would be exhausted. However, the Company sent the letters to the employees before that process had been exhausted. Specifically, a 4-stage procedure was contained in an Appendix to the Recognition Agreement, with stage 4 being a referral to ACAS conciliation. The dispute was not referred to ACAS until after the Company had issued the letters to the workforce.

Therefore the collective bargaining process was ongoing at the time the offer was made and the Company’s offer had the prohibited result that employment terms were determined outside collective bargaining.

What are the important take-aways from this case?

1. An employer can make direct offers to workers, but only after the collective bargaining process agreed with the recognised Trade Union has been followed and exhausted. In this case it appears the process had, at best, stalled;
2. Where a Trade Union is not yet recognised, an employer is free to make direct offers to workers without fear of contravening this law;
3. One of the key questions will be when is the collective bargaining process exhausted? This will undoubtedly be open to debate. If the relevant recognition agreement specifies when the process has been exhausted, this must be adhered to.  If the recognition agreement does not specifically address this then you should ensure you follow every step in the collective bargaining process, including any dispute resolution terms, before going directly to your workforce. We can also foresee arguments possibly being made by Trade Unions that the Company failed to engage in the negotiation process in good faith;
4. The decision does not mean Unions have a veto, but bypassing the Union will only be possible where the employer can demonstrate a genuine belief that collective bargaining has been exhausted.
5. Members should review their collective agreements to ascertain if they clearly define the process to be followed and state the point at which the process will be exhausted.

 

Aside from this case there has been very little litigation regarding this aspect of industrial relations law. This may now change.

The Supreme Court Judgment can be accessed HERE