The UK Court of Appeal (the CoA) issued its judgment on 13 June in the case of Kostal UK Ltd v Dale Dunkley and Others, which called into question the scope of S.145B of the Trade Union and Labour Relations Consolidation Act 1992 (the Act). The decision provides clarity on the scope of a prohibited result and unlawful inducement within the meaning of S.145B. More importantly, the decision highlights an avenue for employers to engage with employees without a trade union exercising a veto right over any proposed changes to terms and conditions.

The Facts

Trade union Unite, a union recognised by the employer for the purposes of collective bargaining, entered into negotiations with Kostal UK Ltd (Kostal), pursuant to a collective bargaining agreement between the two parties in relation to pay. On 10 December 2015, following the collapse of pay negotiations between Unite and Kostal, the latter indicated its intention to propose a package offering all employees a pay rise (ranging from 2% to 4%) and a Christmas bonus, alongside some detrimental changes to certain terms and conditions of employment. Subsequently, following an outright rejection of the proposed package by Unite members, Kostal issued a further general notice requesting that employees agree to the proposed changes. The employer also reiterated its intention not to pay Christmas bonuses and noted the possibility of terminating employment contracts if agreement could not be reached.

The 55 claimants brought concurrent claims against Kostal, alleging that the letters sent to employees constituted unlawful inducements contrary to S.145B of the Act, as Kostal had disregarded the collective bargaining process by approaching employees directly.

Pursuant to S.145B of the Act, an employer is prohibited from making direct offers to members of a trade union in seeking to alter their terms and conditions if the sole or main purpose of making such an approach is to achieve a prohibited result. S.145B(2) clarifies this as meaning an outcome in which an employee’s terms of employment would no longer be negotiated on behalf of the respective trade union (i.e., the employer has approached the employee directly to alter any terms and conditions, which otherwise would have been negotiated by collective agreement by the recognised trade union).

The claimants’ arguments were successful and upheld by both the Employment Tribunal (the ET) and the Employment Appeal Tribunal (EAT), the former awarding compensation totalling £7,600 per claimant – comprising £3,800 for each unlawful inducement. The EAT held that Kostal was in breach of S.145B as a direct approach to alter at least one term of employment, which if subsequently accepted, would have resulted in the change being accepted through direct agreement, rather than being determined collectively by virtue of the collective bargaining process. The EAT considered that S.145B had a wide effect and prevented any direct offer to employees outside of collective bargaining. The EAT took the view that the fact that the result was temporary (in the sense of being a one-off direct agreement) was not relevant to the question as to whether there had been a breach of S.145B. Likewise, Kostal’s argument that it never intended to cease abiding by the collective bargaining process altogether was rejected by the EAT.

However, the EAT’s decision did offer some hope for employers whose negotiations with their union have broken down. The EAT stated:

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”.

Kostal appealed to the CoA.

The Judgment

In its judgment, the CoA overturned the decision of the ET and EAT, adopting a stricter and narrower interpretation of S.145B. It noted that the EAT’s interpretation of S.145B amounted to a literal reading, which it believed was not aligned with the intention of Parliament. The construction of S.145B, if read with a literal lens, would amount to giving a recognised trade union veto rights over almost any proposed changes to terms and conditions, even extending to the most minor of changes (with severe financial penalties for an employer who overrides the veto). The CoA noted that this interpretation would go beyond the “mischief” and the scenarios that S.145B was designed to protect against, as had been cited in Wilson v United Kingdom by the European Court of Human Rights.

In reaching its judgment, the CoA clarified the two scenarios which would fall within the scope of S.145B:

  1. “where an independent trade union is seeking to be recognised and the employer makes an offer whose sole or main purpose is to achieve the result that the worker’s terms of employment will not be determined by a collective agreement”; and
  2. “where an independent trade union is already recognised, the workers’ terms of employment are determined by collective agreement negotiated by or on behalf of the union, and the employer makes an offer whose sole or main purpose is to achieve the result that the workers’ terms of employment (as a whole), or one or more of those terms, will no longer be determined by collective agreement”.

The CoA noted that “no longer” indicates a requirement of taking the terms outside of the scope of collective bargaining on a permanent basis.

In addition, the CoA proposed a third scenario which would not fall within the scope of S.145B, on which basis it ruled in favour of Kostal:

  1. “where an independent trade union is recognised, the workers’ terms of employment are determined by a collective agreement negotiated by or on behalf of the union, and the employer makes an offer whose sole or main purpose is to achieve the result that one or more of the workers’ terms of employment will not, on this one occasion, be determined by collective agreement”.

The CoA held that Kostal had not intended for changes to terms and conditions to no longer be determined by collective agreement on a permanent basis; rather it had intended for the direct approach to employees to be temporary, i.e., a “one-off”. Importantly, the CoA held that at no point were Unite members being asked to relinquish their rights, even temporarily, to be represented by their trade union in the collective bargaining process. Unite retained their right to ballot their members for industrial action.

What Does This Mean for Employers Post-Kostal?

Employers in the United Kingdom should take note of the CoA’s decision. It is prudent in the first instance for employers with unionised workforces to liaise and seek agreement with the relevant union as outlined in their respective collective bargaining agreements. Employers should always seek to exhaust dispute resolution procedures with the relevant union first. Commercially, adopting this approach would promote positive industrial relations and harmonise the employer, employee, and union relationship.

Notwithstanding the benefits of adhering to a collective bargaining process, the judgment provides positive news for employers who have attempted but failed to reach agreement on proposed changes to employees’ terms and conditions via collective bargaining. The CoA has confirmed a mechanism which allows employers to approach employees directly with individual offers, without risking potential claims of unlawful inducement under S.145B in the event of temporary and genuine impasse in negotiations with the union.

Unite has confirmed its intention to appeal to the UK Supreme Court. We will continue to provide updates on any developments in due course.