In this important case, the Employment Appeal Tribunal (EAT) has considered whether an employer’s attempt to negotiate directly with individual employees, rather than with the recognised trade union, amounted to ‘unlawful inducement.’
Kostal UK Ltd v Dinkley and others, EAT
Kostal entered into a recognition agreement with Unite to establish a framework for collective bargaining. The agreement covered annual pay negotiations and any proposed changes to terms and conditions.
The company proposed a 2016 pay increase, plus a lump sum to be paid as a Christmas bonus, in return for a number of changes to terms and conditions regarding sick pay, overtime and rest breaks. The pay deal was rejected overwhelmingly following a ballot of the workforce.
Kostal subsequently wrote to all employees on 10 December 2015, warning that a failure to agree the new terms and conditions would result in no Christmas bonus and no pay rise. It also issued a notice urging employees to agree to the changes by 18 December to ensure they received the Christmas bonus. The company claimed that it was not seeking to induce staff to opt out of collective bargaining, but it wanted to make sure staff received the Christmas bonus.
On 29 January 2016, Kostal wrote to those employees who had not accepted the pay proposal, reiterating the pay offer and informing them that in the event an agreement could not be reached, the company may serve notice to terminate the contract of employment.
A pay deal and changes to terms and conditions were eventually agreed with the union in November 2016. A large group of employees subsequently brought claims for unlawful inducement under section 145B Trade Union and Labour Relations (Consolidation) Act 1992. The claims were upheld by the employment tribunal, awarding each claimant the mandatory award of £3,800 in respect of each of the two unlawful inducements (the letters sent in December 2015 and January 2016). The total award amounted to around £425,000.
Kostal appealed the decision. In contacting employees individually, Kostal claimed it had never intended to cease collective bargaining (and in fact, a collective agreement was eventually reached). It also argued that the tribunal was wrong to make two separate awards to each claimant, rather than one.
The EAT has dismissed the employer’s appeal. In the EAT’s opinion, it is sufficient if just one term is determined (or would be, if agreed) by direct agreement with the employee, for a claim of unlawful inducement to be established. The permanent surrender of collective bargaining is not required. The question of whether the prohibited result (the unlawful inducement) is made out has to be judged at the date when the relevant offers are made, irrespective of any subsequent agreement with the union.
The EAT was satisfied that the company’s purpose in making the offers was to bypass further negotiations with the union in favour of a direct and conditional offer to individual employees. It found it “exceptionally improbable” that there was any other intention behind making the offers, and rejected the company’s claim that it had made the first offer because it did not want employees to lose out on their Christmas bonus.
The EAT also rejected the company’s argument that the two offers made to the claimants were essentially the same, and, therefore, only one award should be made to each claimant. It agreed with the tribunal’s conclusion that two separate offers had been made.
There have been very few previous claims of unlawful inducement and this is the first case to be considered by the EAT.
The case illustrates the risks for an employer that elects to bypass the collective bargaining process in favour of a direct approach to employees. The penalty awarded by the tribunal is a statutory amount that cannot be reduced, potentially resulting in a substantial figure if a large group of employees is involved.
The EAT confirmed that employers retain the ability to make direct offers to employees for “genuine business purposes” under the relevant statutory provisions, even when a union is recognised for collective bargaining purposes. However, it will be difficult to predict with any certainty when such “genuine business purposes” have been established, particularly given the dearth of case law in this area.