The EAT has upheld an employment tribunal’s decision that an employer offered employees unlawful inducements to cease collective bargaining when it directly offered them a package of terms and conditions, going over the head of the recognised trade union.

In this case, for the first time, the EAT considered s145B of the Trade Union Labour Relations (Consolidation) Act 1992 (TULR(C)A). This section prohibits employers making offers to workers who are members of a recognised trade union, if acceptance of the offer would have “the prohibited result” and the employer’s sole or main purpose in making the offers is to achieve that result. “The prohibited result” is that the workers’ terms of employment, or any of those terms, “will not (or will no longer) be determined by collective agreement negotiated by or on behalf of the union”. The aim of the legislation is to prevent employers going over the head of the union with direct offers to workers in order to achieve the result that one or more terms will not be determined by collective agreement.

The trade union Unite gained recognition from Kostal UK Ltd for collective bargaining purposes and the first set of pay negotiations took place towards the end of 2015. The company offered a 2% increase in basic pay and a lump sum Christmas bonus, in return for a reduction in sick pay for new joiners and a reduction in Sunday overtime (among other things). Unite felt that it could not recommend the offer, and gave its members a “free vote” in a subsequent ballot. Only 20% of those who turned out voted to accept the proposal. Kostal was disappointed in this result, and it wrote to Unite, informing it that Kostal was going to write to every individual employee to offer the pay increase and changes to terms and conditions. Kostal put up posters in the workplace, explaining this and then wrote to every employee, setting out the pay offer and explaining in that letter that if the offer was not accepted by 18 December, employees would not receive a Christmas bonus.

In January, Kostal wrote again to employees who had not accepted, this time offering a 4% increase in basic pay if they agreed to the proposed changes in terms and conditions, and threatening dismissal if they did not do so.

In response to this, 57 employees who were members of Unite brought employment tribunal claims against Kostal, alleging that the December letter and the January letter each constituted an unlawful inducement and therefore a breach of s145B of TULR(C)A. The tribunal upheld these claims, and awarded compensation of £3,830 per employee in respect of each of the letters.

Kostal appealed to the EAT. It argued that it had never intended to cease collective bargaining – indeed, a collective agreement was ultimately reached on pay and terms and conditions. The EAT was not able to reach a unanimous decision on this. However, by a majority, it rejected this argument. If acceptance of direct offers to workers means that at least one term of employment will, as a result, be determined by direct agreement (whenever that occurs), and not collectively (even if other terms continue to be determined collectively) that is sufficient. The fact that the result is temporary (in the sense of being a one-off direct agreement following acceptance of the offers) rather than permanent does not affect this question. There is nothing in s.145B that deals with the duration of the effect, or requires a permanent surrender of collective bargaining for the future.

The EAT also held, unanimously, that the tribunal had not erred in making two financial awards to each claimant - an award in respect of the two unlawful offers made in the December and January letters respectively. If an identical offer is repeated on several occasions, that might be viewed as a single offer, and therefore attract a single award. However, in this case, two different offers were made: the first made provision for a payment of a Christmas bonus, whereas the second did not; the second offer also included a threat of dismissal, which the first offer did not. The EAT disagreed that liability to pay an award is limited to a single award in respect of a single set of proceedings. If two distinct offers are made that are separate and different, there is nothing to prevent a tribunal from making two awards.

What does this mean for employers?

This is a reminder to employers of unionised workforces that they must take great care in making direct offers to employees on terms being determined by collective bargaining. This is the case even if the employer fully intends to engage in collective bargaining in the future. However, the EAT says this does not give trade unions a veto over changes to terms and conditions that an employer seeks to make with employees or allow trade unions to block changes simply by failing to agree. 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. So, if an employer has exhausted collective bargaining processes and has a clear and proper purpose in making direct offers (such as to move away from a pay system which is not equal pay proof) we still think it can do so. We have been advising clients on where we think the right side of this line is. We think it highly unlikely that this decision will be the last word on this topic. Indeed, Kostal is seeking permission to appeal to the Court of Appeal.

Kostal v Dunkley and ors