The Court of Appeal has ruled on whether a direct pay offer made to employees amounted to an ‘unlawful inducement’ to avoid collective bargaining.
Kostal UK Ltd v Dunkley  EWCA Civ 1009
Kostal recognised the Unite union for the purposes of collective bargaining. The recognition agreement covered annual pay negotiations and changes to terms and conditions. In 2015, Kostal offered pay increases and a Christmas bonus in return for various changes to contractual terms relating to sick pay, overtime and rest breaks. Following a ballot, these proposals were rejected by Unite members. Kostal wrote directly to all employees offering the same package and warning that if the new terms were not agreed by 18 December they would not receive the Christmas bonus. In January 2016, Kostal wrote again to all employees who had not accepted the pay proposal, stating that their contracts may be terminated if agreement could not be reached.
A group of employees brought claims in the employment tribunal, alleging that the letters sent by Kostal constituted an unlawful inducement under the provisions of section 145B Trade Union and Labour Relations (Consolidation) Act 1992. This prohibits an employer from making offers to members of a recognised trade union if the purpose is to circumvent collective bargaining arrangements. The claims were upheld by the employment tribunal, and Kostal’s appeal was dismissed by the Employment Appeal Tribunal (see our previous bulletin). The EAT found that if acceptance of the direct offers by employees meant that at least one term of employment would be determined by direct agreement, and not through collective bargaining, that was sufficient to amount to a breach of section 145B. Kostal appealed to the Court of Appeal.
Court of Appeal decision
The Court has upheld Kostal’s appeal. It found that the EAT’s interpretation of section 145B could not have been the interpretation intended by Parliament, as it would give a recognised trade union a veto over the most minor changes to terms and conditions of employment. Where terms of employment are determined by collective agreement, section 145B will only apply if the employer’s sole or main purpose is that one or more of the workers’ terms of employment will no longer be determined by collective agreement (on a permanent basis). The provision will not apply if the employer’s purpose is only to ensure that the term (or terms) will not be determined collectively on that one occasion. Employees are not being asked to relinquish their right to be represented by the union in collective bargaining.
This is a very helpful decision for employers who recognise a trade union for collective bargaining purposes, particularly when negotiations over pay increases and changes to terms and conditions reach an impasse. The Court expressly found in this case that the company was not motivated by hostility to trade unions. It means that employers who have exhausted the collective bargaining process can seek to make offers directly to employees, provided that by doing so they are not intending to bring the collective agreement to an end.
It is likely, however, that we will see this case appealed to the Supreme Court.
This article is from the July 2019 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals.