Court of Appeal rules on lawfulness of offers designed to bypass collective bargaining
The Court of Appeal has ruled on the meaning of the "prohibited result" for the purposes of section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992. A direct offer made by an employer in connection with pay and changes to terms of employment was not unlawful because it was intended to bypass collective bargaining on a temporary basis only. An unlawful "prohibited result" would only occur where the purpose of the offer was to permanently stop collective bargaining in relation to those terms (Kostal UK Ltd v Dunkley and ors).
It is unlawful for an employer to make an offer to members of a recognised trade union (or one which is seeking recognition) where the sole or main purpose of that offer is to avoid the workers' terms of employment from being determined by collective agreement. This is known as the “prohibited result” (section 145B, Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA)). The intention of the legislation is to prevent employers from undermining collective bargaining arrangements.
Where the employer is found to have made an unlawful offer, each affected worker may claim a mandatory award from the Employment Tribunal, currently set at £4,193.
The claimant workers were members of the trade union, Unite. Unite and Kostal had entered into a Recognition Agreement, which gave Unite sole recognition and bargaining rights. The Recognition Agreement provided that formal pay negotiations would take place each year and any proposed changes to terms and conditions would be negotiated with Unite.
Towards the end of 2015 Kostal entered into negotiations with Unite over: (i) pay awards for 2016; and (ii) a number of proposed changes to terms and conditions. Unite considered the proposed changes to terms and conditions to be unfavourable to the workforce and the negotiations broke down. The pay award and proposed changes to terms and conditions were then rejected by the workforce in a consultative ballot.
In December 2015, Kostal wrote directly to its workers offering them a Christmas bonus provided that they accepted the pay award and the revised terms and conditions (the First Offer). In January 2016, Kostal wrote again to the workers, inviting them to accept the pay award and revised terms and conditions (the Second Offer). The Second Offer differed from the First Offer in that it did not mention the Christmas bonus and it indicated that the workers' employment may be terminated if agreement could not be reached. After industrial action, collective bargaining resumed and an agreement was finally reached in November 2016.
Decisions of the Employment Tribunal and EAT
A group of 55 claimant workers brought claims arguing that the First and Second Offers were designed to achieve the prohibited result and were, therefore, unlawful. The Employment Tribunal upheld the claims and made awards of £3,800 (the mandatory award in place at the relevant time) in respect of both offers to each of the claimants, resulting in an overall award of £418,000.
By a majority, the EAT dismissed Kostal's appeal, taking a wide interpretation of the meaning of the "prohibited result". They held that any direct offer to workers outside of a collective bargaining process was prohibited if the sole or main purpose of the offer was that one or more terms would be determined by direct agreement rather than collectively agreed. This could be the case even where collective bargaining had been attempted and failed (as in this case) and even where the bypassing of collective bargaining was temporary (as in this case). In other words, it did not matter that Kostal intended to resume collective bargaining in the future in accordance with the Recognition Agreement.
Kostal appealed again to the Court of Appeal, arguing that that the Employment Tribunal and EAT had incorrectly construed the "prohibited result".
Decision of the Court of Appeal
The Court of Appeal allowed Kostal's appeal, overturning the decisions of the Tribunal and EAT. In the Court's view, it was extremely unlikely that Parliament had intended the legislation to prohibit any direct offers to employees outside of a collective bargaining process. If this wide interpretation was taken it would: "…amount to giving a recognised trade union…a veto over even the most minor changes in terms and conditions of employment, with the employers incurring a severe penalty for overriding the veto".
Instead, the Court favoured a narrower interpretation, holding that the legislation was designed to prohibit direct offers aimed at permanently bypassing collective bargaining on one or more of the terms of employment. A direct offer designed to bypass collective bargaining on a one-off basis only was outside the scope of the "prohibited result". The Court rejected the notion that this interpretation rendered a trade union powerless - it remained open to them to take industrial action (as, indeed, Unite did in this case).
The Court also rejected the argument that Article 11 of the European Convention of Human Rights (the right to freedom of peaceful assembly and association, including the right to form and join trade unions) would be infringed if the employer was permitted to make direct offers to the workforce outside of a collective bargaining arrangement. The Court said that Article 11 provided workers with a right to have their voice heard in negotiations via their trade union, but it did not extend to allowing the trade union to simply impose the workers' will upon the employer.
This decision will be welcomed by employers who have collective bargaining arrangements with trade unions. It confirms that where collective bargaining breaks down, the employer is able to make direct offers to employees to resolve matters provided that the intention is not that collective bargaining is permanently surrendered.
However, employers should note that this may not be the last word on the matter as Unite has applied for permission to appeal to the Supreme Court.