In our Be Aware blog post of 28 February 2017 we reported on the employment tribunal decision in Dunkley v Kostal UK Limited, a case on s.145B of the Trade Union and Labour Relations (Consolidation) Act 1992. Section 145B is complex but essentially prohibits employers from making offers directly to union members to change their terms and conditions in order to avoid collective bargaining (ie if the employer’s “sole or main purpose” in making the offer is to achieve a “prohibited result”). The Employment Appeal Tribunal (EAT) has now handed down its judgment in the appeal in Kostal and it is not good news for employers who recognize a trade union as the EAT upheld the decision of the tribunal. This is the first appellate level decision on the meaning of the ‘prohibited result’ under s.145B and it is likely that there will be a further appeal.
The facts in Kostal demonstrate a fairly common scenario in collective bargaining. The employer had a recognition agreement with Unite. In pay negotiations in November 2015 the company made a pay offer of a 2% increase in basic pay plus a 2% Christmas bonus, in return for changes to terms relating to sick pay for new starters, reduction in overtime rates and consolidation of breaks.
The union balloted members on the offer, which was rejected. The employer then sent a notice to all employees summarising the deal and giving until 18 December to accept. The notice stated that failure to sign and return would result in the Christmas bonus not being paid. In January the employer sent a further letter to employees who had not accepted the offer stating that if no agreement could be reached this may lead to notice being given to terminate employment. In the meantime the dispute between the company and the union was referred to ACAS but a collective agreement in respect of pay for 2015 was not in fact concluded until November 2016.
The claimants – all members of Unite – brought claims under s.145B.
Previous employment tribunal judgments had gone both ways on the fundamental issue of whether s.145B merely makes it unlawful to make an offer to employees which would bring an end to collective bargaining, or whether, as a number of trade unions have argued, s.145B stops any direct offer to employees outside of collective bargaining. In Kostal the tribunal effectively agreed with the trade unions, holding that if there is a recognition agreement which includes collective bargaining the employer cannot drop in and out of the collective process as and when that suits its purpose. Kostal argued that collective bargaining of pay would continue the following year, but that year’s pay offer had to be made directly to ensure that the workforce did not miss out on their Christmas bonus, but the tribunal discounted the fact that the employer intended to determine terms and conditions collectively in the future.
The EAT was split in its decision, but the majority rejected the argument that s.145B’s prohibition against inducements relating to collective bargaining is aimed only at inducements to end or prevent collective bargaining of terms, and is not intended to catch all offers outside of collective bargaining. The prohibited result occurs where offers, if accepted, result in new terms agreed directly and not through collective negotiations, whatever else is agreed through collective bargaining. There is no warrant for reading in a requirement that the terms will not in the future or will no longer in the future be determined collectively.
Kostal’s argument that this interpretation would give unions an opportunity to hold employers to ransom by refusing to agree that a round of collective bargaining is complete until their demands are met was also rejected by the EAT. The EAT considered that, in the case of employers who have engaged in lengthy and meaningful collective consultation and reached an impasse before considering making direct offers; or who can demonstrate a strong history of operating collective bargaining arrangements with the union and/or have no wish to avoid entering into such arrangements when the offers are made, tribunals will be slow to find that the employer’s purpose in making a direct offer was to achieve the prohibited result. However, in this case Kostal had not established an alternative purpose.
As the EAT construed ‘will not or will no longer’ as looking at the immediate purpose of the employer rather than the future purpose, employers will face considerable problems in all cases where collective bargaining fails to reach an agreement. It may be very difficult to show that the purpose was not that the offer would “if accepted, result in new terms agreed directly and not through collective negotiations” as that will be the natural consequence of any direct offer to the employees.
Employers risk being subjected to substantial fines (£3,830 per employee) for an offer made to workers within a bargaining unit if they make an offer on any term which is the subject of collective bargaining before the collective bargaining process is finally exhausted. The Kostal case is a clear demonstration of the problem which employers face. Kostal understandably did not wish to stir up unrest by failing to pay the Christmas bonus, but negotiations with the union had reached stalemate. Kostal therefore made individual offers including the Christmas bonus, but stated and intended that it would continue to collectively bargain all terms.
What should employers now do?
What can employers do to mitigate the potential for a breach of s.145B?
- Be clear in communications with the union and the employees what the business reason or need is for any proposed change to terms and conditions and the reason for any urgency. Employers must prove their purpose is lawful. The stronger the business need the more likely a tribunal is to accept the business reason for the new terms is the main purpose;
- Ensure if offers are made to employees the terms are the same as those offered via the trade union and, in most cases, that the scope of collective bargaining going forward remains unchanged;
- Exhaust collective bargaining procedures first. Avoid expressing hostility towards collective bargaining arrangements. In determining the employer’s purpose, the employment tribunal must take into account any evidence that the employer had recently changed or sought to change, or did not wish to use, collective bargaining;
- Avoid any threat of de-recognition as a tactic in negotiations as this would be particularly high risk; and
- Review collective bargaining agreements to provide for robust dispute resolution.