The Supreme Court has ruled that a unionised employer’s direct offer of new terms to workers will not be an unlawful inducement to opt out of collective bargaining, provided the collective bargaining process has been exhausted.

In Kostal UK Ltd v Dunkley the employer made two separate offers directly to workers after its offer had been rejected in a union ballot, one making a Christmas bonus conditional on signing up to the new terms and the subsequent offer threatening dismissal if not accepted. At the time of the offers the last stage of the collective bargaining process, providing for referral to Acas if both union and employer agreed (which they had), had not been completed. The workers claimed that each offer was an unlawful inducement to bypass collective bargaining under section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992, for which the fine for each inducement was £3,800 per employee (now £4,341).

Section 145B prohibits direct offers where the acceptance of all the offers made to workers would give rise to the “prohibited result”, namely that all or any of the terms of employment will not or will no longer be determined by collective agreement, and the employer’s sole or main purpose in making the offer was to achieve this result.

The Supreme Court considered that the proper focus was not the content of the offer nor whether a term of employment was temporarily or permanently agreed other than by collective bargaining (the issues focussed on by the lower courts). Rather, the key question was whether the offer was the cause of the term not being collectively agreed. If there was a real possibility that, had the offer not been made and accepted, the term would have been collectively agreed, then there was an unlawful inducement – and this would be the case where the collective bargaining process had not been exhausted. In contrast, if the collective bargaining process has been exhausted, the offer would not be the cause of the term not being collectively determined.

Where an employer genuinely but mistakenly believes that the process has been exhausted, there will be no breach of s145B, as the employer’s sole or main purpose in making the offers will not have been to achieve the prohibited result. One area of uncertainty that remains is whether an employer who only goes through the motions of the collective bargaining process, rather than negotiating in good faith, can nevertheless claim that it has been exhausted such that direct offers can be made.

The decision also makes clear that, where a union is not yet recognised but is seeking recognition, an employer is free to make direct offers to workers without risk of breaching s 145B (because there is no possibility of agreeing terms through collective bargaining at the time the offers are made).

On the facts, there had been unlawful inducement in breach of s145B, as Kostal’s offers had been made before the dispute was referred to Acas for conciliation in accordance with the collective bargaining procedure.

The decision highlights the importance of collective bargaining agreements making crystal clear when the collective bargaining process will be treated as exhausted. Where this is not the case, employers would be well advised to seek to negotiate inclusion of such provisions at the earliest opportunity. It will also be prudent to keep a record evidencing the procedural steps completed and of the reasoning behind a conclusion that the process has been exhausted.