The Employment Tribunal and the Employment Appeal Tribunal have both confirmed that attempting to negotiate directly with employees during pay negotiations with a recognised trade union amounts to an unlawful inducement under section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

In 2015, Kostal UK Limited entered into a recognition agreement where it agreed that formal annual pay negotiations would take place with Unite and that it would negotiate with Unite regarding any proposed changes to terms and conditions. In 2016, Kostal's pay deal and proposed changes to terms and conditions were rejected both by Unite and the employees following a ballot. In an effort to resolve matters, Kostal wrote to all employees directly on two separate occasions. In the first letter (immediately after the unsuccessful ballot) they urged employees to agree to the changes or forfeit their Christmas bonus and in the second letter they told employees that, if they did not reach agreement, the company may serve them with notice under their contract of employment. A subsequent deal was reached between Unite and Kostal in relation to the pay and contract changes. However, claims were brought in the Employment Tribunal by a large group of employees alleging that their rights under section 145B of TULRA had been infringed because Kostal had tried to circumvent Unite in its negotiations.

The Employment Appeal Tribunal agreed with the earlier decision of the Employment Tribunal that each of the letters sent by Kostal to employees amounted to a prohibited inducement under section 145B. The letters were sent with the intention of circumventing collective negotiations with Unite. Each employee was awarded the mandatory award (£3,800 at the time) for each letter they had been sent. Kostal unsuccessfully argued that it would only be a prohibited inducement if the direct offer was intended to bring collective bargaining to an end completely. That argument was rejected by both the Tribunal and on appeal. If direct offers are made to employees during the course of collective bargaining, this may result in one or more terms of employment being agreed directly and not through the collective bargaining arrangements with the recognised union. This is sufficient to amount to a prohibited result under section 145B.

This leaves the very tricky question of what can an employer do if negotiations with a recognised trade union reach stalemate and there remains a need to introduce contractual changes? There is little guidance either in the legislation or in case law as to what an employer might safely do. On the basis of the Kostal decision, it looks like negotiations will need to have reached an absolute impasse before an employer may consider a direct approach. An employer who acts too hastily in abandoning the collective process (or by dropping in and out to suit its purposes) and engaging with employees directly without being able to demonstrate a pressing business aim, is likely to be much more vulnerable to challenge under section 145B. According to the EAT, an employer who has (a) engaged in lengthy and meaningful consultation with a recognised union and reached an impasse, (b) demonstrated a strong history of operating collective bargaining arrangements, and (c) shown genuine business reasons (unconnected with collective bargaining) for approaching workers directly outside the collective arrangements, will be in a much stronger position to defend a claim under section 145B. Kostal were perhaps a little hasty in their attempts to negotiate directly with the employees as an immediate reaction to the 'no' vote in the ballot. Their reasons for doing so (relating to the Christmas bonus) were found not to be a pressing business reason. They were also still at stage 4 of the dispute resolution procedure (referral to ACAS) when the letters were sent to employees directly.

This is the first appellate authority on this statutory provision and is a timely reminder of the sanctions for circumventing collective bargaining – a costly mistake.