Kostal UK Ltd v Dunkley and others UKEAT/0108/17 and UKEAT/0109/17

Why care

This is the first case in which the EAT has considered an employer’s attempt to negotiate directly with individual employees (bypassing the recognised trade union) in order to offer workers terms of employment which will then not be determined by collective agreement. Such action amounts to unlawful inducement and is a ‘prohibited result’ contrary to s145B Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

Employees can make claims in the employment tribunal in the event of a breach. If successful, each affected employee can claim a mandatory award of £3,830 from the employment tribunal.

The case

Following a ballot in favour of union recognition at Kostal UK Ltd (Kostal), in October 2015 Unite initiated formal pay negotiations for 2016. Following various meetings between Kostal and Unite, the company proposed various pay rises for staff and 2% of basic pay to be paid in a lump sum in December’s pay as a bonus. It also proposed a number of changes to terms and conditions to sick pay, overtime and rest breaks by way of an ‘exchange’. The pay deal and related changes to terms and conditions were resoundingly rejected in a ballot on 3 December 2015, with only 20.8% voting in favour (with an 80% turnout).

Kostal sent a letter to all employees individually on 10 December 2015 to offer the same package and that failure to agree to the new terms and conditions would “lead to no Christmas Bonus and no pay increase this year”. The dispute was referred to Acas and Kostal defended its position of writing to employees directly, stating that it simply wanted its employees to have the opportunity to receive the Christmas bonus not to induce staff to opt out of collective bargaining.

Kostal wrote a further letter on 29 January 2016 to those employees who had not accepted the pay proposal stating that in the event that no agreement can be reached they may be dismissed, and offering a further, backdated, pay rise. Although the parties reached a collective agreement as to pay and the amended terms and conditions in November 2016 employees brought claims in the employment tribunal, alleging that their rights under s145B TULRCA had been infringed by their employer’s letters of 10 December 2015 and 29 January 2016.

The employment tribunal held that Kostal’s actions amounted to a ‘prohibited result’ as it believed the company had intended to circumvent the collective bargaining process when it made the offers. The tribunal considered that the letters sent on 10 December and 29 January 2016 amounted to two distinct offers so awarded the claimants the mandatory award in respect of each of two unlawful inducements.

Kostal appealed to the EAT in relation to both liability and remedy. The EAT dismissed the appeal. It noted that if an employer has a proper purpose for making offers directly to workers, there is nothing to prevent such offers being made, but this would be for, if example, collective bargaining breaks down. However an employer would have to demonstrate that their primary purpose in making individual offers is a genuine business purpose and does not infringe s145. In this case the majority of the EAT agreed that the sole or main purpose of the company making the offers was designed to undermine the union’s collective bargaining process with it.

The EAT upheld the employment tribunal’s decision that the two different letters to staff constituted two different complaints and that there was nothing to prevent it from making an award in respect of each. The total amount awarded to the claimant group in this case was around £425,000.

What to take away

Employers should be very clear if they are negotiating terms and conditions of employment with members of a recognised trade union that they are not bypassing the union by making direct offers to workers with the result that if accepted, then such terms would not be determined by collective agreement with the union.