Direct pay offer from employer to employees held to be an unlawful inducement to bypass collective bargaining
Kostal UK Ltd v Dunkley and others
The Employment Appeal Tribunal (EAT) has considered whether an employer’s attempt to negotiate directly with individual employees could amount to an unlawful inducement in breach of s. 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (the Act).
Employers are prohibited from making offers directly to workers who are union members where their ‘sole or main purpose’ in making the offer is to achieve ‘the prohibited result’ if the offer is accepted. The ‘prohibited result’ is that the workers’ employment terms (any or all) ‘will not (or will no longer) be determined by collective agreement negotiated by or on behalf of the union’.
If s. 145B is breached, each affected employee can claim a mandatory award (currently £3,907) in respect of each unlawful inducement.
Kostal UK Ltd (K), a manufacturer of automotive electromechanical components, had a recognition agreement with Unite. In negotiations in November 2015 Unite refused to recommend an offer (which included an increase in basic pay plus a Christmas bonus in return for certain changes to terms) being made by K to its employees. Unite balloted members on the offer, which was rejected.
Following the ballot, K sent a notice to all employees setting out its offer and giving a date for acceptance of the new terms and conditions. Failure to agree by the stated date was to result in no Christmas bonus being paid. Letters were subsequently sent on 10 December 2015 to individual employees reiterating the contents of the notice. In January 2016 K sent a further letter to employees who had not accepted the offer stating that if they could not reach an agreement this may lead to their employment being terminated. In the meantime discussions between K and Unite continued but a collective agreement regarding 2015 pay was not concluded until November 2016.
Claims were brought by a number of employees (all Unite members) under s. 145B on the basis that claimants’ rights had been infringed by the December and January letters.
Employment Tribunal Judgment
The Tribunal upheld the claims and awarded the (then) mandatory compensation of £3,800 in respect of each unlawful inducement (it being held that the December and January letters comprised two separate infringements). The Tribunal commented that an employer cannot ‘drop in and out of the collective process as and when that suits its purpose’.
K appealed to the EAT, arguing that: (i) it had never intended to halt collective bargaining and that s. 145B only applied where an employer’s ‘sole or main purpose’ in making the offers was to achieve the ‘prohibited result’ of inducing the employees to permanently give up their collective bargaining rights; and (ii) in any event, they should only be obliged to pay one award of £3,800 to each affected employee, rather than two.
The EAT dismissed the appeal. The majority held that: (i) it is sufficient where only one term of employment will or would not as a consequence of acceptance be determined by direct agreement whenever that occurs, and not collectively (even if collective bargaining continues in respect of other terms); and (ii) there does not need to be a permanent surrender of collective bargaining rights in order to breach s. 145B and that it does not matter if the result is only temporary with collective bargaining then continuing (the EAT stated that the majority could see no requirement for reading in a requirement that the terms will not in the future or will no longer in the future be determined collectively)
The EAT refuted K’s argument that this interpretation would give unions a veto right over any changes to employment terms and conditions. Instead, the EAT stated ‘that employers who act reasonably and rationally for proper purposes and are able to demonstrate that their primary purpose in making individual offers is a genuine business purpose, retain the ability to make offers directly to their workforce without fear of contravening section 145B.’ The EAT further stated that ‘If collective bargaining breaks down, to the extent that the employer has a proper purpose for making offers directly to workers, there is nothing to prevent such offers being made’.
The EAT unanimously rejected K’s argument that the two offers made to employees in the December and January letters were the same and upheld the Tribunal’s conclusions in this regard.
Guidance for Employers
Given the financial implications of a breach of s. 145B, this decision underscores the importance of caution and taking advice before making direct approaches to employees where there is a recognised trade union (or a union in the process of being recognised).
Some suggestions for employers wishing to avoid falling foul of s. 145B are as follows:
· Be clear in correspondence with unions and employees of the business rationale for proposed changes to employment terms and conditions. The burden will rest with an employer to evidence that its ‘sole or main purpose’ in making offers to individual employees is not to achieve the ‘prohibited result’.
· Be aware of, review and adhere to the terms of any collective agreements.
· To the extent possible, exhaust dispute resolution procedures under any agreement with a union before approaching workers directly.
Avoiding hostility towards collective bargaining arrangements should be a priority for employers due to the damage that will be caused to trade union relations and the strain this will place on future negotiations.