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11 January 20225 minute read

Supreme Court: employer’s direct pay offer to employees was unlawful inducement when collective bargaining process not completed

Employers who recognise a trade union for collective bargaining purposes should take note of the Supreme Court decision in Kostal UK Ltd v Dunkley which will have to be considered where collective bargaining negotiations over pay awards or other contractual variations reach a stalemate. The Supreme Court’s decision is the final instalment in a long-running court case relating to the meaning of Section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992.

Section 145B prohibits an employer from making an offer to workers who are members of a trade union if acceptance of the offer would have a “prohibited result” and the employer’s sole or main purpose in making the offer is to achieve that result. The “prohibited result” is that the workers’ terms of employment, or any of those terms, “will not (or will no longer) be determined by collective agreement negotiated by or on behalf of the union”.

In Kostal, in pay negotiations with the recognised trade union, the employer had proposed various pay increases in return for which it wanted to decrease sick pay, reduce Sunday overtime and consolidate two rest breaks into one. When this offer was rejected by union members in a consultative ballot, the employer wrote directly to employees on two separate occasions seeking acceptance of their offer. Both the Employment Tribunal and the Employment Appeal Tribunal held that the employer’s direct approach to its employees was in breach of Section 145B and therefore unlawful. The Court of Appeal, however, took a different view and held that where, as here, an employer made a pay offer direct to employees following the breakdown of pay negotiations, but did not intend that pay would not be collectively bargained in future, this was not a “prohibited result” under Section 145B.

The Supreme Court disagreed with the Court of Appeal, preferring the conclusions of the Employment and Employment Appeal Tribunals.

The Court decided that an employer will be in breach of Section 145B where it makes an offer which, if accepted, would constitute contracting out of collective bargaining on that occasion (thus bringing the offer within the “prohibited result” category) and where the employer’s main purpose is to achieve the contracting out of collective bargaining, rather than having a genuine business purpose. The employer in Kostal had made such an offer, was seeking to bypass the agreed collective bargaining procedures and did not have a genuine business purpose for making the individual offers. On this basis, the workers’ appeal succeeded and the employer will now be liable to pay the total damages award of GBP421,800 ordered by the Employment Tribunal.

In reaching its decision, the Supreme Court emphasised that what Section 145B prohibits is an offer made by an employer that, if accepted by the workers, would have a particular result. It is not the content of the offer which is key but the question of causation – Section 145B is only engaged where there is a real possibility that, if the offer had not been made and accepted, the relevant terms would have been determined by a new collective agreement reached for the period in question. According to the Supreme Court, this interpretation will not prevent an employer making pay offers directly to workers where:

  • a union is seeking recognition, because at that time there is no possibility of agreeing terms through collective bargaining; or
  • there is a recognised union but the employer has first followed, and exhausted, the agreed collective bargaining procedure. What an employer cannot do is to make offers to workers, including those who are union members, before the collective bargaining process has been exhausted.

Although the Supreme Court’s decision does not create an absolute veto on changes to single employment terms on a single occasion as the earlier Employment Appeal Tribunal decision advocated, it nonetheless leaves employers who reach a negotiating deadlock with a recognised trade union in a difficult position. The judgment permits offers made directly to employees when an agreed collective bargaining procedure has been exhausted, but in practice few collective bargaining framework agreements set out a clear, stepped process in a way which means it is certain when it is complete. An action point arising from this judgment will be for employers to try to clarify framework bargaining agreements so that they set out well-defined steps, timescales and provisions on escalation as well as being clear about when they are complete. Clarifications of this sort may, however, be hard to agree with trade union counterparts.

Employers seeking to effect contractual changes are now likely to find themselves placed in an uncertain situation, unsure whether they have done enough to be able to demonstrate that there is no real possibility of collective agreement being reached if they continue to negotiate with the trade union. An unwelcome outcome of the Kostal judgment is likely to be an increased risk of litigation under Section 145B with trades unions arguing that a collective bargaining process was not complete and the outcome turning on the facts of the particular case. Employers who have strong business reasons for change and who can evidence the need for such change within a particular timeframe are likely to be in a stronger position than others, but still not one which is risk free.