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Direct pay offer to employees was an unlawful inducement to cease collective bargaining

December 19, 2017

In the case of Kostal UK Ltd v Dunkley and others, the Employment Appeal Tribunal (EAT) has confirmed that when an employer offered a package of revised terms and conditions to employees directly (rather than continuing negotiations with the recognised union), it offered unlawful inducements to cease collective bargaining contrary to section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

Facts

Unite was recognised in respect of the relevant employees. In October 2015, Unite requested a meeting to start formal pay negotiations. Preliminary meetings took place during October and November, but Unite said that it could not recommend the offer being made by the employer to its members. A ballot of members took place in early December 2015. There was a turnout of 80%. Just under 80% of those voting rejected the offer. Following the ballot, the employer issued a general notice to employees summarising its pay offer and the proposed changes to terms and conditions of employment. The notice stated that every individual employee would be given an opportunity to sign and return a copy of the amended terms and conditions. Failure to do so by 18 December 2015, the notice stated, would mean no Christmas bonus and no pay increase for that year.

The employer subsequently sent letters to individual employees on 10 December 2015, reiterating that failure to accept the amended terms and conditions by 18 December 2015 would result in no Christmas bonus. At a further pay negotiation meeting, Unite warned the employer that it was bypassing the collective agreement by approaching employees directly.

Later in December 2015, the employer issued a second general notice to employees. The notice stated that the employer wanted to give employees the opportunity to be paid their Christmas bonus and noted that 77% of employees (including union representatives and members) had signed up to the amended terms and conditions. The notice reiterated the 18 December 2015 deadline.

Unite informed the employer that, by writing to the employees directly, it had acted contrary to section 145B of TULRCA. Section 145B prohibits an employer from making offers to members of a recognised trade union if the sole or main purpose is to achieve a “prohibited result” – 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.

On 29 January 2016, the employer responded to Unite by stating that the purpose of the letters was to facilitate the payment of Christmas bonuses before the end of the year, rather than circumventing collective bargaining. On the same day, it wrote to employees who had not accepted the amended terms and conditions warning them that notice of the termination of their employment might be served if they did not sign up to the amended terms and conditions. As a “sweetener”, a 4% pay increase was offered.

57 workers (and Unite members) subsequently brought claims alleging that their rights under section 145B of TULRCA had been infringed by the letters of 10 December 2015 and 29 January 2016.

The tribunal decision

The tribunal upheld the claims and awarded compensation of £3,800 in respect of each unlawful inducement (a total of £7,600 per claimant).  The tribunal gave the employer’s arguments - that it made the offers to reduce the risk of employees losing their Christmas bonus and to achieve a temporary solution to an impasse with the union - short shrift.  The tribunal considered the employer’s sole and main purpose in making the offers.  It concluded that the employer had taken, “…the conscious decision to bypass further meaningful negotiations and contact with the union in favour of a direct and conditional offer to individual employees who were members of that union.”  It noted that an employer cannot,“…drop in and out of the collective process as and when that suits its purpose”.  In short, the employer could not simply abandon collective bargaining because it did not like the result of the ballot.  

The employer appealed the tribunal’s decision, stating that it never intended to cease collective bargaining (which continued and eventually resulted in an agreement regarding pay and amended terms and conditions).  

The Employment Appeal Tribunal decision 

The EAT dismissed the employer’s appeal.  In particular, it noted that section 145B can be breached if only one term of employment will not (or will no longer) be determined by collective bargaining.  The EAT emphasised that it does not matter if the result is only temporary in nature (i.e. being the result of a one-off direct agreement with employees, with collective bargaining then continuing).  It also noted that the employer had not exhausted the dispute resolution provisions in the agreement with the union before approaching individual employees.  

However, the EAT - in a paragraph that should be welcomed by employers - commented:

“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 then went on to say that, “…we consider 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.”

Comment 

Section 145B does not have the effect of giving trade unions an absolute veto over changes to terms and conditions of employment.  Employers should, therefore, not be entirely disheartened by the decision.

What the decision does mean, however, is that employers must consider very carefully their sole or main purpose in approaching individual employees directly.  The burden will rest with an employer to show that its sole or main purpose in making offers to individual employees is not to achieve the “prohibited result” (as detailed above).  

The EAT recognised that there is a “spectrum of facts” that might have to be considered in a section 145B case, but employers who can show genuine business reasons (unconnected with collective bargaining) for approaching employees directly should have a strong defence to any claims brought.  There will, inevitably, be difficult cases in the middle where there will be evidence of mixed aims or objectives.  Such cases will be more difficult for employers to defend.

Employers should, therefore, tread carefully when approaching employees directly about matters that are covered by a collective agreement and remember that section 145B also applies where a union is in the process of being recognised.  Practically speaking, employers should:

  • Review and comply with the terms of any collective agreements.  (Employers should be familiar with their obligations under such agreements.)
  • Where possible, exhaust dispute resolution provisions under any agreement with a union before approaching employees directly.
  • Be able to evidence that the sole or main purpose in approaching employees directly is not to circumvent collective bargaining and have specific and genuine business reasons (unconnected with collective bargaining) for making any offers to employees.  

Employment tribunals will view unsympathetically arguments that do not stack up and which, by reference to the facts and chronology of events, appear to show little more than an employer frustrated with the way that collective bargaining is going.  As the employer did in the case of Wyer v Pembrokeshire County Council, an employer will need to show (potentially through detailed witness evidence and supporting documentary evidence) that its sole or main purpose was not to achieve the “prohibited result”.  In Wyer, the employer convinced the tribunal that the main purpose in making offers directly to individual employees was to implement a new pay and grading structure, which would reduce the risk of equal pay claims.  It was able to evidence that collective negotiation had taken place and the decision to approach individual employees was in no way taken lightly.  

If an employer gets it wrong, however, it could face costly compensation claims.  Where different offers are made, compensatory awards may be issued in respect of each different offer.  If an employer keeps going back to employees with revised offers, in order to induce them to accept new terms and conditions, its liability could increase with each new offer made.  

The EAT decision in Kostal provides welcome clarification on a number of points, but underscores the importance of taking advice before making direct approaches to employees where there is a recognised trade union.