Trade unions: making direct offers to employees and bypassing collective bargaining not unlawful

An employer who bypassed the recognised trade union and offered employees a package of revised terms had not offered the employees unlawful inducements to end collective bargaining. An inducement will only be unlawful if the employer’s sole or main purpose in offering it is to end collective bargaining in relation to one or more of the workers’ terms.This has to be on a permanent basis (Kostal UK Ltd v Dunkley and others).

What is the background to this case?

Where an employer recognises a trade union for collective bargaining, the employer agrees workers’ terms and conditions collectively with the trade union. It is unlawful for an employer to offer workers inducements for them to give up collective bargaining of their terms (for all or any of their terms). 

Compensation for breach is currently fixed at £4,193 for each unlawful inducement. 

What procedure did the Employer follow to negotiate revised terms?

Kostal UK Ltd recognises Unite as its trade union for collective bargaining purposes. Kostal negotiated revised employment terms with Unite that included pay increases and a Christmas bonus. Unite’s members rejected the changes in a ballot. 

Kostal wrote directly to all its employees offering them the same package. It also posted a notice stating that if they did not agree the new terms, they would forfeit the Christmas bonus. It then wrote again to its employees telling them it might terminate their contracts if they could not reach agreement.

What were the Employee’s response to Kostal’s terms?

The employees claimed each letter was an unlawful inducement. They argued the sole or main purpose of the letters was to end collective bargaining. The Tribunal agreed. It awarded £3,800 compensation for each unlawful inducement to each Claimant. With 55 Claimants, this totalled £418,000. Kostal appealed to the Employment Appeal Tribunal.

The Employment Appeal Tribunal agreed with the tribunal. It considered that an inducement is unlawful if it results in one employment term being agreed directly with the employee rather than by collective agreement. It was irrelevant that this was a one-off and that the employees were not giving up collective bargaining permanently.  Kostal appealed to the Court of Appeal.

What was The Court Of Appeals response?

The Court of Appeal overturned the tribunal and EAT rulings. It ruled that an inducement would only be unlawful if the employer’s sole or main purpose in offering it is to put a permanent stop to collective bargaining of one or more terms. 

It noted the tribunal considered Kostal was not motivated by hostility to the trade union. It made the offers to the whole workforce (whether Unite members or not) and Unite would continue to represent all employees under the collective agreement (whether Unite members or not and whether they accepted Kostal’s offer or not). The purpose of the offers was to circumvent the collective bargaining process but that was not the same thing as giving up collective bargaining.

What will be the impact of this decision?

Employers will welcome this decision. As the Court of Appeal noted, the Employment Appeal Tribunal’s decision gave recognised unions a veto over even the smallest changes to employment terms. This was not Parliament’s intention. 

As employers with large workforces face particularly high financial penalties for breaches (and with no provision for reduced compensation), this judgment’s clarity is welcome.