Changing terms of unionised workforces

When can employers bypass the recognised trade union?

The Supreme Court has ruled that an employer may only bypass its recognised trade union and make an offer of revised terms directly to employees if it has first followed and exhausted the agreed collective bargaining process. This is the case even if the employees are only being asked to contract out of collective bargaining on a one-off basis. 

Inducements to end collective bargaining

Where an employer recognises a trade union for collective bargaining purposes, it must not offer workers inducements to give up collective bargaining of their terms of employment. Specifically, Section 145B Trade Union and Labour Relations (Consolidation) Act 1992 prohibits an employer from making an offer to workers who are members of a recognised trade union if acceptance of the offer by the workers would have the “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 UK Ltd v Dunkley and other, the Supreme Court considered the scope of this prohibition.  

Kostal’s pay negotiations

In October 2015, Kostal sought to negotiate revised employment terms with Unite, its recognised trade union. Kostal’s proposed new terms included a pay increase and Christmas bonus but it also proposed reducing other terms. Following a ballot of its members, the revised terms were rejected.

On 10 December 2015, Kostal wrote directly to all employees offering them the revised terms and telling them that if they did not agree them they would forfeit the Christmas bonus. Then on 29 January 2016, Kostal sent a further letter to employees who had not yet agreed the new terms offering to backdate the pay increase and warning that it might terminate their contracts if they could not reach agreement.

Unlawful inducement claims 

57 employees brought employment tribunal claims, arguing that each letter was an unlawful inducement as its sole or main purpose was to end collective bargaining. The employment tribunal agreed and awarded each claimant £3,800 for each inducement, making the total compensation awarded £421,800.

The Employment Appeal Tribunal rejected Kostal’s appeal, ruling that an inducement is unlawful if it results in one employment term being agreed directly with the employee rather than by collective agreement, whether on one-off or permanent basis. 

The Court of Appeal disagreed and considered the prohibition was much narrower.  It ruled that 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 on a permanent basis. 

The Supreme Court’s decision

The employees appealed successfully to the Supreme Court. 

Importantly, the Supreme Court confirmed that there is no reason to distinguish between a long-term or permanent contracting out of collective bargaining and a one-off contracting out of collective bargaining. This meant that although the employees who had accepted Kostal’s direct offer would be included in collective pay negotiations in subsequent years, the offer could still be an unlawful inducement.

However, in deciding whether the offers were an unlawful inducement the Supreme Court interpreted the statutory provisions differently to the courts below.  It ruled that the focus should not be on the content of the employer’s offer but on the result. The question is whether the offer, if accepted by the workers who received it, would result in one or more terms not being determined by collective agreement (the prohibited result). That requirement will not be met unless there is a real possibility that the relevant term(s) would have been determined by a collective agreement had the offer not been made and accepted. 

On this interpretation an employer can make an offer directly to its workers in relation to a matter covered by a collective bargaining agreement provided that it has first followed, and exhausted, the agreed collective bargaining procedure. If it has done that, it cannot be said that there was a real possibility that the matter would have been determined by collective agreement, if the offers had not been made and accepted.

However, an employer cannot make a direct offer to its workers before the collective bargaining process has been exhausted. This is what Kostal had done and it was unlawful.

What does this mean for employers? 

Employers will be acting unlawfully if they make a direct offer to employees before the agreed collective bargaining procedure has been exhausted.  

On the other hand, where an employer has first followed and exhausted its agreed collective bargaining procedure, an attempt to break a stalemate in negotiations by dealing direct with the employees will not be unlawful.

It may not be clear in any given case whether the agreed collective bargaining has been exhausted. In this regard, the Supreme Court said that if the employer who genuinely believes that the collective bargaining procedure has been exhausted, it cannot be said that the purpose of making the direct offers was to bypass collective bargaining.

Going forwards, employers should revisit their collective agreements and ensure they clearly set out the steps in the negotiation process that need to be followed, the timescales and when the process is regarded as complete.

This is a difficult area and mistakes can prove costly, as the level of the compensation awarded in this case shows. Please get in touch if you have any questions about this case or any other trade union-related issues.