Supreme Court rules on bypassing collective agreements

The Supreme Court has ruled that a pay offer to trade union members, outside of collective bargaining arrangements, was an ‘unlawful inducement’.

Background

If you are in the process of agreeing terms via collective bargaining, or already have agreed collective terms through an established bargaining unit, stringent restrictions apply on making ‘unlawful inducements’ to employees – in other words, negotiating directly with employees to take their contractual terms outside of collective bargaining. 

Direct offers to employees who are union members may be 'unlawful inducements' if they are intended to produce a ‘prohibited result’.

A prohibited result is that the workers’ terms of employment (or any of them) will not (or will no longer be) determined by collective agreement negotiated by or on behalf of the union (section 145B, Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

The financial consequences for breaching these rules can be severe. If an unlawful inducement is made, each affected employee is currently entitled to claim over £4000 per unlawful offer. 

For the first time, the Supreme Court has considered the interpretation of a prohibited result under TULRCA, in Kostal v Dunkley and others.

Facts

Kostal UK Limited ('Kostal'), recognised the union Unite and established an agreement for collective bargaining. The agreement provided for annual pay negotiations, which would be agreed through Unite.

Kostal reached an impasse in negotiations with Unite over a number of proposed changes to employees' terms of employment, which included (amongst other things) a pay increase and a Christmas bonus.

As a result, the employer approached staff direct, posting the proposed new terms on notice boards and writing to individual employees. The employer argued that it took this course of action so that its employees would not miss out on receiving a bonus and pay increase in time for the Christmas holidays.

An Employment Tribunal found that this was an unlawful inducement, and made an award to the claimants totalling £421,800.

Kostal unsuccessfully appealed to the Employment Appeal Tribunal. It then appealed to the Court of Appeal.

The Court of Appeal found that there had been no unlawful inducement because there was no on-going attempt to take workers’ terms outside of collective bargaining, on a permanent basis. This was a very restrictive interpretation of the relevant legislation and, as expected, the claimants appealed to the Supreme Court.

Decision

The Supreme Court has upheld the appeal, favouring a wider interpretation of the rules preventing unlawful inducements.

The Supreme Court’s view is that the content of an offer is not relevant. The key question is whether, when the offer was made, there was a possibility that the matter would have been determined by collective agreement if the offer had not been made and accepted.

So, an employer cannot make a direct offer to union members while a collective bargaining process is continuing.

On the facts in this particular case, the collective bargaining process was ongoing and Kostal made direct offers to its workers who were Unite members. The Supreme Court’s view is that this is not a course of action which an employer can take, without breaching the restrictions in TULRCA.

Comment

This decision marks a significant extension to the rights of unionised workers. The Supreme Court’s reasoning means, in practice, that employers must follow and exhaust any collective bargaining processes before making direct offers to workers.

An employer which has recognised a trade union for collective bargaining purposes and which has agreed to follow a collective bargaining procedure cannot then ignore or by-pass that procedure by making a direct offer.

But it is important to note that, in order for there to be a prohibited result, there must be a “real possibility” that if the offer had not been made and accepted, that the workers’ terms of employment would have been determined by the collective agreement reached for the period in question (paragraph 66).

Once collective bargaining processes have, however, been exhausted, then any direct offers will be allowed – and will not produce a ‘prohibited result’.

Contributors: Sarah Maddock and Stephen Ellerby

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions