Supreme Court: Employer’s offer of direct compensation to employees was illegal inducement when collective bargaining process was not completed

Employers who recognize a union for collective bargaining purposes should take note of the Supreme Court’s ruling in Kostal UK Ltd v Dunkley which will need to be taken into account when collective bargaining over wage allocations or other contractual variations comes to a standstill. The Supreme Court’s decision is the latest installment in a long-standing court case concerning the meaning of section 145B of the Trade Unions and Labor 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 sole or primary objective of the employer in making the offer is to achieve this result. The “prohibited outcome” is that workers’ terms of employment, or any such condition, “will not (or no longer be) determined by a collective agreement negotiated by or on behalf of the union”.

In Kostal, during salary negotiations with the recognized union, the employer had proposed various salary increases in return for which he wanted to reduce sickness pay, reduce overtime on Sundays and combine two breaks into one. When this offer was rejected by union members in a consultative ballot, the employer wrote directly to employees on two occasions asking for their offer to be accepted. Both the Employment Tribunal and the Employment Appeal Tribunal held that the employer’s direct approach to its employees was in violation of section 145B and therefore unlawful. The Court of Appeal, however, took a different view and held that where, as in the present case, an employer made a wage offer directly to employees following the failure of wage negotiations, but failed to the intention that compensation would no longer be collectively negotiated in the future, this was not a “prohibited outcome” under Section 145B.

The Supreme Court disagreed with the Court of Appeal, preferring the findings of the labor and employment appeals courts.

The Court ruled that an employer is in breach of Section 145B when he makes an offer which, if accepted, would constitute subcontracting of collective bargaining on that occasion (thus placing the offer in the category of “results prohibited ”) and when the main objective is to achieve the subcontracting of collective bargaining, rather than having a real commercial objective. Kostal’s employer had made such an offer, was seeking to bypass agreed collective bargaining procedures and had no real business purpose in making the individual offers. On this basis, the workers’ appeal was allowed and the employer will now be required to pay the full damages amount of £ 421,800 ordered by the Employment Tribunal.

In rendering its decision, the Supreme Court emphasized that what section 145B prohibits is an offer made by an employer which, if accepted by the workers, would have a particular result. It is not the content of the offer that is essential but the question of causation – Article 145B is only engaged when there is a real possibility that, if the offer had not been made and accepted, the relevant conditions would have been determined by a new collective agreement concluded for the period in question. According to the Supreme Court, this interpretation will not prevent an employer from making wage offers directly to workers when:

  • a union seeks recognition, because at that point there is no possibility of agreeing on the terms through collective bargaining; Where
  • there is a recognized union but the employer first followed and exhausted the agreed collective bargaining procedure. What an employer cannot do is make offers to workers, including those who are unionized, before the collective bargaining process is exhausted.

While the Supreme Court ruling does not create an absolute veto over changing single employment conditions in one go, as the previous Labor Appeal Tribunal ruling advocated, it nonetheless leaves employers who find themselves in a stalemate in negotiations with a recognized union in a difficult position. The ruling allows offers made directly to employees when an agreed collective bargaining process has been exhausted, but in practice few collective bargaining framework agreements define a clear and phased process in a way that means that it is certain that it is finished. One point of action arising from this judgment will be that employers try to clarify the negotiating framework agreements so that they establish well-defined stages, deadlines and provisions on escalation as well as clearly indicate when they are. completed. However, clarifications of this type can be difficult to agree with with union counterparts.

Employers looking to make contractual changes are now likely to find themselves in an uncertain situation, unsure whether they have done enough to be able to demonstrate that there is no real possibility of reaching a collective agreement. if they continue to negotiate with the union. An unfortunate result of the Kostal judgment is likely to be an increased risk of litigation under Section 145B with unions arguing that a collective bargaining process was not complete and that the outcome depended on the facts of the particular case. Employers who have strong business reasons for the change and who can demonstrate the need for such a change within a particular time frame are likely to be in a stronger position than others, but still not without risk.