The Supreme Court (“SC”) recently delivered its long awaited ruling on unlawful inducements and collective bargaining in Kostal UK Ltd v Dunkley and Others.

The issue at the core of the case was whether an employer can make a pay offer directly to its employees where a recognised trade union holds collective bargaining rights. The SC confirmed that employers can make direct offers to employees, but only if the employer has first followed and exhausted the agreed collective bargaining procedures before making the offer. The decision therefore provides some welcome clarity for employers and trade unions.

Background summary

• Unite the Union is recognised by Kostal for collective bargaining purposes. In October 2015, Unite and Kostal started formal annual pay negotiations. During these negotiations, Kostal offered pay increases and a Christmas bonus, together with some detrimental changes to terms and conditions. This was rejected by Unite’s members.
• Kostal subsequently wrote directly to all employees in December 2015 (bypassing Unite) to ask them to accept the same pay deal which had been rejected and if they did not accept, they would lose their Christmas bonus.
• In January 2016, Kostal made another similar offer to those employees who had not yet accepted the first offer and stated that they could be dismissed if they did not accept the deal.
• In November 2016, by which time over 97% of employees had accepted one or other of the direct offers, Kostal and Unite reached a collective agreement for 2015 (on similar terms to the direct offers that had been made by Kostal).

The road to the Supreme Court 

In May 2016, Mr Dunkley and 56 other claimants brought employment tribunal (“ET”) claims. They alleged that the direct offers made to them by Kostal amounted to unlawful inducements contrary to s145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (the “Act”).

In broad terms, s145B prohibits employers making offers to workers who are trade union members if acceptance of the offer would result in one or more terms of their employment no longer being determined by collective bargaining (the “prohibited result”), and if the employer’s sole or main purpose in making the offer is to achieve the prohibited result. There is a strict financial penalty for every s145B breach committed by an employer, currently £4,341 per breach.  

The ET upheld the complaints, finding that Kostal’s actions in respect of both offers were unlawful inducements and made an award to the Claimants totalling £421,800. This was upheld by the Employment Appeal Tribunal. However, the decision was then reversed by the Court of Appeal which decided that there had been no unlawful inducement. The Union members subsequently appealed to the SC.

The Supreme Court’s decision

The SC unanimously upheld the Union members’ appeal. It found that Kostal’s direct offers were unlawful because the collective bargaining process had not been exhausted. It is clear from the SC’s reasoning that:

• the content of an offer is irrelevant. The key issue 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;
• an employer should not make a direct offer to its employees, including union members, where the collective bargaining process is still ongoing. This is what Kostal did in this case and therefore, the direct offers breached s145B; and
• there is nothing to prevent an employer from making direct offers to employees provided that the employer has first followed and exhausted the collectively agreed procedures. In such circumstances, the prohibited result (described above) would not arise.

Key takeaways: 

1. Employers who recognise trade unions for collective bargaining purposes and have an agreed collective bargaining procedure, should not make direct offers to bypass that procedure if it is still in progress, even if negotiations have stalled.

2. However, direct offers can be made to employees, once collective bargaining has taken place and if the employer is genuinely satisfied that the process has been exhausted. In order to demonstrate genuine belief, it is likely that employers would need to show that they had followed the relevant collective bargaining process in good faith and in accordance with its terms.

3. If considering making a direct offer, employers should ask themselves what the consequences would be if it were not accepted. If there is any possibility that a collective agreement could still be reached on the issue at hand, then the collective bargaining process is likely not to be exhausted and the offer is likely to fall foul of s145B.

4. To help with the above, employers should ensure that the collective bargaining agreement clearly “defines and delimits” the procedure to be followed.

Negotiations between employers and unions frequently break down or stall where the parties are struggling to reach agreement. It is tempting, in such cases, for employers to conclude that the collective bargaining process has been exhausted because it has lost momentum, or that there is no prejudice to employees in failing to complete the process because agreement is unlikely to be reached. However, this case shows that it is crucial for employers to exhaust all procedural steps before making direct offers. For this reason, it is important that employers: 

(a) ensure that collective agreements contain clear and unambiguous collective bargaining procedures, so that they can clearly show they have exhausted the procedure in the event they go on to make direct offers; and 

(b) build in enough time to exhaust the process; if “up against” a pressing deadline, the temptation to bypass time-consuming procedural steps becomes far greater.

Next steps:

As an immediate next step, employers should review and (where possible) refresh their collective bargaining agreements. This is particularly important where the collective agreement does not make it clear what “exhaustion” of the process means or does not include clear “end of process” wording. 

If this is relevant to your organisation or you would like to discuss the options available in those circumstances, please contact your usual member of our team.