Tribunal decision shows the cost of failing to follow collective bargaining process

Employers are prohibited from making offers to workers who are members of its recognised trade union which, if accepted, would mean that their terms and conditions will not, or will no longer, be determined by collective bargaining. This outcome is known as the “prohibited result” and is set out in section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992.

An employer only breaches section 145B if their sole or main purpose of making an offer is to achieve the prohibited result.

What happened in this case?

The nine claimants were air traffic controllers, employed by London Ashford Airport Limited (the Airport). All the claimants were members of the trade union, Prospect.

The Airport recognised Prospect under a 2018 collective agreement, which it had inherited as a result of a TUPE transfer in 2020. Under the terms of the collective agreement, the Airport was required to engage in annual negotiations with Prospect over air traffic controllers’ pay and holidays in September each year. The majority of claimants had not had a pay increase since 2018.

Between September 2022 and January 2023, Prospect officials repeatedly requested a meeting with the Airport to conduct annual pay negotiations. The Airport declined or postponed each of these requests, citing the need for further financial information before it could enter into collective bargaining. The Airport and Prospect therefore didn’t reach an agreement about pay.

In January 2023, the Airport wrote to Prospect giving notice to terminate the collective agreement.

The Airport then began speaking to their employees directly about pay. On 21 February 2023, it wrote to its employees, announcing that it would be implementing two pay increases throughout the year. On 1 April 2023, the Airport then wrote to some of its employees offering the first planned increase to their salaries (in line with the February announcement) if they signed updated contracts.

During this period, Prospect officials continued to engage with the Airport, meeting with it twice through ACAS, to discuss pay and to request that the Airport withdraw its notice of de-recognition.

The claimants all brought claims for breach of section 145B. The Airport did not implement the second promised salary increase because of the litigation.

Was there an offer with the sole or main purpose to achieve the prohibited result?

The Employment Tribunal held that both the Airport’s communications to staff, on 21 February and 1 April 2023, breached section 145B.

Was there an offer?

Firstly, the ET concluded that both communications amounted to ‘offers’ for the purposes of section 145B. It is particularly notable that the ET found that the 21 February 2023 announcement was an ‘offer’, given that its terms did not require acceptance and were unilaterally imposed on the claimants.

The ET applied the approach taken by the Employment Appeal Tribunal in INEOS Infrastructure Grangemouth Limited v Jones & Others[CM1]  (but provided little reasoning for this position, as the parties agreed that the announcement on 21 February 2023 was an ‘offer’). The EAT held in INEOS that a unilaterally imposed pay increase constituted an ‘offer’. This appeared to conflict with a previous EAT decision in Scottish Borders Housing Association Ltd v Caldwell, which had concluded that a unilateral pay increase which did not require employee acceptance would not constitute an ‘offer’.

The ET also held that the letter on 1 April 2023 was an additional contractual offer in its own right, rather than the mere ‘implementation’ of the offer made on 21 February 2023.

Did the offers have the prohibited result?

The ET then went on to find that the offers had the prohibited result, as collective bargaining had not been exhausted – or even started – at the time they were made.

In reaching this decision, the ET applied the test established in the landmark decision of Kostal UK Ltd v Dunkley and others[CM2] . In that case, the Supreme Court decided that for offers to be capable of having the prohibited result, there must be at least a real possibility that, if they were not made and accepted, the relevant terms would have been determined by a new collective agreement. The upshot is that if an employer has exhausted the collective bargaining process, it is free to make direct offers to employees without incurring liability under section 145B.

What was the principal reason for the offers?

Finally, the ET found that the principal reason for the Airport making the offers was to ensure that employees’ pay was no longer determined by collective bargaining with Prospect.

In reaching this conclusion, the ET placed particular emphasis on the timing of the Airport’s decision to serve notice of termination of the collective agreement. It had served notice before pay negotiations had commenced and shortly before the first direct offer was made. The ET was vocal in its criticism of the Airport’s “disingenuous” explanations for deferring pay discussions and de-recognising Prospect.

What are the implications for employers?

As this decision was at tribunal level only, it does not bind other any other tribunals or courts. Nonetheless, it underscores the significant legal risks for unionised employers who make direct pay offers to employees before collective bargaining has been exhausted. They should bear in mind that:

• Failure to first exhaust talks (ideally by reference to a clearly defined bargaining procedure in the applicable collective agreement) is likely to result in a tribunal claim for unlawful inducement.

  The decision in this case provides a further indication that employers should take little, if any, comfort from the previous Scottish Borders judgment. As shown in this case, tribunals are likely to conclude that the unilateral implementation of pay increases constitutes an ‘offer’ for the purposes of section 145B in line with INEOS.

• This case highlights the potential dangers of employers attempting to de-recognise trade unions in the context of stalled pay negotiations. In addition to the wider industrial relations risks (including the threat of industrial action in response), giving notice to terminate a collective agreement either shortly before or after unilaterally imposing a pay award will materially increase the risk of unions bring a successful claim for breach of section 145B.

  In any event, in isolation, de-recognition may be a self-defeating and short-sighted strategy. Following de-recognition by the Airport, Prospect successfully applied to the Central Arbitration Committee for statutory recognition. Where unions remain able to meet the thresholds for statutory recognition, de-recognition in situations of this kind is likely only to result in serious damage to industrial relations and the risk of potentially expensive claims for unlawful inducement.

• There can be significant financial ramifications for trying to bypass collective bargaining. The penalty for unlawful inducements is currently £5,584 per offer per affected worker (although, at the time these claims were heard, it was £4,554). Similar to protective awards, penalties can accumulate quickly depending on the number of employees affected.

  The ET’s decision that both communications on 21 February 2023 and 1 April 2023 amounted to an offer had significant repercussions. For each of the claimants who received both communications, the Airport was required to pay the penalty twice. The Airport’s total penalties was £72,864.

• Prior to any TUPE transfer, employers should carry out thorough due diligence of any collective agreement made in relation to the transferring employees. Transferees should be aware of what terms are set out in such an agreement and any hidden liabilities. For example, whether pay reviews have taken place in line with any collective agreement.

The ET’s view was that key stakeholders did not see the 2018 collective agreement “as [the Airport’s] agreement”. The ET had little sympathy and their view was that this detrimentally impacted relations between the Airport and Prospect, creating a “negative attitude” towards the pay negotiations. After a TUPE transfer, employers should seek to establish good communication with any recognised union and embrace any collective agreement as their own. This will help avoid some of the pitfalls suffered by the Airport.

Read the full G R Smith and others v London Ashford Airport judgment here.