What is the law?

Employers which recognise a trade union are prohibited from making offers to union members which, if accepted, would mean that their terms and conditions will not, or will no longer, be determined by collective bargaining. This is known as the “prohibited result”.

Union members can bring a claim under s.145B of the Trade Union and Labour Relations (Consolidation) Act 1992 if their employer is in breach. An employer is only in breach if their sole or main purpose of making an offer is to achieve the prohibited result.

The penalty for a breach is currently £5,584 per offer per affected union member. As a result, these claims can be punitively expensive for businesses with large, unionised workforces.

What happened?

Walsall Housing Group (WHG), a housing association, recognised 3 trade unions – Unite, Unison and the GMB – with whom it engaged in annual pay negotiations. In 2022, WHG rejected the unions’ demands for the annual pay award and offered a 3.1% increase together with a non-consolidated £300 payment. Whilst Unison members voted to accept the offer, Unite and GMB members rejected the offer.

Following further talks, WHG informed union representatives that if an agreement could not be agreed by the end of WHG’s financial year, the £300 payment would have to be withdrawn. The funding for that payment was in that year’s budget and could not be carried over. When the unions failed to respond, WHG wrote to all staff, updating them that they had failed to reach agreement with the unions. However, because the £300 payment could only be paid during the current financial year and being mindful of the cost-of-living pressures facing staff, it had decided to nonetheless process the payment in payroll.

Following the payment of the £300 award, pay award discussions continued under the dispute resolution procedure in their recognition agreement. However, there was no movement between the parties and WHG made clear that there was no prospect of it increasing the 3.1% offer.

Later, WHG wrote to all staff, informing them it would be implementing a 3.1% pay increase. This communication emphasised that the cost-of-living pressures facing staff meant that it was important to pay the award without further delay and noted that while management had sought to reach a deal with Unite and the GMB, “there has been no movement and so an agreement appears unlikely in the foreseeable future”.

Later in the year, WHG and the unions reached agreement over a revised pay deal, with additional consolidated and non-consolidated payments paid to staff in December 2022.

Members of Unite and the GMB brought claims against WHG for breach of section 145B, in relation to the implementation of both the £300 payment and the 3.1% pay award.

What did the Employment Tribunal decide?

The Employment Tribunal rejected all of the claims, finding that WHG had not breached section 145B in relation to either set of offers.

It was common ground between the parties that WHG had made both sets of offers while collective bargaining was still ongoing, and that they therefore had the “prohibited result”. This reflects the Supreme Court’s landmark decision in Kostal UK Ltd v Dunkley & Ors, which held that an offer will only be capable of having the “prohibited result” if there was a real possibility that, if it was not made and accepted, the relevant terms would otherwise have been determined by collective bargaining.

However, the Tribunal found that neither of the sets of offers had been made for the main or sole purpose of bypassing collective bargaining:

• In relation to the offer of a £300 non-consolidated payment, the Tribunal accepted WHG’s argument that the purpose of the offer was to make sure that the funds which had been allocated were spent before the end of that year. All of the employer’s communications with staff were consistent with that position, and there was no evidence to suggest that it had any intention of ceasing to collectively bargain the pay award more generally with the unions at the time it made the offer.
• In relation to the implementation of the 3.1% pay increase, the purpose of the offer was to ensure that staff benefited as soon as possible from the pay award which had already been budgeted for by the employer. The Tribunal placed particular weight on the minutes of the board committee which approved the payment, which stated that they wished to ensure that “colleagues were not disadvantaged while we were in dispute”. The Tribunal also concluded that WHG had always intended to continue negotiations with the unions after the implementation of the pay increase, which it then proceeded to do.

Whilst legislation sets out a number of specific matters which Tribunals must take into account in determining the Employer’s purpose in making direct offers to employees, it is notable that the Tribunal did not base its decision on any of these matters. This indicates that Tribunals will take into account a broader range of factual matters when determining the employer’s purpose. 

Implications for employers

As this decision was only at Tribunal level, it does not bind other courts or tribunals. However, it provides helpful guidance on how Tribunals may approach similar claims under section 145B, which may give real comfort to unionised businesses.

During the recent cost-of-living crisis, many unionised employers were involved in unusually protracted and contentious pay negotiations. Where businesses were unable to reach agreement with trade unions, some implemented pay awards through direct offers to employees. With a lack of case law in this area, there was real uncertainty about whether a Tribunal would find that the purpose of those offers was to bypass collective bargaining. To date, there have been relatively few reported cases on section 145B claims which have considered the purpose of offers, and most of these (including Ineos and London Ashford Airport, which we have written about previously) turned on extreme facts involving aggressive attempts to de-recognise unions.

Unionised employers should always exercise caution before making direct offers to the workforce. However, this decision provides comfort that being able to demonstrate legitimate reasons for needing to do so (such as to remain competitive in the labour market, to address hardship among the workforce, or because the budget is only available in a particular financial year) will substantially reduce the risk of claims under section 145B, provided that they do not also take steps towards de-recognition.

Employers should ensure they have robust paper trails documenting their decision-making before making direct offers to staff. The Tribunal placed real weight on the minutes of WHG’s board committee as evidence of the legitimate purposes of the offers it made. Given the increasing number of section 145B claims being brought by unions, businesses involved in collective bargaining should take real care when reviewing all employee comms and internal strategy documents to minimise any inadvertent legal risk.

Read the full judgment here – Adams & Ors v Walsall Housing Group Limited.