The Supreme Court (SC) recognised that it would be improper for it to afford trade unions such a power, because only Parliament may fundamentally change the UK’s industrial relations landscape. Employers must, however, follow and exhaust the collective bargaining processes with their recognised union(s) before they may make direct offers with a view to resolving an impasse that has arisen.
Legal background
An employer is prohibited by law from making offers to employees who are members of its recognised trade union(s) which, if accepted by all recipients, would mean their terms and conditions will not or will no longer be determined by collective bargaining. This outcome is known as the “prohibited result”.
This rule, set out in section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), is to prevent employers from undermining the principle of collective bargaining. It gives effect to the 2002 ruling of the European Court of Human Rights (ECtHR) in Wilson and National Union of Journalists v United Kingdom that employees should not be disincentivised from enjoying collective bargaining rights. The penalty for an employer breaching section 145B of TULRCA is currently £4,341 per offer per affected employee.
What happened in this case?
This case concerned pay negotiations between Kostal UK Ltd and its recognised trade union, Unite. The union held a consultative ballot on Kostal’s proposed pay deal, in which employees rejected the offer. Kostal decided that, to overcome this perceived impasse and instead of following the remaining stages of its agreed collective bargaining procedure with Unite, it would offer the pay deal directly to its employees. The company warned that a failure to accept its offer would lead the employees to lose out on a Christmas bonus and a pay increase for the year.
Unite, on behalf of its affected members, argued that Kostal’s actions amounted to it seeking to bypass the parties’ agreed collective bargaining arrangement in breach of section 145B of TULRCA. The Employment Tribunal (ET) and the Employment Appeal Tribunal (EAT) agreed with Unite. The EAT ruled that the prohibited result occurred where offers, if accepted, resulted in a term being agreed directly rather than through collective bargaining. There was no need for a particular term to be permanently removed from the scope of collective bargaining for an offer to be unlawful.
The Court of Appeal (CA) reversed the decisions of the ET and the EAT. While accepting that the EAT’s interpretation of section145B was possible as a matter of literal interpretation, the CA said it was extremely unlikely that Parliament had intended that result as it would amount to giving trade unions a veto over even minor changes to terms of employment. This led the CA to conclude that the prohibited result does not occur if the employer makes an offer whose sole or main purpose is to achieve the result that one or more term will not, on one occasion only, be determined by collective bargaining.
Supreme Court’s decision
The SC has now allowed Unite’s appeal and confirmed that Kostal’s actions did breach section 145B. It did so, however, on the basis that the interpretations of both Kostal and Unite adopted by the courts below had shared a common flaw. Both parties had focused on the content of Kostal’s offer to each individual and not whether, if Kostal’s offers had been accepted by all offerees, this would have had a particular result. As a result, they had overlooked that the language of section145B is concerned not only with the content of individual offers but with the potential practical consequences of the employer’s conduct, considered in the round.
The SC ruled 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 reached for the period in question. If there is no such possibility, such as because an impasse has arisen in negotiations, it cannot be said that making the direct offers will have produced the result that the terms have not been determined by collective agreement for that period. In other words, it must still be possible for terms to be determined by collective bargaining in order for an offer to have the result that the terms will not be determined in that way.
It followed that section145B does not prevent an employer from making an offer directly to its employees, in relation to a matter which falls within the scope of a collective bargaining agreement, if it has first followed and exhausted the agreed collective bargaining procedure. Once that has been done, it cannot properly be said that, when the employer makes its offers, there is a real possibility that the matter would otherwise have been determined by collective agreement if the offers had not been made and accepted.
The upshot is that the effect of section 145B is to prohibit an employer making offers directly to its employees, including union members, before it has exhausted the collective bargaining process. As Kostal had made the offers in question to its employees before doing that, the SC allowed Unite’s appeal. Its members will now be entitled to receive £421,800 in compensation.
Implications for employers
Although Kostal now faces paying a significant financial penalty, this is an extremely welcome decision for employers. Until it, an employer faced a real risk that any direct offer to members of its recognised union(s) might attract a financial penalty far higher than the value it might derive from any changes to its employees’ terms. This risk no longer applies provided the employer is careful first to exhaust the agreed collective bargaining process and contemporaneously document why it believes this to have happened. Nonetheless, the potential for a trade union to call industrial action in response to an employer making direct offers remains an important risk that employers should bear in mind.
From both an industrial relations and legal perspective, it is unsurprising that the SC has placed great importance on an employer following the applicable collective bargaining procedure, despite most collective agreements not being legally enforceable. As the SC recognised, the ECtHR has interpreted the European Convention on Human Rights (ECHR) as meaning that trade unions often enjoy the right to a “seat at the table” to be heard.
This decision does mean, however, that unions are now likely to pay far greater scrutiny to mechanisms in collective agreements that govern what should happen if negotiations reach an impasse. Indeed, they may now push for collective agreements to include procedures that lead to binding arbitration in order to stop employers from simply exhausting a non-binding procedure and then appealing to their employees directly, over the union’s head.
Finally, as Unite’s members have now been successful in this case, they will not be permitted to complain about the SC’s reasoning to the ECtHR. Nonetheless, it is notable that two of the five SC judges found in favour of Unite’s members on the basis of the far more favourable interpretation of section145B for trade unions adopted by the EAT. Unions may well bring further claims in future, following an employer making direct offers only after exhausting collective bargaining, based on that reasoning. Such claims would point to the ECHR being a “living instrument”, into which the ECtHR has incrementally but consistently read an increasing scope of trade unionists’ rights over time.
Kostal UK Ltd v Dunkley and others – judgment available here