Kostal UK Ltd v Dunkley: Supreme court judgment

Published 27 October 2021

As we reported, in 2019 the Court of Appeal considered section 145B of the Trade Union Labour Relations (Consolidation) Act (TULR(C)A) for the first time. The Court of Appeal’s decision, which went for the employer Kostal, reversed the employment tribunal’s decision that Kostal had offered employees unlawful inducements to cease collective bargaining when it directly offered them a package of terms and conditions, going over the head of the recognised trade union. The employees appealed to the Supreme Court.

Section 145B prohibits employers making offers to workers who are members of a recognised trade union, if acceptance of the offer would have “the prohibited result” and the employer’s sole or main purpose in making the offer is to achieve that result. The “prohibited result” is that the workers’ terms of employment, or any of those terms, “will not (or will no longer) be determined by collective agreement negotiated on behalf of the union”. The aim of the legislation is to prevent employers bypassing the union with direct offers to workers in order to achieve the result that one or more terms will not be determined by collective agreement.

The recognition agreement between Unite and Kostal provided that formal pay negotiations would take place annually, and that any proposed changes to terms and conditions would be negotiated with Unite. In 2015, Unite and Kostal entered into pay negotiations for the first time. Kostal offered a 2% increase in basic pay and a lump sum Christmas bonus in return for (amongst other things) a reduction of sick pay for new joiners and a reduction in Sunday overtime. Unite felt that it could not recommend the offer made by Kostal and gave its members a “free vote” in a subsequent ballot. Only 20% of those who turned out voted to accept the proposal. Kostal was disappointed in this result and it wrote to Unite informing it that Kostal was going to write to every individual employee to offer the pay increase and changes to terms and conditions. Kostal put up posters in the workplace explaining this and then wrote to every employee, setting out the pay offer and explaining that if the offer was not accepted by 18 December, employees would not receive a Christmas bonus.

In January, Kostal wrote again to employees who had not accepted the offer, this time offering a 4% increase in basic pay if they agreed to the proposed changes in terms and conditions and threatening dismissal if they did not do so.

In response, 57 employees who were members of Unite brought employment tribunal claims against Kostal, alleging that the December letter and the January letter each constituted an unlawful inducement and therefore a breach of s145B. The tribunal upheld these claims and awarded compensation of £3,830 per employee in respect of each of the letters.

Kostal unsuccessfully appealed to the EAT. Kostal then appealed to the Court of Appeal on the liability point only. The Court of Appeal upheld the appeal. It considered the wording of the legislation, and held that the provisions should be interpreted as dealing with two types of cases only:

1. Where an independent trade union is seeking to be recognised and the employer makes an offer whose sole or main purpose is to achieve the result that the workers’ terms of employment will not be determined by a collective agreement; and
2. Where an independent trade union is already recognised and the workers’ terms of employment are determined by collective agreement negotiated by or on behalf of the union, and the employer makes an offer whose sole or main purpose is to achieve the result that the workers’ terms of employment (as a whole), or one or more of those terms, will no longer be determined by collective agreement. “No longer” clearly indicates a change which takes the term or terms concerned outside the scope of collective bargaining on a permanent basis.

The court held that the type of case relevant to Kostal did not come within the scope of S145B. The court held that the inclusion of this category of case would give a recognised trade union an effective veto over any direct offer to any employee concerning any term of the contract, major or minor, on any occasion. It also considered that it was unlikely that this was intended by Parliament. The employees appealed to the Supreme Court.

WHAT THE SUPREME COURT FOUND

The Supreme Court allowed the employees appeal but for largely different reasons from those relied on by the employees, ET and EAT.  The  majority of the Supreme Court found:

1. What section 145B prohibits is not an offer with a particular content but an offer which, if accepted by all the workers to whom the offer is made, would have a particular result. What is required is a causal connection between the presumed acceptance of the offers and the prohibited result specified in section 145B(2). That requirement will not be satisfied unless there is at least a real possibility that, had the offer not been made and accepted, the workers’ relevant terms of employment for the period would have been determined by a new collective agreement;
2. Unions do not have a right of veto, s.145B does not prohibit direct offers to employees;
3. Unions have a right to a seat at the table or a right to be heard, that’s the meaning of the Article 11 (freedom of association) cases. Those cases do not go further in giving a right of veto or a right to always have terms determined by collective bargaining. The right to be heard is satisfied by the collective bargaining process being exhausted;
4. A term by term approach is to be taken. Section 145B is not be read as dependent on whether the change has the effect of temporarily or permanently removing a term from collective bargaining, the Court of Appeal was wrong to find this;
5. Kostal breached s.145B because it had not confirmed to Unite that it would not pursue ACAS conciliation. So, as the ET found, it had not exhausted collective bargaining before making the offer to the employees and breached s.145B as a result.

WHAT DOES THIS MEAN FOR EMPLOYERS?

Whilst Kostal were unsuccessful the Supreme Court’s decision is largely good news for employers.  The message is “exhaust collective bargaining before making a direct offer to employees”.  In more detail:

1. Following and exhausting collective bargaining procedures before making a direct offer to employees will generally give a good defence to s.145B claims;
2. The Supreme Court has basically removed the option to make a direct offer before exhausting collective bargaining.  It will be hard for employers to defeat a s.145B claim in this situation based on an argument “we had to do it for business reasons unrelated to diminishing collective bargaining”.  From the Supreme Court’s viewpoint this would not fulfil the “right to be heard” purpose of s.145B or fulfil the union and its members Article 11 rights to freedom of association;
3. Ensure there’s clear communication that the process has been exhausted with the union and in the form of a confidential internal memo setting out your reasons why you believe the process has been exhausted;
4. Avoid open ended extensions of negotiations after collective bargaining has been exhausted. This is a tricky balance for employers, We know there are situations where employers consider a bit more time is needed to reach a deal. If they do, that time should be clearly defined and stuck to. We can see situations where there’s a disagreement over whether a bargaining process has been exhausted. That’s why clear communication about completion of each stage of the process and the process overall is important. Kostal is a good example of this principle, if it had written to Unite stating it was not pursuing voluntary ACAS conciliation it would have complied with s.145B;
5. In reality this decision is not a licence to make direct offers, s.145B is only one of the risks of making direct offers to employees where unions are recognised. Those unions can oppose such offers in lots of ways, including balloting for and taking industrial action.