In the case of Kostal UK Ltd v Dunkley and others [2021] UKSC 47, the Supreme Court considered whether bypassing a collective agreement to allow employees the opportunity to receive a Christmas bonus was lawful.
The Facts
In February 2015, Kostal concluded a recognition agreement with Unite the Union (Unite). This gave Unite “sole recognition and bargaining rights” when dealing with proposed changes to terms and conditions of employment.
Part of the agreement was that formal pay negotiations would take place annually. In October 2015, Unite wrote to initiate negotiations with Kostal for 2016. Pay proposals were put forward by Kostal along with changes to the terms and conditions. These were:
- A 2% increase to basic pay from the beginning of January 2016.
- 2% of basic pay to be paid in a lump sum in December’s pay as a Christmas bonus.
- A further 2% increase to basic pay from 1 April 2016 for any employee earning under £20,000 a year.
- Reduce sick pay for new starters.
- Reduce the Sunday overtime rate.
- Consolidate two 15-minute rest breaks into one 30-minute rest break.
These conditions were rejected by 78.4% of union members in a ballot. A week later, Kostal posted a notice indicating that it would write to all employees individually to offer the same package. The notice stated that failure to agree to the new terms and conditions would “lead to no Christmas bonus and no pay increase this year”. Kostal issued a further notice explaining that they had done this to provide the majority of employees with the opportunity to be given the Christmas bonus and urged employees to agree to the proposals in order to receive that bonus.
In January 2016, Kostal wrote to those employees who had not accepted the pay proposal. The letters stated that the changes would not be implemented without the employees’ express agreement, but went on to say “you should be aware that in the event that no agreement can be reached … this may lead to the company serving notice on your contract of employment“. The letters did not explain whether re-engagement on new terms would succeed the dismissal.
A collective agreement was eventually reached, however, a large group of employees brought claims in the Employment Tribunal (ET) alleging that their rights under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) had been breached.
What did the Employment Tribunal decide?
The ET found in favour of the employees, granting statutory awards to each claimant, amounting to a total of £421,800.
The Employment Appeal Tribunal (EAT) rejected Kostal’s appeal. It found that, if acceptance of the direct offers meant that at least one of the terms of employment would be determined by direct agreement, this was enough to amount to inducement in workers to bypass collective bargaining contrary to section 145B of the TULRCA.
What did the Court of Appeal decide?
The Court of Appeal allowed Kostal’s appeal, disputing the EAT’s findings. It held that a one-off direct offer to employees concerning pay, which bypassed the delayed collective bargaining, did not constitute unlawful inducement within the meaning of the TULRCA. The Court of Appeal set out that the relevant section of the TULRCA (section 145B) only prohibited two types of cases. These are:
- 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.
- Where an independent trade union is already recognised, 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.
Supreme Court Decision
The Supreme Court allowed the employees’ appeal. It disagreed with the Court of Appeal’s finding that section 145B can only be contravened when union members are asked to surrender their collective bargaining rights “on a permanent basis”. It concluded that there is no difference, in principle, between offering an inducement to trade union members to agree not to be represented by their union in collective bargaining indefinitely or for a definite amount of time. No minimum length of time is specified or can reasonably be read into section 145B(2).
The right to be represented by a union, and for the union to be heard in negotiations with the employer, must extend beyond a right not to receive inducements to contract out of collective bargaining. Where a union is recognised, refusing or failing to engage with the union before making direct offers is itself inconsistent with the right to be represented by the union in collective bargaining.
What does this mean for employers?
Prior to proposing changes to terms and conditions of employment contracts, employers should carefully consider any agreements they have with Trade Unions. When proposing changes, they should ensure that all avenues of collective bargaining have been exhausted before deciding to make direct offers. Where there is any uncertainty on the process or what is required within the agreements, legal advice should be sought.
This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such.
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