Can employers change terms and conditions by making offers directly to workers and avoiding trade union negotiations?

Inducements to forgo collective bargaining: the risk of penal awards decreases after Court of Appeal decision.

Significant financial penalties can follow from an employer's direct offer of new terms to workers who are members of a recognised trade union (or one seeking to be recognised). The decision of the EAT in Kostal UK Ltd v Dunkley and others in December 2017 highlighted a risk for employers who decide to circumvent collective bargaining when an impasse in negotiations is reached.  

Awards for unlawful offers under section 145B Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) are considerable and are increased each year: since April this year workers can be awarded £4,193 for each separate unlawful offer. Following the EAT's decision in Kostal, the employer was found liable for a total of £418,000, with £7,600 being awarded to each of 55 claimants.

In an important judgment, the Court of Appeal has now overturned the decision of the tribunal and EAT.

Unlawful inducements

Section 145B makes unlawful any direct offer by an employer to a member of a trade union which is recognised or seeking to be recognised where the effect of the offer (if accepted) and the employer's sole or main purpose in making the offer is that the worker's terms (or some of those terms) will not or will no longer be determined by collective agreement (the "prohibited result").

Case details: Kostal UK Ltd v Dunkley and others

Kostal UK Ltd had recently recognised Unite and entered into the first round of pay negotiations under their recognition agreement. The employer offered a pay rise and a Christmas bonus but proposed changes to breaks, overtime and to sick pay for new starters. Agreement with Unite could not be reached ahead of the Christmas break. Unite conducted a ballot by which its members rejected the offer. Kostal then wrote directly to all staff making the offer. After Christmas, the employer wrote to those employees who had not accepted the offer, proposing the same terms (with the exception of the Christmas bonus).

55 claimants brought a claim under section 145B that Kostal had made two unlawful offers which (if accepted) would have the effect that those particular terms would no longer be determined by collective agreement and that Kostal's purpose in doing so was to circumvent collective bargaining. An employment tribunal upheld the claimants' claims.

On appeal, the EAT upheld the decision of the tribunal. It held that the effect of the offers (if accepted) was that the terms in question would not have been decided through collective bargaining but by direct agreement between the employer and the worker. The EAT held that this was the "prohibited result" even though the collective bargaining process would continue to apply to those terms in future.

The Court of Appeal decision

The Court of Appeal did not agree. It ruled that the wording of section 145B applies in two particular cases:

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, the workers’ terms of employment are determined by collective agreement, 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.

The Court of Appeal stated that: "'No longer' clearly indicates a change taking the term or terms concerned outside the scope of collective bargaining on a permanent basis". The shorter term effect of the direct offer being determined by agreement with the individual worker is not the "prohibited result".

The court specifically ruled that section 145B does not apply to cases "where an independent trade union is recognised, the workers' terms of employment are determined by a 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 one or more of the workers' terms of employment will not, on this one occasion, be determined by the collective agreement".

The Court of Appeal did not agree that the section was intended to give a trade union an effective veto on any direct offers made by an employer to its members because of the threat of very large tribunal awards. It held that the section does not apply to offers which are intended in the short term to circumvent the collective bargaining process as long as the term will be negotiated as part of that process in the future.

Wrigleys' successful defence of a section 145B claim

Prior to the recent Court of Appeal judgment, Wrigleys acted in the successful defence of a charity facing a section 145B claim with potential liability in the region of £450,000.

The employer had engaged for many years in meaningful negotiation with its recognised trade union. Faced with difficult financial choices, the employer proposed changes, including to notice and sick pay provisions. Negotiations on these proposals with the trade union reached an impasse and a failure to agree was declared. The employer decided to write to individual employees to seek their agreement to the new terms. The employer continued to seek a negotiated agreement with the trade union but to no avail. Motivated by the continuing need to cut costs, the employer then began a process of dismissal and re-engagement, writing again to employees to give notice on their current contracts and offer re-engagement on the new terms.

Supported by their trade union, around 50 claimants brought a claim under section 145B. Following the EAT decision in Kostal, the tribunal decided that the effect of the offers (if accepted) would have been the prohibited result. In other words, it was accepted that the effect in the short term of determining the notice and sick pay terms by direct agreement rather than collective agreement was the prohibited result.  The key question then for the employment tribunal was whether the employer's purpose in making the offers of new terms was to achieve the prohibited result.

Key to the defence of the claim was the presentation of evidence on the financial position of the employer and the requirement for cost savings. The tribunal was persuaded that the employer's purpose in making the offer of new terms was not to avoid collective bargaining but to improve its financial position. On this basis, the tribunal dismissed all claims.

Crucial to this successful outcome was Wrigleys' in-depth understanding of the multiple imperatives under which charities operate: our expertise in advising charity trustees on their charity law, regulatory and fiduciary duties; our appreciation of the impact on charity finances of the loss of contracts and the need to maintain reserves; and our long experience of advising charities on trade union relations and employment law.

Wrigleys' Comment

Following the recent decision in the Court of Appeal, it is less likely that section 145B claims will succeed in cases where new terms are proposed directly to workers as long as there is no intention to bring an end to collective bargaining of those terms in the longer term.

However, employers with unionised workforces should ensure that they follow agreed collective bargaining procedures. Reaching agreement in this way will often be the most efficient and least disruptive method of making changes to terms.

It is always advisable to prepare a very detailed business case for any proposed new terms. This will assist the employer to explain the reasons for the proposed changes during trade union negotiations. If an impasse in negotiations is reached, this case makes clear that the employer can still directly approach employees, although there is a need for caution. If the employer decides the only way forward is to make offers of new terms directly to workers, a detailed business case will be vital to evidence that the main purpose of making those offers was not to circumvent collective bargaining.