Employers should exhaust collective bargaining procedures before making direct offers to workers

Supreme Court confirms that offers which would temporarily take a term of employment out of collective bargaining procedures can be unlawful.

Until fairly recently, most employers and many employment lawyers were unaware of the risks of claims when making direct offers to members of a recognised trade union. The case of Kostal UK Ltd v Dunkley and others has however brought the little-known section 145B of the Trade Union and Labour relations (Consolidation) Act 1992 (TULRCA) squarely into the limelight.

We covered the Court of Appeal judgment in this case in our article from June 2019: Can employers change terms and conditions by making offers directly to workers and avoiding trade union negotiations? (available on our website). The Supreme Court has now found in favour of the claimants, allowing their appeal against the Court of Appeal decision. This decision highlights once again the significant risks for employers who seek to by-pass collective bargaining procedures.

When will a direct offer be unlawful?

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:

a)      the effect of the offer, if accepted, would be that the workers’ terms, or some of those terms, will not or will no longer be determined by collective agreement (this is known as the "prohibited result"); and

b)     the employer's sole or main purpose in making the offer is to achieve the prohibited result.

What are the penalties for making an unlawful offer?

Awards for unlawful offers under section 145B TULRCA are very significant and are increased each year. Since April this year, claimants can be awarded £4,341 for each separate unlawful offer. This is a fixed penalty and there is no mechanism for an employment tribunal to reduce this award.

Following the original decision of the employment tribunal in Kostal, the employer’s liability was reported to be in the region of £400,000.

One-off or forever more?

A key question which arose as this case went through various stages of appeal was whether the prohibited result occurs where an offer, if accepted, only temporarily takes a term out of the collective bargaining procedure. Or was it confined to situations where the offer, if accepted, would take the term of employment out of collective bargaining procedures completely, so that it would not be included in future bargaining rounds.

For example, could it be unlawful for an employer to offer individual workers a 5% pay rise to avoid this year’s collective pay negotiations, when it was clear that future bargaining rounds would include collective agreements on pay? Or would the offer only be potentially unlawful if acceptance meant pay levels would not be decided by collective bargaining in future rounds?

The Supreme Court decision

The Supreme Court has now determined this question in its recent judgment: Kostal UK Ltd v Dunkley and others.

Offer entailing a temporary removal of term from collective agreement can be unlawful

The Supreme Court has clarified that offers can be unlawful even where the effect of acceptance would only be a temporary removal of the term from collective bargaining. There is no need for the offer to involve workers giving up the right to have the term or terms determined by collective agreement in future.

Prohibited result occurs if there is a real possibility that the term would otherwise have been determined by collective agreement

Giving the leading judgment, Lord Leggatt concluded that offers made directly to a worker will lead to the prohibited result where “had such offers not been made, there was a real possibility that the terms in question would have been determined by collective agreement.” In other words, a tribunal must consider whether the term in question “might well” have been decided by collective agreement if it were not for the direct offer.

Going further, Lord Leggatt made clear that where there is an agreed collective bargaining procedure in place for deciding the term in question, and this procedure has not been complied with, it must ordinarily be assumed that the term would have otherwise been determined by collective agreement and the prohibited result would have occurred.

Collective bargaining procedures should be exhausted

Lord Leggatt highlighted that there is nothing to prevent an employer from making an offer directly to its workers if the employer has exhausted the agreed collective bargaining procedure. In that case, it cannot be said that there was a real possibility that the matter would have otherwise been determined by collective agreement.

In the Kostal case, the employer made direct offers to workers during the collective bargaining process and before the final stage of that procedure (which involved reference to Acas for conciliation). It was clear in this case that the agreed procedure had not been exhausted before the offers were made.

Key considerations for employers

What is an “offer” under Section 145B?

Lord Leggatt also made clear that the content of the offer is not relevant to consideration of whether acceptance of the offers would lead to the prohibited result.

Quite misleadingly, section 145B TULRCA is headed “Inducements relating to collective bargaining”. However, there is no need for the offer to be an inducement, in the sense of an attractive offer designed to lure workers away from union representation and collective bargaining. An offer of terms which are less generous than those currently in place could be found to be an unlawful offer if acceptance of it would lead to the prohibited result.

Employers who are seeking to agree less favourable terms and conditions with their workforce, where there is an agreed procedure to negotiate terms with a recognised trade union, should therefore be aware of the risk of section 145B claims and take legal advice before making direct offers to their staff. 

Has the collective bargaining procedure been exhausted?

This case highlights the importance of following any agreed procedural steps in the collective bargaining process. It is of course possible that talks may stall and the two sides may reach an impasse. However, the procedural agreement may well provide for this situation, for example by including a referral to Acas or another external body. In that case, the procedure should be followed through.

If the procedure has been followed in full, and a failure to agree under the procedure has been declared, employers will be in a better position to show that any subsequent direct offers to the workforce were not unlawful.

The employer’s sole or main purpose in making the offer

The question of whether acceptance of the offers would lead to the prohibited result is only the first of the two key stages in establishing whether an offer was unlawful or not. The second step is that the employer’s sole or main purpose in making the offers was to achieve that result (in short to avoid the term being determined by collective agreement).

Although not a key element of the Kostal appeal, it is likely that an employer’s defence of claims under section 145B will focus on evidencing that their sole or main purpose in making the offers was not to achieve the prohibited result, but to achieve some other purpose.

The minority judgment of the Supreme Court gave its view that the sole or main purpose of an employer will not be to achieve the prohibited result where it has a genuine business purpose in making the offers.

In order to minimise the risks of claims, employers should ensure that they are very clear about the genuine business reasons (unrelated to collective bargaining) which lie behind their decision to make direct offers to workers when the terms would otherwise be decided through collective agreement.

If employers make direct offers to staff before exhausting the collective bargaining procedure, it may assist them to have evidence of the time critical nature of the genuine business reason for making those offers. However, there continues to be a risk that a tribunal would find that the principal reason for such offers was to avoid collective bargaining.

Because of the significant potential awards and the costs of defending claims, we strongly recommend that employers seek legal advice if they are considering making offers to members of a recognised union outside collective bargaining procedures.