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Legal case

Employer 'fined' £65k for changing terms and conditions

In a recent ET case a Council was ordered to pay 18 employees £3,600 each under a hitherto little used provision of the law governing industrial…

In the recent ET case of Bugden & Others v London Borough of Bromley the Council was ordered to pay 18 claimant employees £3,600 each under a hitherto little used provision of the law governing industrial relations.

The law

The Trade Union and Labour Relations (Consolidation) Act 1992 (TULCRA) sets out key UK law on strike action and the rights of Trade Union members. Section 145B of the Act makes it an ‘offence’ for an employer to offer employees an ‘inducement’ which, if accepted, would result in them giving up any or all of their collective bargaining rights. The employee must bring a claim within three months of the offer (or the last in a series of similar offers) being made.

The section has remained relatively obscure since it was first inserted into the Act in 2004, but with many organisations seeking to cut costs by contractual changes it is rapidly gaining a higher profile amongst Trade Unions.

If an employer is found to be in breach, a Tribunal will make a ‘declaration’ to that effect and a mandatory award to each claimant employee. The level of award is prescribed annually and was increased in April from £3,600 to £3,715.

The facts

The 18 Claimants in this case were all employees of the London Borough of Bromley and members of Unison, a Union recognised by their employer. The majority of their terms and conditions, including those relating to pay, were subject to local and national collective bargaining agreements.

Over several years the Borough experienced difficulty in agreeing budgets due to the late settlement of nationally agreed pay awards for staff. It therefore sought to introduce fully localised pay and conditions of service.

The Borough wrote to all employees stating that, going forward, pay would be determined by the Council as part of the budget setting process. Additional rewards for exceptional performance were also proposed. The letter sought agreement to the changes and offered a one-off payment of £200 to any employee who promptly signed and returned a variation of contract.

When more than 100 employees refused to accept the changes, the Borough launched a consultation exercise preparatory to dismissing those employees and re-engaging them on the new terms.

The decision

An employer will only be in breach of s145B if their ‘sole or main purpose’ in making an offer was to induce employees away from collective bargaining and the burden is on the employer to show what its ‘sole or main purpose’ was.

For example, in the case ofWyer v Pembrokeshire County Council, the Employment Tribunal held that the employer’s ‘sole or main purpose’ was to implement a new pay and grading structure to minimise equal pay risks. The impact on collective bargaining was held to be unfortunate but incidental.

In the Bromley case however, the Tribunal found that “the purpose of making the offers could not have been more clearly stated”. It was to withdraw from existing collective bargaining arrangements and in future determine pay by other means. The offer letters sent out by the Borough were unequivocal, and gave prominence to the move away from collective bargaining.

The Tribunal held that the Borough’s other aims of controlling the pay review process, harmonising terms and aligning reward with performance, were “lesser, ancillary purposes in making the offers”.

It stated that the Borough “did not set out to commit an unlawful act” and was clearly unaware of the provisions of s145B. However, having “clearly and boldly declared the purpose of the offer” the Borough had put itself in breach of the provision.

Clearly, therefore, the ‘sole or main’ purpose test is no ‘safety blanket’. Every case turns on its own facts and where the employer has multiple reasons for making a decision it may be difficult to distinguish the motivation from the incidental consequences that change brings about.

What does this mean for me?

This Judgment is of obvious concern to employers in the public sector and other sectors with national collective bargaining machinery, such as construction. It will, however, affect any employer whose employment contracts incorporate the outcome of collective bargaining arrangements, including much smaller employers with locally agreed arrangements

The rule in section 145B only applies in respect of Trade Union members. Employees who are covered by collective bargaining agreements but are not members of a recognised Trade Union cannot bring a claim. The level of Union membership in your organisation will therefore be one of the factors determining your exposure to risk.

This is an individual right, not a collective one. A Union cannot make a claim on behalf of its members. It is for individual employees to make a claim. Given that payment of a fee is now required and the award available is fixed and relatively small, many employees may not be inclined to do so. However, some unions do seem keen to promote this option as a way to deter employers from eroding their collective bargaining muscle.

There is currently a great deal of uncertainty as to how broadly the concept of ‘purpose’ should be construed and no binding appeal level decision yet on s145B. Whilst this case can be taken into account by other Tribunals, they do not have to follow it. Commercially, however, the potential costs of claims under this section should be factored in when assessing the cost/benefits of pushing through contractual changes.

The Judgment does not mean that you can never change employee terms and conditions. It simply means that where your workforce is unionised and any changes may impact on collective bargaining you must tread very cautiously. It is particularly important to word very carefully any proposal documents or offer letters when contemplating changes to employee terms and conditions and have evidence to back up any broader strategic purpose behind the proposed changes.

A breach will not necessarily make the change ineffective. If an employee accepts an offer and their terms are actually varied there is nothing in the legislation that renders the changes void. The position can, however, be more complicated if the employee has agreed that their terms will be varied at some point in the future.

It is important to bear in mind this provision if, as a transferee, you are considering offering more beneficial terms to employees following a TUPE transfer. If your proposed changes have the effect of drawing employees away from collective bargaining you may be liable for a penalty.

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