Industrial relations: Employer can side-step collective bargaining says Court of Appeal

When agreement can’t be reached through collective bargaining, is an employer permitted to make an offer directly to trade union members, even if this means that some of the terms of their employment would, temporarily, be determined outside the collective bargaining framework?

In Kostal UK Ltd v Dunkley the Employment Tribunal and the Employment Appeal Tribunal held that this was prohibited. However, the Court of Appeal, considering this issue for the first time, has reversed this decision.

In a Judgment that will be welcomed by many employers, the Court of Appeal held that a one-off direct offer to the workforce, to agree a particular term or terms on a single occasion, is not an ‘unlawful inducement’ to give up collective bargaining rights for the purposes of Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

The facts

The employer in this case, a developer and producer of technically advanced electronic products, had offered a 2% increase in basic pay and a lump Christmas bonus, in return for a reduction in sick pay for new starters and a reduction in Sunday overtime (among other things). The union felt it could not recommend the offer, and gave its members a ‘free vote’. 80% voted to reject the proposal.

The employer then sent a letter to every employee offering the same terms, but giving employees a deadline by which to accept, after which they would not receive the Christmas bonus. In January, after the deadline, the employer wrote again to employees who had not accepted, offering a 4% increase in basic pay if they agreed the changes, and threatening dismissal if they did not. Subsequently, 57 employees brought claims against the employer alleging that the inducements were unlawful.

The law

The Trade Union and Labour Relations (Consolidation) Act (TULRCA) prohibits an employer offering ‘inducements’ to employees which, if accepted, would result in them giving up any or all of their collective bargaining rights.

The employer will only be in breach of this provision if their ‘sole or main purpose’ in making the offer is to achieve a ‘prohibited result’; that the terms of employment, or any of those terms, will not (or will no longer) be determined by collective agreement.

Where such an offer is found to have been made the Tribunal must make a fixed award (£3,830 at the relevant time) to each affected employee. There is no basis upon which this award can be reduced.

The Employment Tribunal decision (which was overturned)

The Employment Tribunal held that each of the two letters to the workforce was a separate unlawful inducement. It therefore awarded compensation of £3,830 per person in respect of each inducement; a total of £7,660 per person where an employee had received both letters. This meant that the employer faced liability of around £420,000.

The Employment Appeal Tribunal decision (which was overturned)

The employer appealed on the grounds that it had never intended to cease collective bargaining. Indeed, collective bargaining did not cease and eventually a collective agreement was reached on the amended terms. Therefore, it argued that its purpose in making the offers was not to achieve the ‘prohibited result’.

The EAT, by majority, dismissed the appeal. It held that the ‘prohibited result’ included situations where any of the terms of employment, even if just one of many, would not have been determined by collective bargaining. There was no requirement for that term to never again be determined by collective bargaining. The fact that this result was arguably temporary, in that it was a one-off direct agreement, was irrelevant.

The Court of Appeal – the important decision

The employer pursued its case further to the Court of Appeal and, this time, its arguments were successful.

The Court of Appeal agreed that, to be an unlawful inducement under TULRCA, an offer must have some permanence. The effect of the offer must be that terms of employment would not be determined by collective agreement in the future. Determining a number of discreet terms of the contract outside the collective bargaining framework, on a one-off basis, was not sufficient to breach the legislation.

The Court of Appeal rejected the claimants’ argument that allowing an employer to make an offer directly to the workforce robbed trade unions of their power. The Court observed that a union could always choose to take other action in protest. For example, in this case, the trade union held a ballot for industrial action and called for an overtime ban.

Instead, the Court agreed with the employer’s position that a total prohibition on making offers directly to the workforce would tie an employer’s hands completely, and allow trade unions “an effective veto over any direct offer to any employee, concerning any term of the contract, major or minor”.

The Court observed that under the European Convention on Human Rights, workers have a right to be represented by a trade union and for that union’s voice to be heard in negotiations with the employer. However, there is no right for workers, acting through their trade union, to impose their will on their employer. Parliament could not have intended this to be the case when drawing up the legislation.

What does this mean for employers?

This decision will come as a huge relief to employers with unionised workforces. We know that many of you felt that the Employment Tribunal and EAT decisions went too far, and severely restricted your room for manoeuvre when negotiating employee terms and conditions. The Court of Appeal decision restores some valuable flexibility in situations where collective bargaining does not result in agreement and makes it far less likely that employers will face adverse legal consequences if they attempt to break deadlock.

However, you must still be able to demonstrate that it was necessary to make an offer direct to the workforce rather than determining an issue collectively. It is clear from the decision that employers must be able to demonstrate a sound business reason for the offer, and that there must have been some attempt to reach agreement via collective bargaining in the first instance.

Remember too that direct offers remain prohibited where they will have the effect of taking particular terms and conditions outside the collective bargaining framework on a permanent basis.

Of course, any attempt to bypass collective bargaining, even if lawful, may raise difficult employee relations issues. Making an offer direct to the workforce can also be a huge logistical challenge and the prospect of dealing with individual refusals to agree (for example the ‘last resort’ of terminating employment and re-engaging on new terms) can be daunting. If you are unsure about any aspect of this challenging and sensitive area of law, we would be happy to support you.

Andrew Forrest is head of Weightmans national HR Rely service and is based in Birmingham.