UK: Court of Appeal overturns EAT decision in Kostal case on unlawful inducements (s.145B TULRCA)

The Court of Appeal has handed down judgment in Kostal UK Ltd v Dunkley and others, a case concerning the scope of s.145B of TULR(C)A. In a decision which will be welcomed by employers who recognise a trade union, the Court of Appeal allowed Kostal’s appeal and overturned the decisions of the EAT and ET. Section 145B is complex but essentially prohibits employers from making offers directly to union members to change their terms and conditions in order to avoid collective bargaining (ie if the employer’s “sole or main purpose” in making the offer is to achieve a “prohibited result”). The issue in this case was whether the employer’s sole or main purpose was to achieve a prohibited result where it made a pay offer direct to employees following the breakdown of pay negotiations, but did not intend that pay would not be collectively bargained in future. The CoA held that this did not fall within the prohibited result. This case is the first time that s.145B has been considered at appellate level.

The facts are set out in detail in our Be Aware post of 19 December 2017 covering the EAT’s decision. Briefly, Kostal had a collective bargaining agreement with Unite which provided for pay negotiations to commence in October with a normally effective date of 1 January. Pay negotiations commenced in October 2015 but, following failure to reach a deal, in December 2015 Kostal issued a general notice indicating its intention to make an offer direct to the employees, and on 10 December 2015 Kostal wrote to all employees offering a 2 or 4% pay rise and Christmas bonus. Later in December Kostal issued a further general notice encouraging employees to agree to the changes and reminding them that they would not receive their Christmas bonus if they did not. Kostal also wrote to individual employees who had not yet accepted the offer on 29 January 2016 repeating the offer. A collective agreement on pay was eventually reached in November 2016.

The claimants brought claims that their rights under s.145B were infringed by the letters of 10 December and 29 January. Those claims were successful in the ET, which awarded £7,600 compensation to each of the 55 claimants, and on appeal to the EAT which upheld the ET’s judgment.

Kostal appealed to the Court of Appeal (CoA). The CoA upheld the appeal, overturning the decisions of both the EAT and the ET. Bean LJ, giving the lead judgment, said that the construction of s.145B favoured by the ET and the majority of the EAT would amount to giving a recognised trade union a veto over even the most minor changes in the terms and conditions of employment. In the view of the CoA this could not be what Parliament intended. The ET found, and were entitled to find, that Kostal’s purpose in making the offers to individual employees was to circumvent the collective bargaining process, but it did not follow that this was a prohibited result within s.145B.

The CoA considered that there are two types of prohibited result. The first is where a 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 will not be determined by collective agreement. The second is where a trade union is already recognised, the workers’ terms 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, or one or more of them, will no longer be determined by collective agreement on a permanent basis. The CoA did not accept that there is a third type, as in the present case, where a union is recognised, the workers’ terms 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 one or more of the workers’ terms of employment will not be determined by collective agreement on this one occasion. The CoA considered that otherwise s.145B would give a recognised trade union an effective veto over any direct offer to employees concerning any term of the contract, this would go far beyond the reasons for which s.145B was enacted and in such as case the members of the union are not being asked to relinquish, even temporarily, their right to be represented by the union in the collective bargaining process. It also remains open to the union to ballot their members for industrial action.