The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) prohibits an employer from making direct offers to members of a recognised trade union in order to circumvent the collective bargaining process (section 145B).
In Kostal UK Ltd v Dunkley and others, the Employment Appeal Tribunal (EAT) ruled that an employer had breached this provision when it bypassed negotiations with Unite by contacting employees directly about changes to terms and conditions.
Kostal UK Ltd recognises Unite for the purposes of collective bargaining. Following negotiations with Unite in 2015, Kostal offered all employees a 2% increase in basic pay from January 2016 and a Christmas bonus; and for employees earning less than £20,000 a further 2% increase in basic pay. In exchange, Kostal proposed a number of changes in terms and conditions including a reduction in sick pay for new starters, a reduced Sunday overtime rate, and consolidated rest breaks. However, the pay deal and these related changes were resoundingly rejected in a ballot on 3 December 2015.
On 10 December 2015, Kostal wrote to all employees setting out the same package and stating that failure to agree by 18 December 2015 would result in loss of the Christmas bonus and pay increase. Some employees then accepted this offer. On 29 January 2016, Kostal wrote to employees who had not accepted, offering a 4% pay increase and warning that if no agreement could be reached, they might be given notice on their contract of employment. A collective agreement on amended terms and conditions was eventually reached on 3 November 2016. However, a group of 57 employees brought Employment Tribunal claims alleging that Kostal’s letters of 10 December 2015 and 29 January 2016 amounted to an attempt to circumvent collective bargaining, and therefore infringed section 145B of TULRCA.
The Employment Tribunal upheld the employees’ claims, rejecting Kostal’s arguments that it had never attempted to cease collective bargaining and that the main purpose behind the offers in the letters to employees was to ensure that they did not lose their Christmas bonus. The Tribunal awarded each claimant the mandatory award (at that time £3,800) in respect of each of the two letters. Kostal appealed to the EAT on liability and remedy.
The EAT dismissed both the liability and remedy appeals. Kostal argued that there would only be a breach of TULRCA if acceptance of the offer resulted in a permanent surrender of collective bargaining on the relevant terms, which was not the case here. However, the EAT held that there was nothing in TULRCA dealing with the duration of the effect of the direct offer. If acceptance of the direct offer to employees meant that at least one term of employment would be determined even temporarily by direct agreement, rather than collectively, this would breach TULRCA. The EAT also agreed with the Employment Tribunal that Kostal’s offers were intended to undermine Unite’s mandate. On remedy, the EAT confirmed that two distinct and separate offers had been made, and that employees were entitled to compensation in respect of each offer. The total compensation awarded to the claimants amounted to around £425,000.
As the EAT noted here, employers may be able to make offers directly to employees where collective bargaining has broken down, if they can show that they have acted reasonably and with a genuine business purpose. However, this may be difficult to prove. The Kostal case illustrates the potential financial consequences of undermining collective bargaining. Each breach of section 145B of TULRCA will now result in a mandatory award of £3,907 per claimant and there is no statutory basis on which a Tribunal can reduce this amount.