185: When negotiations break down

In a case which will have significant industrial relations implications, the Court of Appeal has ruled in Kostal UK Ltd v Dunkley and others that, where negotiations have broken down, trade unions cannot prevent employers from approaching employees directly in order to seek temporary changes to terms and conditions.

Section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) prohibits employers making offers to employees with the sole or main purpose of undermining collective bargaining. However, its scope is unclear. Trade unions have argued that the provisions should be interpreted widely to prohibit any direct offer to employees outside the collective bargaining process, even where the employer is not hostile to the union and collective bargaining has taken place. On the other hand, employers have argued that the legislation only applies where the inducement is aimed at ending or preventing collective bargaining.

Under its recognition agreement with Unite, Kostal agreed that pay negotiations would take place annually and that any proposed changes to terms and conditions would be negotiated with the union. In 2015, Kostal proposed several changes to terms of employment in exchange for increases in basic pay and a Christmas bonus. The union balloted its members who voted overwhelmingly to reject the pay deal. Kostal then wrote to staff individually asking them to agree to the new terms and conditions by 18 December 2015, otherwise, it would run out of time to pay the Christmas bonus. 91% of the workforce accepted the new terms. In January 2016 Kostal wrote to those employees who had not agreed to the deal stating that their contracts might be terminated if they did not accept it. A collective agreement on pay was eventually reached with Unite in November 2016.

A number of union members brought claims alleging that their rights under section 145B of TULRCA had been infringed because the two letters from the company amounted to unlawful inducements to opt-out of collective bargaining. Both the Employment Tribunal and the Employment Appeal Tribunal (EAT) agreed, and awarded each employee a fixed award of £3,800 for each letter, amounting to a total award of over £400,000. Kostal appealed to the Court of Appeal.

The Court of Appeal agreed that Kostal had written to employees in order to circumvent the collective bargaining process. However, it concluded that Kostal had not acted unlawfully because the changes were only temporary and union members were not being asked to give up their right to be represented by their union in the collective bargaining process. Kostal had only approached staff directly to agree to a particular term and was not anti-union, as demonstrated by the fact that it then continued negotiating with the union and eventually reached a pay deal.

This will be a welcome decision for unionised employers who can potentially use it to communicate directly with employees where collective bargaining has stalled. However, as the Court of Appeal stressed in this case, it would be still be unlawful to make an offer to employees in two circumstances: where a union is seeking recognition, with the aim of avoiding their terms being determined by collective agreement; and where an offer is made with the aim of avoiding terms being determined by collective agreement permanently. It should be noted that the union is applying for permission to appeal to the Supreme Court.