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31 July 2019
The Court of Appeal has ruled that offers made directly by an employer to its employees in relation to pay and working hours did not amount to an unlawful attempt to bypass collective bargaining contrary to Section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992. Section 145B is engaged only if the employer's purpose is to stop employees' terms of employment from being determined by collective agreement on a permanent basis.
This case involved an appeal by the employer, Kostal UK Limited, against an employment tribunal decision in March 2017 (for further information please see "The risk for employers in bypassing collective bargaining").(1)
In order to overcome a perceived impasse in negotiations with its recognised trade union, Unite, Kostal made a direct offer to its employees for an improved pay deal in return for changes to working hour patterns. Unite argued that Kostal's actions sought to bypass a newly agreed collective bargaining arrangement and that this was a breach of Section 145B.
Section 145B will be breached if an offer is made to employees which leads to terms and conditions no longer being determined by collective bargaining negotiations – known as the 'prohibited result'. This is to prevent employers from undermining the principle of collective bargaining and gives effect to the European Court of Human Rights' ruling in Wilson v UK that employees should not be disincentivised from enjoying collective bargaining rights.
The employment tribunal agreed with Unite. It held that Kostal had made offers to employees that would lead to terms and conditions that were no longer determined by collective bargaining and thus imposed a mandatory punitive fine (currently £4,193 per affected employee but £3,800 at the time of Kostal's offers).
The Employment Appeal Tribunal (EAT) upheld the employment tribunal's decision and rejected Kostal's appeal. This was the EAT's first decision on Section 145B (for further details please see "Employment Appeal Tribunal confirms that employer's attempt to bypass collective bargaining is unlawful").
The EAT held that the prohibited result occurs where offers, if accepted, result in new terms being agreed directly rather than through collective bargaining. For a claim under Section 145B to succeed, no particular term or terms must be permanently removed from the scope of collective bargaining. The fact that collective bargaining had subsequently continued at Kostal did not prevent the direct offers from having the prohibited result. Those offers, if accepted, would have resulted in the relevant terms set out in the offer letters being agreed directly with employees rather than through collective bargaining. While the change in terms may not have been permanent, they would have at least remained in place until a further change had been implemented.
The Court of Appeal reversed the decisions of the employment tribunal and the EAT. It held that Unite's interpretation of Section 145B was possible as a matter of literal interpretation but that it was extremely unlikely that it was the result that Parliament had intended. This is because it:
would amount to giving a recognised trade union with a collective agreement similar to the one in the present case a veto over even the most minor changes in the terms and conditions of employment, with the employers incurring a severe penalty for overriding the veto.
The Court of Appeal held that Unite's interpretation would mean that Section 145B would go far beyond curing the defect in UK law identified by the Strasbourg court in Wilson v UK. This is because employees have a right to be represented by a trade union and for that union's voice to be heard in negotiations, but no right to impose their will on the employer.
The Court of Appeal also identified a fundamental flaw in the EAT's decision. The EAT indicated that an employer would not have been liable if it had acted "reasonably and rationally". However, no such test exists in Section 145B. The court commented that "it has surely been settled law, at any rate since the 1980s, that courts and tribunals should not try to decide which side in a trade dispute is behaving reasonably and rationally".
The Court of Appeal concluded by providing useful guidance on the meaning of a 'prohibited result'. It held that the prohibited result does not occur if 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 would not, on one occasion, be determined by a collective agreement. This can be contrasted with an employer offering inducements for an employee to surrender collective bargaining rights permanently, as happened in Wilson v UK.
This is a welcome decision for employers. The punitive financial consequences of breaching Section 145B mean that employers have had to adopt a cautious approach since the EAT's decision. This had been necessary even if an employer was not motivated by hostility to trade unions and simply wanted to put an offer directly to employees after an impasse had been reached with their trade union.
Unite is now seeking permission to appeal to the Supreme Court and could ultimately take this case to the European Court of Human Rights. A cautious approach remains sensible given the punitive fines if an employer goes too far in its offers to employees. The Court of Appeal also issued a reminder that this decision does not render a union powerless, given its ability to call for industrial action in retaliation for any offer made directly to employees.
For further information on this topic please contact David Hopper at Lewis Silkin by telephone (+44 207 074 8000) or email (firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkin.com.
(1) Kostal UK Ltd v Dale Dunkley  EWCA Civ 1009 – judgment available here.
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