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Court of Appeal decides that unions do not have a veto during collective bargaining

17 June 2019

The Court of Appeal (“CA”) 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 (“TULRCA”). S.145B is only engaged if the employer’s purpose is to stop employees’ terms of employment from being determined by collective agreement on a permanent basis.

Background to the case

This case involved an appeal by the employer, Kostal UK Limited, against an Employment Tribunal (“ET”) decision in March 2017. See our insight article on that decision here.

In order to overcome a perceived impasse in negotiations with its recognised trade union, Unite, Kostal decided to make a direct offer to its employees of an improved pay deal in return for changes to working hours patterns. Unite argued that the result of Kostal’s actions was to seek to bypass a newly agreed collective bargaining arrangement, and this was a breach of s.145B TULCRA. 

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 a European Court of Human Rights ruling in Wilson v UK that employees should not be disincentivised from enjoying collective bargaining rights.

The ET agreed with Unite.  It held that Kostal had made offers to employees that would lead to terms and conditions no longer being determined by collective bargaining, and imposed a mandatory punitive fine (currently £4,193 per affected employee but £3,800 at the time of Kostal’s offers).

Employment Appeal Tribunal decision (“EAT”)

The EAT upheld the ET’s decision and rejected Kostal’s appeal. This was the EAT’s first decision on s.145B. See our insight article on that EAT decision here.

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 s145B to succeed, there is no need for a particular term or terms to 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. Whilst that change in terms may not have been permanent, they would have at least remained in place until a further change was implemented.

CA decision

The CA has reversed the decisions of the ET and the EAT. It held that Unite’s interpretation of s.145B was possible as a matter of literal interpretation, but it was extremely unlikely that it is the result which Parliament 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 CA held that Unite’s interpretation would mean that s.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 human right to be represented by a trade union and for that union’s voice to be heard in negotiations, but not a right to impose their will on the employer.

The CA also identified a fundamental flaw in the EAT’s decision. The EAT had indicated that an employer would not be liable if it had acted “reasonably and rationally”. However, no such test exists in s145B. The CA 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 CA concluded by providing very useful guidance on the meaning of the “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 will 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 had happened in Wilson v UK.

Implications for employers

This is a very welcome decision for employers. The punitive financial consequences of breaching s.145B mean that employers have had to adopt a very 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 does go too far in its offers to employees. The CA 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.    

Kostal UK Ltd v Dale Dunkley [2019] EWCA Civ 1009 judgment available here

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