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When is collective bargaining exhausted and a direct offer of new employment terms allowed? The EAT confirms an objective test

21 June 2022

In the first reported application of the Supreme Court’s landmark Kostal decision, the Employment Appeal Tribunal has ruled that an employer could not unilaterally declare that its negotiations with its recognised trade union had finished. As unionised employers may only make direct offers to employees after exhausting their collective bargaining procedure, the employer now faces punitive fines.

Under section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), employers are prohibited from making offers to employees who are members of its recognised trade union(s) which, if accepted, would mean their terms and conditions will not or will no longer be determined by collective bargaining. This outcome is known as the “prohibited result”.

An employer will only be in breach of section 145B if the sole or main purpose of making the offer is to achieve the prohibited result. The penalty for unlawful inducements is currently £4,554 per offer per affected employee.

The Supreme Court (SC) recently considered the application of section 145B in the landmark case of Kostal UK Ltd v Dunkley and others. In Kostal, the SC ruled that, for offers to be capable of having the prohibited result, there must be at least a real possibility that, if they were not made and accepted, the relevant terms would have been determined by a new collective agreement. The upshot is that if an employer has exhausted the collective bargaining process, it is free to make direct offers to employees without incurring liability under section 145B. (See our article on the SC decision in Kostal for further information.)

What happened in this case?

In 2016-17, Ineos engaged in pay negotiations with its recognised trade union, Unite, in respect of employees at its Grangemouth oil refinery and petrochemicals plant. After five meetings over a four-month period, Ineos proposed a “best and final” offer of a 2.8% pay increase, which was rejected by Unite in favour of further talks. Following this, Ineos decided to award the pay increase unilaterally and at the same time gave notice of termination of its collective bargaining agreements with Unite at Grangemouth.

Unite, on behalf of its affected members, claimed that, in making the unilateral pay award, Ineos had sought to remove it as the recognised trade union at the Grangemouth site and that it resulted in employees’ terms and conditions not being determined by collective bargaining, in breach of section 145B. The Employment Tribunal (ET) agreed with Unite, finding that Ineos’ pay offer had the prohibited result.

Ineos appealed the ET decision, arguing that it should be overturned in light of Kostal. Ineos argued that: (i) the unilateral pay increase was not an “offer” (ii) collective bargaining had been exhausted at the point when Unite rejected Ineos’ “best and final” offer and there was therefore no “prohibited result” and (iii) Ineos had genuine business reasons for making the pay award, rather than seeking to bypass collective bargaining.

EAT decision

The EAT dismissed the appeal, confirming that Ineos’ actions amounted to a breach of section 145B when applying the test in Kostal.

The EAT ruled that the unilateral pay increase constituted an “offer” for the purposes of section 145B, on the basis that a term as fundamental as pay could be not varied unilaterally outside of the employment contract. The employees had accepted the offer by continuing to work. The EAT said that it was “fortified” in reaching this conclusion by the fact that Ineos had expressly referred to implementing its “latest offer”.

However, this part of the decision appears to conflict with an EAT decision shortly before Kostal in Scottish Borders Housing Association Ltd v Caldwell, in which the EAT ruled that unilaterally imposed terms were not an “offer” and so section 145B could not be engaged in such circumstances. Unless this point is clarified on appeal, tribunals are likely to face difficulty in reconciling these two decisions, especially as this point was not an issue in Kostal. (See our article on the EAT decision in Scottish Borders Housing for further information.)

In addition, the EAT found that, based on the unchallenged evidence submitted to the ET, collective bargaining had not been exhausted at the time Ineos made the pay award, as both parties had indicated that they were close to agreement and had contemplated further rounds of negotiation. The EAT also said that it would be a perverse interpretation of section 145B to allow an employer to evade liability simply by unilaterally declaring its offer to be “final”. The correct application of Kostal requires an objective assessment of whether, as a matter of fact, negotiations were at an end.

The EAT highlighted the distinction between the collective agreement in Kostal, which contained a highly structured negotiating procedure, and this case, where the collective agreements between Unite and Ineos provided little detail on the process to be followed or the dispute resolution procedure to be adopted in the event of an impasse. In the latter scenario, where there is no prescribed final stage of negotiation, there is clearly greater scope for ambiguity over whether collective bargaining has been exhausted. 

Implications for employers

This case will be of interest to employers with recognised unions as the first reported judicial application of Kostal. While the SC decision in Kostal remains an extremely welcome one for employers, this case is a cautionary reminder of the significant risk involved in making direct offers to employees before industrial negotiations have clearly been exhausted.

For employers engaged in protracted or adversarial negotiations with their recognised trade union, especially in the context of the current cost of living crisis, the EAT decision makes it clear that they cannot simply unilaterally declare that negotiations are at an impasse. Employers should carefully consider how events would be understood by an independent observer, and ensure that, before making any direct offers, they have a robust, contemporaneous paper trail unambiguously demonstrating that bargaining has been exhausted.

This case highlights the greater scope for ambiguity where collective agreements do not contain detailed negotiating procedures or dispute resolution processes. Following Kostal, it is clear that tribunals will place great importance on the terms of the applicable bargaining procedure, notwithstanding the fact that collective agreements are rarely legally enforceable. While we anticipate that unions are likely to now pay far greater scrutiny to the mechanisms in collective agreements governing what should happen if negotiations reach an impasse (including pushing for binding arbitration), employers should also focus on ensuring that bargaining procedures are clearly structured to avoid any unhelpful ambiguity over whether negotiations remain alive.

INEOS Infrastructure Grangemouth Limited v Jones & Others and INEOS Chemicals Grangemouth Limited v Arnott & Othersjudgment available here

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