• rradar

Circumventing Collective Bargaining – What are the risks? Supreme Court judgment implications

Updated: Jan 5

Do you recognise a trade union for the purposes of collective bargaining? An ongoing case, now finally ruled on by the Supreme Court has highlighted a risk that employers may find themselves at the receiving end of significant financial penalties for trying to break a negotiation log-jam by circumventing a collective bargaining agreement.

What happened?

Kostal UK is an electronics/electromechanical manufacturer. In November 2014, the majority of its workers voted in favour of recognising Unite as their union for the purposes of collective bargaining. In February 2015, Kostal signed a recognition agreement with the union.

As the Supreme Court said:

“The stated purpose of this agreement was to establish trade union recognition and representation within the Company and establish a framework for consultation and collective bargaining.”

In November 2015, Kostal was in pay negotiations and made an offer of a 2% increase and a 2% Christmas bonus. In return, they wanted to make changes to the sick pay entitlement for new starters, a reduction in overtime rates and changes to break times. The offer was voted on by union members and 80% of them rejected it.

Under the collective bargaining agreement, Kostal should have gone back to the negotiating table but instead they contacted individual employees and encouraged them to accept the offer. To persuade them to do so, Kostal warned them that if they did not accept, they would lose the Christmas bonus.

With no acceptance by the employees, Kostal sent out another letter in January 2016. This time, they said that without an agreement, there was the chance of notice being given to terminate employment.

Supported by their union, the affected employees brought claims under Section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

What was decided?

The tribunal upheld the complaints and made a statutory award of £3,800 to each affected worker in respect of the first offer and another award of £3,800 to each person who also received the second offer. The total award against Kostal was £421,800.

Kostal appealed to the Employment Appeal Tribunal, but that appeal was dismissed. Kostal then appealed to the Court of Appeal, which allowed the appeal and overturned the Tribunal’s decision. The affected employees appealed to the Supreme Court, which has now decided against Kostal.

The Supreme Court said that Section 145B will only apply where there is “at least a real possibility that, if the offers were not made and accepted, the workers’ relevant terms of employment would have been determined by a new collective agreement reached for the period in question.”

This means that, provided that the agreed collective bargaining procedure has been followed and all options exhausted, the employer can make an offer directly to its workers in relation to a matter which falls within the scope of the collective bargaining agreement.

What the law says

Section 145B Inducements relating to collective bargaining

(1) A worker who is a member of an independent trade union which is recognised, or seeking to be recognised, by his employer has the right not to have an offer made to him by his employer if—

(a) acceptance of the offer, together with other workers' acceptance of offers which the employer also makes to them, would have the prohibited result, and

(b) the employer’s sole or main purpose in making the offers is to achieve that result.

(2) The prohibited result is that the workers' terms of employment, or any of those terms, will not (or will no longer) be determined by collective agreement negotiated by or on behalf of the union.

(3) It is immaterial for the purposes of subsection (1) whether the offers are made to the workers simultaneously.

Time limit for proceedings

A claim under Section 145B has to be made within three months of the offer being made, or – if the offer is part of a series of similar offers – within three months of the last offer being made.

If the claimant can show that it was not reasonably practicable for them to make the claim within the three-month limit, the claim can be made within a further period considered reasonable by the tribunal.

What employers should bear in mind

The judgment clarifies that if the employer has followed the collective bargaining process and has formed the belief that it has been exhausted, there is nothing that will effectively prevent them from making an offer directly to their workforce.

Employers should therefore make sure that they follow every step of the collective bargaining process (and this will include the dispute resolution process, if there is one) before considering direct engagement with the workforce.

If in doubt, the employer should err on the side of caution and go the extra mile to ensure that they are seen as having done all that they can to conclude negotiations.

Each step of the collective bargaining process should, of course, be carefully documented so that it can be provided as evidence if there is any dispute later.

If, as in the case of Kostal, an employer is entering into a new collective bargaining agreement, they need to make sure that the agreement is clear and explains each stage of the process and what tests need to be passed in order for that process to be considered exhausted. With such an agreement, it should be easier for employers to show that they did indeed follow the recognised process and prove that, at the time whatever direct offer is made, the process had been deemed (and accepted as) exhausted.

Employers also need to make it very clear why they are making the offer to the individual employees – if it is a business imperative (or can be defined as such) that the change needs to happen, and the employer needs to get buy-in from the workforce, this can help to persuade the tribunal (and possibly the union as well) that the reason for making the offer was not to bypass collective bargaining but instead had a more honest objective.

The financial consequences

If a claim under Section 145B is successful, the tribunal must make a mandatory award. The figure at the time was £3,800 per offer made, but it has now increased to £4,341.

The Supreme Court pointed out that:

“…there is no statutory basis on which an employment tribunal can reduce the award whether on “just and equitable”, or any other, grounds.”

No veto for unions

It is nevertheless reassuring for employers that the Supreme Court judgment was dismissive of arguments put forward which would have handed unions the right of veto over any changes to terms proposed by employers.

“This…approach, in which the employer must show that it has a proper purpose - “a genuine business purpose” for making offers directly to workers, does not give trade unions a veto, whether legally or practically, over changes to terms.”