The Risks of Bypassing Collective Bargaining Part 1

Do you recognise a trade union for the purposes of collective bargaining? A recent employment tribunal case 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 and had recognised Unite as the trade union in the workplace. The majority of the workers at the company voted in favour of recognising Unite as their union for the purposes of collective bargaining. Kostal then signed a recognition agreement with the union.

A year later (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 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, better known by its abbreviation, TULRCA.

What the tribunal decided

The employment tribunal decided that what Kostal had done bypassed the collective bargaining arrangement. Under Section 145B of TULRCA,  doing so could land the company with a substantial financial penalty.

Section 145B is supposed to prevent employers from undermining the principle of collective bargaining. If they make an offer to employees that undermines collective bargaining (which is known as the ‘prohibited result’) this will be counted as a breach.

The penalty for a breach is £3,830 per affected employee per offer. In Kostal’s case, this meant that – since there were 56 employees involved and more than one offer had been made – the penalty bill could reach £425,000.

(UPDATE: In December 2017, the Employment Appeal Tribunal dismissed Kostal’s appeal against the original Tribunal judgment http://www.bailii.org/uk/cases/UKEAT/2017/0108_17_1312.html).

The question arises as to whether a breakdown in the negotiations represents the end of the bargaining process or is it an impasse that can, with determination and compromise, be broken?

If an employer has reached the end of the bargaining process that was established by the collective agreement, then it can be argued that a direct offer to the workforce is not in breach of that agreement, since it has provided for just such a circumstance. If the union has rejected the employer’s final proposition, it can be concluded that the discussions have finished and the collective bargaining process is at an end.

The case will be decided on whether the bargaining process has indeed reached a conclusion and the wording of the arrangement that established the collective bargaining process in the first place.

Next time, we’ll take a look at the letter of the law on this issue and what employers can do to ensure they stay legal when dealing with issues in which a union is involved.