Case Notes: Kostal UK Ltd v Dunkley & Ors

Section 145B of the Trade Union and Labour Relations (Consolidation) Act gives union members the right not to receive offers from their employer which, if accepted, would have the result that one or more terms of their employment will not (or will no longer) be determined by collective bargaining (the “prohibited result”), if the employer’s main purpose is to achieve that result.

Background

During collective bargaining negotiations with Unite, Kostal offered a 2% pay increase and a Christmas bonus, in return for reduced overtime and sick pay.  Members rejected the offer in a ballot. Before exhausting the collective dispute resolution procedures, Kostal made direct offers to staff, telling them that they would not receive the Christmas bonus if they did not accept. Some 90% of staff accepted, with the result the Union’s mandate was “destroyed”. Later, the Company made a similar offer,  without the bonus, warning that if not accepted it may lead to dismissal.

The Employment Tribunal (ET) and Employment Appeal Tribunal (EAT) upheld the members’ claims under section 145B in respect of both offers. The total award was £421,800. However, the Court of Appeal allowed Kostal’s appeal, holding that the prohibited result only occurs where acceptance of the direct offers would have the effect of taking term(s) outside the sphere of collective bargaining on a permanent basis.

The Supreme Court

The Supreme Court allowed the claimants’ appeal.

Issues on which all members of the Court agreed

On the primary dispute of linguistic construction, the Court rejected Kostal’s argument that where a union has already been recognised section 145B only applies where the effect of acceptance of the employer’s offers is that the relevant terms “will no longer” be determined by collective bargaining, and not when they “will not” be so determined – thus rejecting the CA’s finding that the prohibited result only occurs where there is a permanent removal of terms from collective bargaining; it can occur on a single occasion.

The minority

Lady Arden and Lord Burrows approved the reasoning of the Employment Appeal Tribunal, that the prohibited result occurs whenever an employer makes offers directly to workers outside an agreed collective bargaining process; the tribunal then decides whether the employer’s main purpose was to achieve the prohibited result, or a genuine commercial purpose.

The majority

Lord Leggatt (Lords Briggs and Kitchin agreeing) did not accept that, for two ‘policy’ reasons: (a) “Where … the parties have exhausted the procedure for collective bargaining …, there is no justification in terms of the policy of UK law for … deterring the employer from … making an offer directly to workers.”; (b) “… showing the purpose in making the offers cannot anyway provide a secure or stable defence”; requiring a tribunal to determine whether the employer’s main purpose was a genuine commercial one was “not a workable test and is incapable of providing .. legal certainty”.

Rather, the issue should be whether the offers “if accepted, would in fact cause arrangements for collective bargaining which have been agreed with the union to be by-passed”. They held that the Article 11 cases of Wilson/Palmer and Unite v UK Kingdom require that “an employer which has recognised a trade union for the purpose of collective bargaining … cannot be permitted with impunity to ignore or by-pass the agreed procedure, …”.

Thus, they held that ‘prohibited result’ must be construed so that “in order for offers made by the employer to workers to be capable of having the prohibited result, there must be 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.”

Therefore, where an employer exhausts collectively agreed dispute resolution procedures before making direct offers, the prohibited result would not arise.

Comment

It is unclear how the Supreme Court judgments will be applied where an employer goes through the dispute resolution procedure in bad faith. The minority observed that, “just because the collective bargaining process for this round has been exhausted … an employer who has been determined to thwart the bargaining process does not have a genuine business purpose (and indeed would fall within section 145D(4)(a))”.  Lord Leggatt does not address that situation; however, we suggest that it is implicit in his analysis that for an employer to rely on exhausting the collective bargaining process it must have done so in good faith.  He describes the relevant right as the “right to be represented in collective bargaining conducted in accordance with the Recognition Agreement”.  It is always implicit, often explicit in Recognition Agreements that collective bargaining be conducted in good faith.

If there is no specified dispute resolution procedure, what does an employer need to do to satisfy the right of union members to be represented in collective bargaining? Again, the yardstick must be one of good faith/reasonableness.

How does the majority’s analysis apply where the union is not yet recognised?  It is difficult to see how/when an Employment Tribunal would find that direct offers were made in that situation when there was a ‘real possibility’ of terms being agreed by collective bargaining.

Finally, the majority’s concern about Employment Tribunals determining an employer’s underlying purpose is surprising. They do so routinely in discrimination and detriment cases.

Notwithstanding residual uncertainties, this case is an important extension to the rights of trade union members deriving from Article 11 of the European Convention on Human Rights.