The Supreme Court held that Kostal UK Ltd could not lawfully offer new pay terms directly to Unite members while the collective bargaining procedure agreed with the union was still continuing. Those offers had the “prohibited result” in section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992. The workers’ appeal was allowed, although the justices did not all define the limits of the section in the same way.
The pay offers
Fifty-seven shop-floor and manual workers at Kostal UK Ltd, which manufactures products for the automotive industry, were members of Unite. After a ballot in November 2014, the company and Unite signed a recognition and procedural agreement on 16 February 2015. It gave Unite sole recognition and bargaining rights. The parties accepted that it was binding in honour only and was not a legally binding contract.
Law Teacher writing support
Writing a law essay?
We choose a writer who is an expert in your area of law and qualified to at least the academic level you select. Most of our writers hold a master’s degree or PhD, have teaching experience, or both.
Send us your question and, if you wish, any marking criteria. We’ll write an essay to your instructions.
The agreement provided for annual negotiations, normally beginning in October, and said that proposed changes to terms and conditions would be negotiated with the union. Appendix 1 set out a four-stage procedure for collective disputes. If there was no agreement at stage 3, the matter might, by joint agreement, be referred to ACAS. If the parties did not agree to that referral, the procedure was exhausted. During the procedure, neither side was to impose a change.
Unite members rejected a package offering higher pay and a Christmas bonus in return for changes to sick pay, Sunday overtime and breaks.
Kostal then offered the package directly to workers. Anyone who declined by 18 December would lose the Christmas bonus. While talks continued, a second offer warned remaining workers that they risked notice to terminate their contracts. A collective agreement was eventually reached in November 2016, without the 2015 Christmas bonus.
The statutory complaint
On 11 May 2016 the workers complained to an employment tribunal that the direct offers contravened section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992. The section, inserted in 2004, gives a member of an independent trade union which is recognised, or seeking recognition, a right not to receive an offer if two conditions are met. Acceptance of that offer, together with other workers’ acceptance of offers made to them, must have the prohibited result, and the employer’s sole or main purpose must be to achieve that result.
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.
A successful complaint leads to a fixed award for each offer. At the time, the amount was £3,800. The tribunal upheld the complaints and awarded £3,800 to each claimant for the December offer, plus a further £3,800 to each claimant who also received the January offer. The total was £421,800. It found that, after the ballot, Kostal had consciously decided to by-pass further meaningful negotiations with the union.
The Employment Appeal Tribunal dismissed Kostal’s appeal by a majority. The Court of Appeal allowed it and set aside both earlier decisions. Bean LJ held that the section covered only an offer made while a union was seeking recognition, and, where a union was already recognised, an offer which took terms outside collective bargaining permanently. A one-off direct offer was not enough. He considered that the workers’ interpretation would give a recognised union an effective veto over changes, far beyond the mischief identified in Wilson and Palmer.
The reason for the section
The provisions followed Wilson and Palmer v United Kingdom. There the European Court of Human Rights held that domestic law had failed to protect employees offered financial incentives to give up union representation. Kostal concerned a related problem. Could the employer bypass a union for one negotiating round while continuing to recognise it for future rounds?
The majority’s reasons
Lord Leggatt, with whom Lord Briggs and Lord Kitchin agreed, rejected both interpretations advanced on the appeal. If every direct offer of a change which had not been collectively agreed automatically had the prohibited result, an employer could not approach its workforce after talks failed without risking a heavy penalty. That would give a union a practical veto and go beyond the aim of the legislation. It would also make little sense where a union was only seeking recognition and could not yet bargain.
The company’s interpretation was too narrow as well. The right is not confined to refusing an offer that expressly requires workers to contract out of representation, whether permanently or for one pay round. Where a union is recognised, it must be given a seat at the table. An employer cannot ignore an agreed procedure, or drop in and out of collective bargaining when that suits it.
Lord Leggatt treated the prohibited result as a question of cause. Acceptance has that result if the terms will not, or will no longer, be determined by collective agreement when there was a real possibility that they would have been, had the offers not been made and accepted. That possibility is ordinarily present where an agreed procedure has not been followed. Once the procedure has been exhausted, there is no longer a real possibility of a collective agreement, so a later direct offer does not have the prohibited result. An employer can limit the risk by defining the procedure clearly. The purpose defence is further protection: if the employer genuinely believes that the procedure is already exhausted, its purpose is not to prevent terms from being collectively agreed when they otherwise might have been.
Here the agreed procedure was still continuing when both offers were made. If every recipient had accepted, Unite would as a practical matter have had nothing better left to negotiate, while workers who refused risked being worse off. Workers who declined both offers did not receive the 2015 Christmas bonus. The tribunal was therefore entitled to find a contravention. As Lord Leggatt recorded, it was not disputed that, if the offers had the prohibited result, Kostal’s sole or main purpose was to achieve it.
The concurring judgment
Lady Arden and Lord Burrows agreed that the appeal should be allowed, but not with that causal test. They preferred the reasoning of the tribunal and the majority of the Employment Appeal Tribunal. An offer can have the prohibited result where, in form or substance, it asks workers to contract out of collective bargaining on this occasion. The November 2016 collective agreement did not change the fact that workers who had accepted the direct offers had already had their terms fixed individually. The tribunal had found Kostal’s continued commitment to bargaining to be little more than window dressing.
They read the purpose condition as excusing an employer which has a genuine business purpose, such as rewarding or retaining particular workers. The tribunal’s findings decided that issue against Kostal. Its main purpose was not to secure payment of a Christmas bonus, but to by-pass meaningful negotiation before the agreed procedure, including ACAS conciliation, had been exhausted.
They disagreed with the majority on an important limit. On their interpretation, exhaustion of the procedure does not necessarily mean that later individual offers are lawful: an employer determined to thwart bargaining may still lack a genuine business purpose. They did not consider it necessary to decide every question about a union which is only seeking recognition, and they declined to speculate about other hypothetical facts.
Verdict: The Supreme Court unanimously allowed the workers’ appeal and restored the tribunal’s awards totalling £421,800. Three justices adopted the real-possibility test. The other two agreed that these offers breached section 145B but took a different view of when direct offers may be lawful.
