Court of Appeal ruling overturned in trade union inducements litigation

The Supreme Court has ruled that an employer had infringed trade union legislation when it made a direct pay offer to its workforce before it had completed the collective bargaining process. In doing so it has reversed the Court of Appeal’s decision, which was published in 2019.

The litigation between Kostal Limited and a group of workers represented by the trade union Unite centred on the interpretation of section 145B Trade Union and Labour Relations Act 1992. That provision was inserted into the Act in 2004 to deter employers from offering “inducements” to workers in order to by-pass collective bargaining with a recognised trade union.

The section operates by giving employees who are members of an independent union the right not to be offered inducements which would have the “prohibited result”, where the employer’s sole or main purpose is to achieve that result. Prohibited result is defined as follows:

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.

It is fairly clear that an offer of financial inducements in order to persuade union members permanently to surrender their rights to have their terms and conditions determined by collective bargaining would fall within this definition.

But what if the offer is made in relation to a particular pay round, with no intention of by-passing collective bargaining on a permanent basis? That was the issue which the courts at various levels have been grappling with in this litigation.

Kostal had entered into a union recognition agreement with Unite, which provided for an agreed collective bargaining machinery. However, just before Christmas 2015, in the middle of pay negotiations, it made a direct offer to its workforce which most of them eventually accepted. That meant that the collective bargaining machinery had effectively been bypassed on this occasion, but Unite retained its role in relation to pay bargaining in the future.

Both the employment tribunal and the Employment Appeal Tribunal thought that Kostal’s direct offer had infringed section 145B, but the Court of Appeal disagreed. It said that the section only applied to offers aimed at making permanent changes to collective bargaining arrangements, but not to direct offers to union members on a one-off basis. Otherwise, it thought, the union would be in a position to veto any particular pay offer and prevent the employer appealing directly to its workforce.

The Supreme Court has now ruled that section 145B applies whether the inducement is confined to a particular round of negotiations, or seeks a permanent end to collective bargaining. However there was a disagreement on its precise interpretation. Some of the distinctions made are quite subtle, but the key point is that all five judges agreed that a direct offer made before a collective bargaining process on a particular term of employment has been exhausted will infringe the section, even if the employer did not seek a permanent end to collective bargaining on that term.

However, two of the judges thought that even if the offer were made after a particular round of collective bargaining had been concluded, this could still result in an infringement of section 145B in some circumstances – for example if the employer had not conducted the collective bargaining in good faith.

This decision of the UK’s top court represents a significant clarification of the section in favour of unions and their members, and is likely to be the final word on the subject for the foreseeable future.