Employers are prohibited from offering financial incentives to workers who are members of a trade union where that offer results in all or any of the workers' terms of employment not, or no longer, being determined by a collective agreement. This applies where the trade union is recognised and the "prohibited result" (the terms not or no longer being determined by collective agreement) is the employer's sole or main purpose in making the offer. This prohibition is set out in section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). If an employer breaches section 145B a tribunal may make an award to a complainant.
In Kostal UK Ltd v Dunkley and others, at first instance the employment tribunal found two offers made by the employer by letter directly to workers, when negotiations with the union under a collective bargaining agreement stalled, breached section 145B. The employment tribunal awarded compensation to the 55 claimants that totalled nearly £420,000.
An appeal by the employer to the EAT was unsuccessful but a further appeal to the Court of Appeal did succeed. The Court of Appeal were of the view the legislation had been introduced to avoid employees being offered inducements to opt out of collective bargaining altogether. As the collective bargaining had only temporarily stalled, the Court of Appeal agreed with the employer that section 145B did not apply. The judgment limited the application of section 145B to situations either (1) where the trade union is seeking recognition and the employer makes the offer with the aim of preventing workers terms becoming subject to a collective agreement; or (2) where a trade union is already recognised and the employer makes an offer to end collective bargaining for some or all terms on a permanent basis.
The Supreme Court judgment has unanimously overturned the Court of Appeal, albeit with a 3 - 2 split as to why. The majority held that the correct approach to determining whether section 145B has been breached is to ask whether there is a real possibility that, but for the offer having been made and accepted, the workers' terms of employment would have been determined by a new collective agreement. If there was no possibility of that, then it cannot be said that the offer has caused the "prohibited result". On the facts of this case, at the time the offer was made there was a real possibility of the terms being determined by a new collective agreement (and that is in fact what happened). As such, a breach of section 145B had occurred. However, had the employer exhausted the collective bargaining procedure there would have been nothing to prevent a direct offer being made, as there would be no possibility of the matter subsequently being determined via collective bargaining.
The minority judgment went further, concluding that an employer cannot avoid liability just because the collective bargaining process had been exhausted - an unscrupulous employer could intentionally set out to thwart the process. In their view, the only way in which an employer could avoid liability for a breach of section 145B would be if they could prove the sole or main purpose of making the direct offer was a genuine business purpose and not preventing terms being determined by a collective agreement. That would be a matter of evidence before the tribunal.
While the split in the reasoning for this judgment is not ideal, what is clear is that any direct offer made by an employer to the workforce before the collective bargaining process is exhausted will be a breach of section 145B. In circumstances where there are likely to be numerous claims, this has very significant consequences for employers given the level of award that is made to each claimant. Currently the tribunal has no discretion to reduce the level of award that is specified in the statute. Employers would also be wise to consider whether they can establish a genuine business purpose for making an offer prior to doing so.
