Landmark collective bargaining decision issued by Supreme Court

The UK Supreme Court has recently handed down its much anticipated decision in the case of Kostal v Dunkley and others. Primarily, the case was concerned with when employers could negotiate with staff directly when a collective bargaining agreement with a recognised trade union was in place. This is an important issue as, if employers get this wrong, it can attract significant penalties and potentially damage employee relations, meaning this is a notable decision for all employers with an unionised workforce.

Facts

Mr Dunkley and 56 other claimants were employed as shop floor or manual workers by Kostal UK Ltd. Following a ballot of workers, Kostal and Unite signed a (non-legally binding) Recognition and Procedural Agreement in February 2015. In October 2015, they began formal annual pay negotiations.

Following two meetings with Unite representatives, Kostal made a pay offer. Union members were balloted and rejected the offer. Kostal then made the same offer to its employees directly, bypassing Unite, on 10 December 2015. On 29 January 2016, Kostal made another similar offer to those employees who had not yet accepted the first offer. Kostal also said that, if no agreement was reached, “this may lead to the company serving notice on your contract of employment”. In November 2016, by which time over 97% of employees had accepted one or other of the direct offers, Kostal and Unite reached a collective agreement for 2015 (on similar terms to the direct offers).

In May 2016, the claimants complained to an employment tribunal that the direct offers made to them by Kostal contravened section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992, as they would achieve the ‘prohibited result’. The ‘prohibited result’ is that the workers’ terms of employment, will not (or will no longer) be determined by collective agreement negotiated by or on behalf of the union

The tribunal upheld the complaints and made the statutory award of £3800 to each claimant for each offer made to them. Kostal appealed to the Employment Appeal Tribunal (the EAT) which, by a majority, dismissed the appeal. Kostal then appealed to the Court of Appeal, which allowed the appeal and set aside the decisions of the tribunal and the EAT. The claimants were given permission to appeal to the Supreme Court.

The Decision

The Supreme Court unanimously upheld the appeal, although, interestingly, had a 3-2 split as to why the appeal should be upheld.

Lord Leggatt’s leading judgment ruled that the arguments advanced by both parties were incorrect as they focussed on the content of the employer’s offer. The key point, in his view, was whether or not there was a casual connection between the presumed acceptance of the offers and the prohibited result. The prohibited result is, in practical terms, taking the terms and conditions out of the collective bargaining process. Therefore, employers can make direct offers to workers to change their terms and conditions, but only after collective bargaining has been attempted and the employer is satisfied that the process has been exhausted.

In this case, the appeal was allowed because Kostal had agreed rather than rejected the non-compulsory ACAS stage of its new collective bargaining procedure with Unite the Union. On that narrow basis the Supreme Court held that the company had failed to exhaust the procedure before making its offer.

Implications

Although the decision went against Kostal in this case, importantly the Supreme Court did not accept the argument advanced on behalf of the claimants which would have led to a ‘prohibited result’ if at any time an employer made an offer directly to employees. The majority in the Supreme Court viewed that this would give a union an effective veto on any terms changed without agreement.

Following Kostal the requirement is now that an employer must have engaged in collective bargaining, and exhausted the agreed collective bargaining procedure before it could write to individual workers to seek their agreement to any change to their terms and conditions (whether temporary or permanent), ensuring that employers will fully engage with collective bargaining and will only use direct offers to the workforce as a last resort measure.

The decision also highlights the importance of employers and trade unions having clear and explicit dispute resolution procedures, under which both sides can be clear when particular phases of collective bargaining have ended. Many – particularly long standing – collective bargaining arrangements may not have clear written procedures, or may be based on agreements that have changed over time following mergers between unions or employers. Employers and trade unions should check the clarity of the collective bargaining agreement between them as to when bargaining is still continuing and when it is exhausted and what dispute resolution procedures are in place. It may be advisable to agree new procedures if the existing procedure is not explicit as to when bargaining is at an end and perhaps introducing timescales or a clear process for when either side can declare the point at which it has been exhausted.