When is a pay offer an unlawful inducement?
28 October 2021
The Supreme Court has handed down its decision in an important case that considers whether making a direct pay offer to employees amounted to an ‘unlawful inducement’ in contravention of collective bargaining rules.
Kostal UK Ltd v Dunkley and others [2021] UKSC 47
Facts
In 2015 the respondent, Kostal UK Ltd, entered a recognition agreement with the Unite trade union and commenced annual pay negotiations. The company’s pay offer was rejected following a ballot of Unite members. Kostal subsequently made a direct offer to employees and those who did not accept were later given an ultimatum that their contracts would be terminated if they did not accept the offer.
A group of employees alleged that the offer amounted to an unlawful inducement under section 145B Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). This prohibits an employer from making offers to members of a recognised trade union if the purpose of the offer is to circumvent collective bargaining arrangements. The claim was upheld by the employment tribunal, and Kostal’s appeal was dismissed by the Employment Appeal Tribunal. The respondent’s appeal was upheld by the Court of Appeal (see our previous bulletin). The claimants appealed to the Supreme Court.
Supreme Court decision
The Supreme Court has unanimously allowed the claimants’ appeal, upholding the tribunal’s original decision that the direct offers to employees who were Unite members were unlawful inducements, in breach of s145B TULRCA.
The majority of the Court held that on the facts of this case, the collective bargaining process was still ongoing when the employer’s pay offer was made to the employees, meaning that it amounted to an unlawful inducement. If, however, an employer has followed, and exhausted, the agreed collective bargaining procedure there is nothing to prevent an employer from making an offer direct to workers.
The decision hinged on the correct interpretation of the wording of s145B TULRCA. It is not the content of the employer’s offer that is the key question, but rather the practical consequences of the employer’s conduct in making the offer. If there is a real possibility that, had the offer not been made and accepted, the workers’ relevant terms of employment would have been determined by a new collective agreement, then this is likely to amount to an unlawful inducement under s145B. If there is no such possibility, then it cannot be said that making the individual offers has resulted in the terms of employment not being determined by collective agreement for that period, meaning that there has been no breach of s145B.
Consequences of this decision
This decision means that employers are not prevented from making offers direct to the workforce in relation to a matter within the scope of a collective bargaining agreement, but only if the employer can demonstrate that it has followed and exhausted the agreed collective bargaining procedure. The Supreme Court did not accept that the employer had done so in this case, meaning that its direct offer was in breach of the unlawful inducement provisions.
Recognition agreements will often include rather long-winded and time consuming dispute resolution procedures, which will need to be concluded before an employer can make direct offers to employees without risking a breach of the unlawful inducement provisions. In addition, it is likely that an employer must follow the process in good faith.
These articles are from the October 2021 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals. To download the latest issue, please visit the newsletter section of our website. For further information please contact a member of Birketts’ Employment Team.
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Liz Stevens
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at October 2021.