EAT upholds employer liability to pay over £425,000

An employer is liable to pay over £425,000 compensation to employees after unlawfully inducing them to vary the terms of their employment contrary to section 145B of TULRCA.  

4 January 2018

In Kostal UK Ltd v Mr D Dunkley and Others the Employment Appeal Tribunal (EAT) has upheld an employment tribunal’s decision that an employer had unlawfully induced workers to vary the terms of their employment contract to avoid collective bargaining. This is the EAT’s first decision on section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). 

Section 145B protects collective bargaining by penalising employers who induce workers who are members of a recognised trade union to vary the terms of their employment outwith a collective bargaining process. Until now there have been very few cases on section 145B so the EAT’s decision provides helpful clarification on its interpretation.

In Kostal v Dunkley the employer (Kostal) recognised Unite as a trade union for collective bargaining purposes in 2015. Towards the end of the year the collective bargaining between Kostal and Unite began to break down after Kostal made an offer that Unite felt it could not recommend to members. The offer was for a 2% increase in basic pay and a Christmas bonus in exchange for reduced sick pay and Sunday overtime rates. Kostal wrote to all employees stating that if the offer was not accepted before Christmas, then employees would not receive a Christmas bonus. In January, they wrote again to employees who had not accepted the offer. This time they promised a 4% increase in basic pay for those who accepted the offer and threatened dismissal to any employee who refused. 

Subsequently, a group of 56 employees who were members of Unite raised employment tribunal claims on the grounds that the letters were unlawful inducements contrary to section 145B. The tribunal agreed and found that there had been two unlawful inducements. Compensation was awarded in line with the mandatory award set out at section 145E of TULRCA (which, at the time, was £3,800). 55 of the claimants received £7,600 as they had received two inducement offers (in December and January) and one claimant was awarded £3,800 as he’d only received one unlawful offer. Kostal was also ordered to reimburse the claimants’ costs of £4,800, taking the total liability to over £425,000. 

Kostal appealed against the tribunal’s decision on a number of grounds which raised the issue of the proper interpretation and reach of s145B. The EAT upheld the tribunal’s decision and dismissed all of Kostal’s grounds of appeal. A number of useful points can be taken from the EAT’s judgement:

Awards of compensation

The EAT found that the tribunal was correct to make two awards of compensation for the claimants who had been sent two unlawful offers. In the judgement it was noted that “on each occasion that an offer is made which has the prohibited result, the right in s.145B not to have ‘an offer’ made is infringed.” The EAT went on to say that tribunals must make awards for each offer unless there is a justification against doing so. The EAT observed that the repetition of an identical offer could be viewed as one offer, but did not give any final view on this point.  In this case the EAT was satisfied two distinct offers had been made and so two awards of compensation were justified.

The meaning of prohibited result

The EAT considered that ‘prohibited result’ has two meanings within the legislation. The first is that all of the workers’ terms of employment will not be determined by collective bargaining. The second is that any of the terms of employment will not be determined by collective bargaining. Therefore, an employer can breach section 145B if an offer would remove just one term of employment from a wider collective bargaining process. The EAT went on to confirm that for a prohibited result to be triggered the employer’s sole or main purpose in making an offer must be to stop the collective bargaining process. The burden of this lies with the employer who must evidence that there was an alternative, proper purpose that led them to make the offers. In this case Kostal only gave one reason for making direct offers to the workers – to avoid them missing out on their Christmas bonus. The tribunal considered that this was not an alternative proper aim or purpose, particularly because the second offer was made in January, when the workers’ would already have missed out on their Christmas bonus. 

The application of section 145B

Section 145B can apply to any offer - whether it is accepted or not and regardless of whether it seeks to circumvent collective bargaining on a temporary rather than permanent basis. In this case Kostal made the first offer in the middle of the pay negotiations when there was a further meeting due to take place with Unite. Had the offer been made at a later date, when the trade union and the employer had reached a ‘stalemate’, the decision may have been different. In their decision the EAT noted that if collective bargaining has genuinely broken down there is nothing to prevent direct offers being made. This is because the employer has a proper purpose for doing so. Ultimately the aim of section 145B is to prevent employers side stepping trade unions to achieve the result that one or more terms of employment will not be decided by collective agreement, therefore protecting the position of trade unions to collectively bargain.  

The EAT’s decision in Kostal acts as a warning for all employers who recognise a trade union for the purposes of collective bargaining. If employers have agreed to bargain collectively, any direct offer to union members outside the collective bargaining process could attract a significant penalty as Kostal discovered.