Businesses can be justified in bypassing collective bargaining, rules Court of Appeal

Landmark decision will enable employers to speak to staff directly if union negotiations break down – but only in certain circumstances

The Court of Appeal has unanimously overturned two previous rulings ordering a manufacturer to pay 55 union members almost £420,000 in compensation for ‘unlawful inducements’ – a decision which lawyers said would be a relief to employers facing a situation where collective bargaining had reached an impasse. 

A Sheffield employment tribunal (ET) had ordered Kostal UK – a car parts manufacturing firm based near Rotherham – to pay workers compensation after it ruled the company had made unlawful inducements to union members during a collective bargaining after it approached employees directly when the business failed to reach an agreement with the union.

However, the Court of Appeal overturned the decision as it would give recognised unions an “effective veto over any direct offer” during negotiations.

Angela Brumpton, partner at Gunnercooke who acted for Kostal, said the Court of Appeal ruling would come as a boon to employers facing a standstill in collective bargaining negotiations with unionised employees, as it meant employers could now potentially communicate directly with staff in certain circumstances.

“We have always maintained the effect of the original ET decision represented a paradigm shift in industrial relations in the UK,” Brumpton said. “This decision will come as a relief to employers faced with a situation where collective bargaining has reached an impasse, and they wish to approach employees directly.”

But Joanne Moseley, professional support lawyer at Irwin Mitchell, cautioned employers to err on the side of caution before writing to staff more than once.

“There are still questions that will arise in other cases that are more difficult to answer,” Moseley said. “For example, what happens if pay negotiations break down for a second or third time? Can the employer still write to its staff directly without risk if the changes are temporary rather than permanent?” 

The claims arose after Kostal made an offer directly to employees when it failed to reach an agreement with recognised trade union Unite the Union. 

In October 2015, Unite requested a formal meeting with Kostal UK to commence pay negotiations on behalf of 55 shop floor and manual workers. The business subsequently made an offer of a 2 per cent increase in basic pay, a lump sum to be paid in December as a Christmas bonus and an additional 2 per cent for those earning less than £20,000, payable with effect from April 2016. 

A representative for Unite asked what would happen to Christmas bonuses if the deal was rejected and was told it would be lost to employees if it was not paid in December. Ultimately, the union rejected the proposal. 

Kostal then made offers directly to employees after its parent company in Germany insisted that payment of any Christmas bonus happen no later than December. Its communications told employees that if they did not sign to accept their new terms, they would not be able to benefit from the Christmas bonus. 

Unite argued this action was an attempt by the company to bypass union negotiations and was effectively encouraging employees to accept the offer individually and alter their terms of employment. 

The ET ruled in favour of the union members who brought a complaint, deciding Kostal had breached Section 145b of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), which prohibits an employer from making offers to trade union members where the purpose of the officer is to cease collective bargaining. 

Kostal appealed the case, but an employment appeal tribunal (EAT) upheld the decision that the firm had breached the legislation and was liable to pay a fixed penalty of £3,800 to each affected employee twice, because each of them was approached twice by the firm. The total penalty to Kostal was £418,000 at the time.

However, the Court of Appeal unanimously overturned the previous ruling on Thursday (13 June), saying a more nuanced approach needed to be taken towards the interpretation of TULRCA 145b. It said the initial tribunal gave a recognised trade union “an effective veto over any direct offer to any employee concerning any term of the contract, major or minor, on any occasion”. 

Unite said it was “extremely disappointed” with the ruling and would be taking the case to the Supreme Court. Commenting on the ruling, assistant general secretary Howard Beckett said: “This is a case which goes right to the heart of trade union recognition and the right to collectively bargain. It is one that we will continue to pursue, to protect trade union rights and to get justice for our members.”