Supreme Court’s ruling in Kostal brings welcome clarity to collective bargaining

In one of the most important decisions of the year the Supreme Court has confirmed that trade unions do not enjoy a veto over employers making direct offers to their members to change their terms and conditions of employment. However, employers must follow and exhaust the collective bargaining processes with their recognised trade union before they may make direct offers with a view to resolving an impasse that has arisen.

This is the Supreme Court’s ruling in Kostal v Dunkley which centres on section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992. Broadly speaking, that is designed to stop an employer from making an offer to a member of a recognised union which results in either all of their terms, or some of them, no longer being determined by collective agreement. So, it’s meant to stop the employer going over the head over the union and approaching employees directly. The legislation is very strict – it imposes a penalty on employers for every breach - a penalty which is in excess of £4,000 per breach at current rates. In this case the Supreme Court found against Kostal which now faces paying compensation in excess of £420,000. So, these are very big numbers.

This is long running litigation which goes back to 2015. Collective bargaining between Kostal and the trade union, Unite, had broken down and so Kostal made two pay offers directly to a number of employees covered by Unite’s collective bargaining agreement. 57 of those employees went on to bring claims in the employment tribunal, backed by Unite, alleging that Kostal had offered unlawful inducements to forego collective bargaining under s145B. The tribunal ruled for the union, as did the EAT on appeal. In June 2019 that ruling was overturned by Court of Appeal and it is that decision which the Supreme Court has just reversed.

This case has been widely covered by the press. Personnel Today’s headline is ‘Collective bargaining: Union wins ‘unlawful inducements’ case at Supreme Court’, focusing on the fact that the decision went Unite’s way, narrowly on a 3/2 split, and they describe the case as a “paradigm shift” in industrial relations. On the other hand, HR Magazine’s headline looks at the bigger picture with its headline ‘Supreme Court confirms employers’ right to change contracts if negotiation fails’. So, although Kostal lost on the particular facts on this case, the majority of the Supreme Court rejected the claimant’s broader arguments on collective bargaining. 

So, what do we think about this case, why did Kostal lose and what does the ruling mean for employers caught up in negotiations which hit an impasse? Ed Goodwyn has been following this litigation closely over the years and he joined me by video-link to discuss this latest twist. I started by asking Ed whether he sees this case as good news for employers?

Ed Goodwyn: “Yes, I do. The employees won in this case though, and good luck to them, but it’s interesting to just understand why they won. They won on the basis that the Supreme Court found that in this case Kostal did not exhaust the collective bargaining arrangements. In particular, there was an ACAS route, a further layer, when agreement hadn't been reached, where they then go off to Acas  to see if Acas could help them come to an agreement, but that wasn't sorted out. The employer jumped the gun and offered the bonuses ostensibly so the employees could get the bonus for their Christmas bonus. Nonetheless, despite the positive intention, arguably, from the employer, it clearly had not exhausted the process that the collective bargaining agreement had envisaged and, as a result, it was for that reason the majority of the Supreme Court found that the employees won their case.”

Joe Glavina: “So given this is all about exhausting collective bargaining, it's going to be pretty important that employers are able to prove that. So how do they do that?” 

Ed Goodwyn: “Another excellent question. The Supreme Court was, again, quite helpful here because for the first time employers have got certainty that if they can prove the exhaustion of the processes under the collective bargaining they are then free to approach the employees individually. That clarity hadn't been given to us before so that's why it's a useful for employers. But as you say, the issue is, well, what does exhausting the collective bargaining arrangement look like? Well, the Supreme Court were very clear that it has to be the employer’s genuine belief that the process has been exhausted. So you can quite see how it will be important for employers, when they're getting close to the end, or what they think is the end, to challenge themselves and then to record in correspondence with the trade union, but also in internally, that they genuinely believe that the process set out in the collective bargaining arrangements has now been exhausted. So long as the employer can demonstrate they had that genuine belief, and that genuine belief is upheld on the basis of reasonableness, then the employment makes the makes the issue out.”

Joe Glavina: “There's a lot of commentary out there on this case, and some of it is suggesting that unions are now likely to pay far greater scrutiny to mechanisms in collective agreements that govern what should happen if negotiations reach an impasse, perhaps pushing for binding arbitration. Do you see that happening?”

Ed Goodwyn: “Well, I can see from both sides because, frankly, employers might well be wanting to do same thing because quite a few collective bargaining agreements that I've seen don't really have a clarity as to when the process has come to an end. So you can quite see why it's the employer’s benefit to have that clarity in the collective bargaining arrangement, as well as for the trade union. Quite where those negotiations themselves are going to end up is interesting to see because they themselves are a negotiation which the employer has to have with the trade union which may or may not reach agreement or an impasse. So you may inadvertently get to that circular argument where the employer is still trying to ascertain where the end of the collective bargaining process is, even when it's trying to amend the collective bargaining agreement itself. But from an employer's perspective, it wants clarity in the agreement of when the last stage is reached. From a trade union’s perspective, they equally may want to add additional layers before they are willing to accept that the end of the collective bargaining position has been reached and I think that will be a good area for discussion and negotiation going forward. It may even trigger its own issues where there's a debate as to when an impasse has been reached where the collective agreements are themselves at this stage unclear on the point.”

Joe Glavina: “Last question, Ed. Back in the summer we were talking about this case reflecting on the Court of Appeal’s earlier decision. You said, notwithstanding the Court of Appeal’s favourable ruling, that employers need to be very careful about making offers to employees over the heads of trade unions. Does that warning remain?”

Ed Goodwyn: “Absolutely. We are in a much better position now advising employers because we can give much greater clarity of advice. The key issue is the one we've been talking about, has the employer reached the end of the road? Is it arguable that there is another stage which the employer has not yet gone through? Once we've got clarity on that and can demonstrate the genuine belief held by the employer, we're good to go, you can then approach, and that is not in breach of the collective bargaining agreement, it doesn't offend European law, which was also looked at by the Supreme Court. I will also add one other issue that we did talk about previously, a Scottish case in the EAT which looked at the issue as to whether an employer can get round the difficulties of the section 145B point by saying ‘I'm not actually seeking to agree anything and go to the employees individually, rather what I'm actually going to do is just unilaterally impose a contract variation. Now the Supreme Court did not actually deal with that specifically but I think employers will have to be even more cautious about taking that line, and that argument, because the Supreme Court did indicate that in the Kostal case the parties had expressly agreed in the collective agreement that no party could unilaterally impose a change in the contract and the Supreme Court said it would not allow an employer to ride a coach and horses through a collective agreement mechanism it had agreed. So, if an employer is thinking of using that EAT case in Scotland, and seek to impose unilaterally changes, it has to do so very, very cautiously. I think there's more caution in relation to that route than there was even before the case.”

That Scottish case Ed referred to is the EAT’s decision in Scottish Borders Housing Ltd v Caldwell. Back in September Ed talked to this programme about that case – that’s ‘Offers bypassing collective bargaining ‘remain risky’ after Caldwell’. That programme is available for viewing now from the Outlaw website.

LINKS
- Link to Supreme Court’s judgment in Kostal v Dunkley