UK’s draft ‘fire and rehire’ code flags unlawful inducements risk

As we highlighted last week, the government has published a draft code of practice on dismissal and re-engagement and a consultation is now underway which runs until 18 April. 

The code has generated a lot of commentary and the general consensus is that by far the most significant point about it from an employer’s perspective is the risk of a 25% uplift to compensation awarded by an employment tribunal for unreasonable non-compliance with it. But there is another risk and its one the code mentions specifically - the section s145B penalty for unlawfully bypassing collective bargaining.  It’s a point which has been flagged by Jon Coley in his Out-Law article commenting on the draft Code and, whilst it’s not a new point, it is nonetheless a very important one to be aware of with very high stakes if negotiations are mishandled. We’ll consider that and speak to Jon about it.

Paragraph 42 of the Code says: ‘Employers should also be mindful to ensure that discussing new contractual terms directly with employees, without engaging with a recognised trade union, does not amount to an inducement to bypass collective bargaining.’ That is a direct reference to 145B of the 1992 Trade Union and Labour Relations (Consolidation) Act which outlaws unlawful inducements, with potentially huge penalties for breaches of that provision – at current rates the award is a fixed sum of £4,554 in respect of each, different unlawful offer made on or after 6 April 2022. As recent cases illustrate, six figure penalties are not uncommon.

You may recall back in November 2021 the UK Supreme Court gave its ruling in Kostal v Dunkley which gave some comfort to employers in that it made clear that a section 145B claim will not succeed if the employer can show that the collective bargaining process with the relevant trade union has been exhausted. In other words, trade unions don’t have the power to veto direct offers to change their employment terms and conditions made to their members by their employers. However, the employer must follow and exhaust the trade union’s collective bargaining process before they can make any such direct offering, so that’s the tricky judgment call.

In July last year we saw an example of where things can go wrong. This was the Employment Appeal Tribunal’s decision in Ineos Infrastructure Grangemouth Ltd v Jones, the first reported application of the Supreme Court’s Kostal ruling and it sent a clear warning to employers of the perils of making direct offers to employees where a union is recognised for collective bargaining purposes.

The case concerned Ineos’ pay negotiations with its recognised trade union, Unite.  A protracted and acrimonious negotiation had taken place between management at Ineos and representatives of Unite.  Despite being fairly close in numbers, Ineos decided that negotiations were at an end and imposed the pay award of 2.8%.  That resulted in the claimants issuing claims asserting that Ineos’ intention was to undermine collective bargaining and was in breach of Section 145B. The employees brought claims before the Glasgow employment tribunal which found in their favour.

On appeal, the EAT agreed with the employment tribunal’s reasoning, there had been a breach of section 145B. Ineos had made an ‘offer’ which had the ‘prohibited result’ of bypassing collective bargaining. On the evidence it was clear that the purpose of the offer was to remove the union from the negotiations and that approach was a breach is section 145B. 

So, let’s consider that point given that the draft statutory Code expressly refers to section 145B and the risk employers face if they approach employees directly. Earlier Jon Coley joined me by video-link from Birmingham. I asked Jon how, exactly, does an employer judge whether they have exhausted collective bargaining:

Jon Coley: “That's the key point at the heart of Kostal really, Joe, and it was borne, out as well, in the Ineos case. The court talks about it being a point of causation and in Kostal employers can take some comfort from the fact that the Supreme Court, in that case, Lord Leggett, spoke about the employer having a genuine belief that it had exhausted collective bargaining. I think in the Ineos case that was a little harder for Ineos to satisfy the court of that because there was evidence from both Ineos and Unite’s side that they both thought that they were close to an agreement - the difference between 2.8 and 3% - and through further collective bargaining they may have got there. But from an employer’s perspective, if you've reached an impasse, then the first thing you need to do, if you are looking at imposition is, I would say, seek legal advice, but to dust off your collective agreement and understand that you have actually exhausted all the process under that collective agreement, including any relevant dispute resolution mechanism in the collective bargaining agreement. The court was very clear in the Ineos case that it's not sufficient for an employer just to label something as a ‘final and best’ offer, or this is our ‘final communication’, especially in the circumstances of that case, as the evidence showed, they were close to negotiating an agreement. I think it's a world of difference, obviously, if you're miles apart and/or heading for strike action. But the top tip, dust off the collective agreement, seek legal advice, and make sure you've been for all the processes, including the dispute resolution mechanism, before you even decide to consider imposing unilaterally any offer to the employees.”

Under section 145B one of the tests in determining whether there has been an unlawful inducement is what the employer was seeking to achieve by making the direct offer. So the employer will have a problem if there’s evidence of anti-union sentiment – and in this case there was. Jon Coley again:

Jon Coley: “There is another thing worth highlighting Joe, in the Ineos case which is there was an unfortunate internal memo, which was referred to in evidence and referred to in the judgement, which passed between managers which said that the only logical conclusion was effectively that they had to remove Unite from the organisation. Now one can understand that if you've been working hard to try and reach a collective agreement, especially against the background there where they were on a ‘survival and turnaround’ plan the frustrations that can be caused internally, but that sort of communication is obviously really unhelpful from an employee, when essentially one of the tests that one is looking at in section 145B is what the employer’s purpose is in making the offer direct and if there is any anti-trade union sentiment expressed in emails between managers, etcetera, then that's going to point to a purpose which is to drive the trade union out rather than the proper business purpose which the employer may otherwise have.”

Finally, a word on last week’s programme on the draft code which included an interview with Ed Goodwyn in which he describes code as something of a ‘damp squib’ given it changes very little aside from the 25% uplift. That’s: ‘Government publishes draft 'fire and rehire' Code of Practice’ – we’ve put a link to it in the transcript of this programme.

LINKS
- Link to Out-Law article: ‘UK government proposes statutory dismissal and re-engagement code’
- Link to Draft Code of Practice on Dismissal and Re-engagement
- Link to HRNews programme: ‘Government publishes draft 'fire and rehire' Code of Practice’