Kostal UK Ltd v Dunkley & Ors [2021] UKSC 47

Employer made direct pay offers to union members during ongoing collective bargaining negotiations, bypassing the agreed procedures with Unite. The Supreme Court held this contravened section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992, as offers made before exhausting collective bargaining procedures achieve the 'prohibited result' when the employer's main purpose is not a genuine business purpose.

Facts

Kostal UK Ltd manufactured automotive products and entered into a Recognition Agreement with Unite the Union in February 2015, giving Unite sole bargaining rights. In November 2015, pay negotiations commenced and Kostal tabled an offer including a 2% pay increase and Christmas bonus in exchange for changes to sick pay, overtime rates, and breaks. Unite members balloted on 3 December 2015, with 78.4% rejecting the offer.

On 10 December 2015, before exhausting the agreed dispute resolution procedure, Kostal wrote directly to all employees offering the same terms, stating that failure to accept by 18 December would result in no Christmas bonus. A second direct offer was made on 29 January 2016 to those who had not accepted, including a threat of contract termination if no agreement was reached. Eventually, over 97% of employees accepted individual offers, and a collective agreement substantially matching Kostal’s original proposal was reached in November 2016.

Issues

Primary Issue

Whether the direct offers made by Kostal on 10 December 2015 and 29 January 2016 contravened section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 by having the ‘prohibited result’ defined in section 145B(2).

Secondary Issues

The proper interpretation of the ‘prohibited result’ in section 145B(2) and whether the employer’s main purpose was to achieve that result.

Judgment

The Supreme Court unanimously allowed the appeal, restoring the decisions of the Employment Tribunal and Employment Appeal Tribunal. The Court held that Kostal’s direct offers contravened section 145B.

Lord Leggatt’s Interpretation

Lord Leggatt (with whom Lord Briggs and Lord Kitchin agreed) held that an offer has the prohibited result if its acceptance would result in workers’ terms not being determined by collective agreement when there was a real possibility they would have been so determined had the offers not been made. This must ordinarily be assumed where an agreed collective bargaining procedure has not been complied with.

“What the employer cannot do with impunity is what the Company did here: that is, make an offer directly to its workers, including those who are union members, before the collective bargaining process has been exhausted.”

Lord Leggatt emphasised that the prohibition serves to protect the article 11 ECHR right to union representation:

“it is of the essence of the right to join a trade union for the protection of their interests that employees should be free to instruct or permit the union to make representations to their employer or to take action in support of their interests on their behalf. If workers are prevented from so doing, their freedom to belong to a trade union, for the protection of their interests, becomes illusory.”

Lady Arden and Lord Burrows’ Interpretation

Lady Arden and Lord Burrows agreed with the outcome but adopted a different interpretative approach. They held that the facts constituted contracting out of collective bargaining on this occasion, and Kostal lacked a genuine business purpose.

“Although Kostal did not make any express reference to collective bargaining in its offers, acceptance of the offers being made would mean that, on this occasion, as found by the ET, the relevant workers’ terms of employment would not be determined by collective agreement.”

They rejected the argument that section 145B gives unions a veto, emphasising that employers with genuine business purposes are not prohibited from making direct offers.

Implications

This judgment clarifies the scope of section 145B protection for collective bargaining rights. Employers cannot bypass agreed collective bargaining procedures by making direct offers to workers during ongoing negotiations. The decision confirms that:

• The prohibition extends beyond permanent contracting out to include temporary or one-off bypassing of collective bargaining
• Where collective bargaining procedures are not exhausted, direct offers will ordinarily achieve the prohibited result
• Employers retain defences where they have genuine business purposes unconnected with undermining collective bargaining
• The provisions implement the UK’s obligations under article 11 ECHR as interpreted in Wilson and Palmer v United Kingdom

The case represents significant protection for trade union members’ rights to have their terms determined through collective bargaining and prevents employers from undermining the collective bargaining process through direct approaches to workers.

Verdict: Appeal allowed. The decisions of the Employment Tribunal and Employment Appeal Tribunal were restored. Kostal’s direct offers to workers on 10 December 2015 and 29 January 2016 contravened section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992, and the statutory awards of £3,800 per claimant per offer (totalling £421,800) were upheld.

Source: Kostal UK Ltd v Dunkley & Ors [2021] UKSC 47