Supreme Court decision on collective bargaining: When can an employer make a direct offer to employees?

Summary: Key implications for employers

• The majority view in this judgment provides clarity that provided employers have followed the collective bargaining process and have a genuine belief that the collective bargaining process has been exhausted, there is nothing to prevent them from making an offer directly to workers.
• This means employers should ensure that they do follow properly every step in a collective bargaining process (including any dispute resolution procedure) before engaging directly with the workforce.
• For employers entering into new collective bargaining agreements they should ensure that they are clear, set out each step in a process and where possible provide when the process ends. This will assist employers in being able to show that they have followed the process and that, when appropriate, such a process has been exhausted.

In more detail:

What was this case about?

This case involved 57 claimants who were members of Unite and were employed by Kostal UK Ltd, a company manufacturing electromechanical and electronic products. There was a trade union recognition agreement between Kostal and Unite which gave Unite sole recognition and bargaining rights.

The company made a pay offer of a 2% pay increase and a 2% Christmas bonus conditional upon some changes to overtime, sick pay and breaks. The offer was rejected by the union and by members. The company then made the same offer directly to the employees, bypassing Unite and stating that if the offer was not accepted by a certain date they would not able to receive the Christmas bonus. A month later the company made another offer of a 4% pay increase to employees who had so far rejected the offer. The company stated that if no agreement was reached they may have to serve notice to employees in relation to their employment contract. Around 10 months later collective agreement was reached and the company argued that the offers made directly to employees were a temporary solution to an impasse with the union.

The claimants subsequently complained to an employment tribunal that the direct offers made to them by the company contravened the relevant legislation (the Trade Union and Labour Relations (Consolidation) Act 1992 “TULRCA 1992”). The particular provision of the legislation concerned financial penalties for employers making offers to workers who were trade union members which, if accepted, would have the result that any of their terms of employment would not be determined by collective bargaining and where that outcome is the employer’s sole or main purpose – such a result being known as the “prohibited result”. The claimants brought a claim that their employer had made an offer in contravention of this provision.

The Employment Tribunal upheld the claim and awarded £3,800 to each claimant for each offer made to them. The company appealed to the Employment Appeal Tribunal which dismissed the appeal. The company then appealed to the Court of Appeal which allowed the appeal. The claimants appealed to the Supreme Court.

What were the key findings of the Supreme Court?

The Supreme Court upheld the appeal and restored the awards against the company.

The majority judgment held that in this case the collective bargaining process was ongoing at the time the offer was made and accordingly the employment tribunal was entitled to find that the employer was in breach of the s 145 TULRCA 1992 i.e. their offers made directly to the workforce, bypassing the union during collective bargaining, had the prohibited result that one or more of the employment terms were determined outside collective bargaining.

However, as this case has clarified, there is nothing to prevent an employer from making an offer directly to workers provided that the employer has a genuine belief that the collective bargaining process has been exhausted.

Employers will be pleased that the Supreme Court rejected broader arguments put forward by employees which would have given the unions an effective veto over any changes to terms.

For the implications for employers please see the summary at the top of this alert.

If you have any queries on the topics covered in this alert or on any other matter please contact Paul Reeves, Leanne Raven or your usual Stephenson Harwood contact.