Kostal UK Ltd v Dunkley & Ors

Factual and Procedural Background

The appeals concern the interpretation of section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 ("the 1992 Act"), a provision not previously considered at appellate level. Company A appealed against a judgment of the Employment Appeal Tribunal ("EAT") affirming an Employment Tribunal's ("ET") decision that found two offers made by Company A to its workforce breached the rights of 55 Claimants, members of a recognised trade union, under s.145B. The ET awarded fixed penalties for each unlawful inducement offer, with no appeal on remedy. The ground of appeal was that the ET and EAT erred in law in construing the "prohibited result" under s.145B(2).

Company A is engaged in the development and production of advanced electronic products. The Claimants are members of Unite the Union ("the Union") and employed as manual workers. Following a ballot in November 2014 favouring union recognition, a Recognition and Procedural Agreement was signed in February 2015, granting the Union sole recognition and bargaining rights. The Agreement was binding in honour only and established a framework for negotiation and consultation, including a four-stage disputes procedure with possible referral to ACAS for conciliation.

In late 2015, after initial pay negotiations resulted in an offer including pay increases and changes to terms and conditions, the Union ballot rejected the offer. Company A then wrote directly to individual employees offering the pay increase and changes conditional on acceptance, warning that refusal would lead to loss of a Christmas bonus. Two sets of letters/offers were issued in December 2015 and January 2016. The Union alleged these offers contravened s.145B, as they bypassed collective bargaining.

The ET found that the offers, if accepted, would have the prohibited result of removing one or more terms from collective agreement and that Company A's main purpose was to circumvent collective bargaining. Company A appealed to the EAT, which by majority dismissed the appeal, interpreting the statutory provisions as applying to immediate effects of acceptance rather than only future collective bargaining arrangements. Company A then obtained permission to appeal to this court.

Legal Issues Presented

1. Whether the "prohibited result" under s.145B(2) of the 1992 Act refers to terms of employment being determined immediately upon acceptance of an offer outside collective agreement, or only to terms no longer being determined by collective agreement in the future after acceptance.
2. Whether the Employment Tribunal and Employment Appeal Tribunal erred in their construction of the statutory language concerning the timing and permanence of the prohibited result.
3. Whether the interpretation of s.145B(2) should be informed by the legislative history, including the response to the European Court of Human Rights decision in Wilson v United Kingdom.
4. Whether the employer's purpose in making direct offers can lawfully include circumventing collective bargaining when there is a failure to agree.

Arguments of the Parties

Appellant's Arguments

• The ET and EAT erred by interpreting "prohibited result" as including immediate effects of acceptance, rather than only future effects on collective bargaining.
• The phrase "will not (or will no longer)" in s.145B(2) naturally refers to the future, meaning terms after acceptance will no longer be subject to collective agreement.
• The majority confused the timing of the effect and failed to distinguish between the conditional tense at acceptance and the future tense in the statutory provision.
• The EAT and ET wrongly equated the Wilson v UK decision as preventing direct offers outside collective bargaining rather than only preventing inducements to relinquish collective bargaining rights.
• The ET and EAT misapplied the statutory purpose test and failed to recognize legitimate business reasons for direct offers when collective bargaining fails.

Respondent's Arguments

• The EAT's construction of the plain language of s.145B is correct and straightforward.
• The Appellant's construction renders the statutory rights ineffective and leads to absurd outcomes.
• The Appellant's approach conflicts with ECtHR jurisprudence on Article 11 rights, potentially allowing employers to treat union members less favourably for rejecting direct offers.
• The appeal is academic because the ET found no valid employer purpose under s.145D(2), and even under the Appellant's construction, the employer contravened s.145B.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined the statutory language of s.145B(2) and concluded that the interpretation adopted by the ET and majority of the EAT, which considered the "prohibited result" as applying immediately upon acceptance of the offer rather than only in the future, was unlikely to reflect Parliament's intention. The court reasoned that such an interpretation would grant recognised trade unions an effective veto over even minor changes to employment terms, with employers facing severe penalties for bypassing this veto. This would extend far beyond the remedial scope intended by the European Court of Human Rights in Wilson.

The court noted that Article 11 protects the right to union representation and negotiation but does not guarantee the union's ability to impose its will on the employer. The ET and EAT's attempts to mitigate the veto problem were found unsatisfactory: the ET's suggestion that dismissal and re-engagement on new terms is a resolution mechanism was rejected, as was the EAT's reliance on employer reasonableness, which is not a statutory criterion under s.145B.

The court acknowledged that Company A was not hostile to trade unions, and the offers were made to all employees, not selectively. The purpose of the offers was to settle disputes and circumvent negotiation impasses rather than to induce relinquishment of union rights. The court found that the statutory language and legislative history did not decisively support either interpretation but leaned against considering temporary or one-off direct agreements as constituting the prohibited result.

The court identified two types of cases under s.145B: (1) where terms will no longer be determined by collective agreement permanently, and (2) where terms will not be determined collectively on a one-off basis. It rejected the existence of the second type, reasoning that it would confer an excessive veto power on unions, inconsistent with the remedial purpose of the legislation.

The court emphasized that unions retain other means to protect their interests, such as balloting for industrial action. It concluded that the interpretation restricting the prohibited result to permanent removal of terms from collective bargaining better accords with statutory purpose, legislative context, and human rights principles.

Holding and Implications

DISMISSED

The court allowed the appeal, set aside the decisions of the Employment Tribunal and the majority of the Employment Appeal Tribunal, and dismissed the claims brought by the Claimants. The decision clarifies that the "prohibited result" under s.145B(2) refers to a permanent or lasting removal of terms from collective bargaining, not a temporary or one-off direct agreement. This limits the scope of unlawful inducements and prevents recognised trade unions from having an effective veto over any direct offer concerning terms of employment. The ruling does not establish new precedent beyond this interpretation but confirms the balance between protecting collective bargaining rights and allowing employers to make direct offers when collective negotiations fail.