Kostal UK Ltd v Dunkley & Ors

Factual and Procedural Background

In 2015, “Company A” entered into a non-binding recognition and procedural agreement with “Trade Union” after its manual workers (“the Appellants”) voted for collective representation. The agreement required annual pay negotiations through a four-stage process culminating, if necessary, in referral to ACAS.

During the first bargaining round, Company A offered a pay package that was rejected in a union ballot. Before the agreed procedure was exhausted, Company A wrote directly to employees on 10 December 2015 and, later, on 29 January 2016, repeating substantially the same offer and warning that non-acceptance would forfeit a Christmas bonus and could lead to dismissal.

The Appellants complained to an Employment Tribunal (ET) that both direct offers contravened section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (“the 1992 Act”). The ET upheld the complaints and awarded the statutory sum for each unlawful offer. The Employment Appeal Tribunal (EAT) dismissed Company A’s appeal by a majority. The Court of Appeal reversed that decision. The Appellants successfully appealed to the Supreme Court, which allowed the appeal and reinstated the ET’s awards.

Legal Issues Presented

1. Whether direct pay offers made by Company A to union members, before completion of the agreed bargaining procedure, were offers that “would have the prohibited result” within the meaning of section 145B(2) of the 1992 Act.
2. Whether, on the facts, Company A’s “sole or main purpose” in making those offers was to achieve that prohibited result as required by section 145B(1)(b), having regard to section 145D.
3. More broadly, how section 145B should be interpreted against its legislative history and Article 11 of the European Convention on Human Rights.

Arguments of the Parties

Appellants' Arguments

• Section 145B catches any offer which, if accepted, causes at least one employment term to be set by individual agreement rather than collective bargaining on the relevant occasion.
• The bargaining procedure had not been exhausted; therefore acceptance of the direct offers would bypass collective bargaining and achieve the prohibited result.
• Company A’s main purpose was to undermine the union process, evidenced by the timing of the offers, conditional loss of the bonus, and threats of dismissal.
• A narrow reading, as adopted by the Court of Appeal, would defeat the statute’s purpose and be incompatible with Article 11 ECHR.

Respondent's Arguments

• Section 145B is engaged only where workers are induced to relinquish collective bargaining rights entirely or for a defined period; mere individual negotiation over one pay round is not enough.
• The offers did not require employees to abandon union representation; collective negotiations continued and ultimately produced a collective agreement.
• The company’s purpose was to ensure timely payment of a Christmas bonus and address urgent business needs, not to circumvent collective bargaining.
• A broader construction would give unions an effective veto over direct discussions with employees and impose disproportionate penalties on employers.

Table of Precedents Cited

Court's Reasoning and Analysis

The Supreme Court conducted a purposive and detailed linguistic analysis of sections 145B and 145D, situated within their legislative and human-rights context.

• Section 145B focuses on the result of accepting offers, not merely their wording. If acceptance would displace collective bargaining where it might otherwise occur, the prohibited result arises.
• The agreed bargaining process had not been exhausted when Company A made its direct offers; therefore there was a “real possibility” that, absent those offers, terms would have been set by collective agreement.
• Company A’s conduct effectively bypassed the union’s “seat at the table,” undermining Article 11 rights recognised in Wilson and Palmer.
• Section 145D(4)(a) expressly requires tribunals to consider evidence that an employer “did not wish to use” agreed bargaining arrangements; that evidence was overwhelming.
• The employer’s asserted reasons (ensuring a Christmas bonus) were rejected as pretextual; the ET’s factual findings that achieving the prohibited result was the main purpose were unassailable.
• A narrow reading that limits s.145B to express long-term waivers would defeat Parliament’s intent, allow easy circumvention, and give the provision “almost no practical effect.”

Holding and Implications

APPEAL ALLOWED. The Supreme Court restored the Employment Tribunal’s decision and statutory awards.

Implications: Employers who recognise a union must exhaust agreed bargaining procedures before making direct contractual offers on matters within the scope of collective bargaining. Direct offers made prematurely can trigger automatic statutory penalties, regardless of whether collective negotiations ultimately resume. The judgment clarifies the breadth of section 145B and strengthens statutory protection of collective bargaining without creating an absolute union veto; employers remain free to approach workers directly once the collective process is genuinely exhausted or where the employer’s main purpose is demonstrably a genuine business need.