JOHN BOWERS' EMPLOYMENT LAW BLOG; NOVEMBER 2019; s145 B TULCRA AND KOSTAL UK LTD v DUNKLEY

S145B after Kostal UK Ltd v Dunkley

S145B of the Trade Union and Labour Relations Consolidation Act 1992 (“the 1992 Act”) is an under explored provision which has only just received the attention of the Court of Appeal, and has only once been considered by the EAT. It is important because some 26.3% of UK workers remain subject to collective bargaining but many employers seek every year to decouple from collective agreements in one form or another wholly or in part to buttress the managerial prerogative.

It can be very expensive for an employer to offer an inducement to employees above the head of the union and this may be the case even though many or indeed most terms of the contract continue to be negotiated by the employer with the union and where there is no anti-union animus on the part of the employer (so that for example the employer was reacting to a breakdown in negotiations with the union).

There is a difference between what might be called blatant and marginal cases of anti union hostility and Kostal UK Ltd v Dunkley[1] was a good test case as there was a payment made to employees where there was no union hostility on the part of the employer yet the employment tribunal found that s145B was engaged although this was corrected by the Court of Appeal[2].

The section was passed to deal with a specific practice which was condemned by the ECHR in Wilson, Palmer and Doolan v UK[3] (henceforth Wilson) and the section has no precise analogues. In Wilson the employers made payments to employees to encourage them to decouple from collective bargaining[4].

The section in context

These features of the section and its contours are unusual (if not unique) and will be examined in this article:

a.     It represents a cross over between collective and individual labour law and the interconnection is not perfect and in fact is sometimes somewhat fraught. In particular, there is a danger that it may appear that the Employment Tribunal which is called on to adjudicate on it may be seen to be taking sides as to the good faith of the employer and trade union/employees in collective negotiations which is something which tribunals (with their originally carefully constructed tripartite structure) are usually careful to seek to avoid.

b.    It is a strangely phrased provision in that it is a right not to have an offer made to someone rather than a positive right to something as we are used to seeing especially in human rights provisions.

c.     It is one of the few statutory employment provisions in which the remedy is a straight set (but quite high) sum which is laid down as a deterrent rather than being based on loss and damage; thus there is a standard tariff for any however serious or trivial breach and there can be no reduction to the sum on the grounds of contributory fault or failure to mitigate loss.

d.    It is notable that there is no remedy available for the union itself for its expulsion from or limitation in collective bargaining but the fixed financial sum is available only to the individuals who are members of the recognised trade union (unlike in the case of redundancy consultation), and that is so even if the consequences affect non-union members or members of different unions[5].

The section provides (with the key concepts italicised):

“(1) A worker who is a member of an independent trade union which

is recognised, or seeking to be recognised[6], by his employer has the

right not to have an offer[7] made to him by his employer if–

(a) acceptance of the offer, together with other workers' acceptance

of offers which the employer also makes to them, would have the

prohibited result, and

(b) the employer's sole or main purpose in making the offers is to

achieve that result.”

The key concepts in the subsection are thus “result” and “purpose”, which are both somewhat slippery and require careful analysis and were considered in Kostal . Subsection 2 crucially defines “the prohibited result” as being that “the workers' terms of employment, or any of those terms, will not (or will no longer) be determined by collective agreement negotiated by or on behalf of

the union”. It is the words in italics which cause the most problems in terms of interpretation and they are considered further below especially in the context of Kostal.

Section 145D then sets out the mechanism for bringing a complaint for breach of section 145B, and outlines evidence that a tribunal must take into account in reaching the decision. The award for breach is at present a standard ￡3907 per person so that the amount in issue may be very large since most claims are brought by hundreds of employees in mass claims.

The background; why was it passed?

The Wilson cases were brought under Article 11 of the Convention (freedom of association) and were described as involving “extreme facts” in Kostal. The cases heard in Strasbourg concerned the most blatant practice of employers (which was common at that time) of offering specific and sometimes large financial incentives to employees to accept personal contracts in place of collectively agreed terms and conditions of employment.

The key feature of that decision in Wilson was in relation to Article 11 ECHR that “although the essential object of Article 11 is to protect the individual against arbitrary interference by public authorities with the exercise of the rights protected, there may in addition be positive obligations to secure the effective enjoyment of those rights” (para 41). The court said that it is therefore possible under UK law for an employer effectively to undermine or frustrate a trade union’s ability to strive for the protection of its members’ interests.

The Court recognised that “UK law permitted employers to treat less favourably employees who were not prepared to renounce a freedom that was an essential feature of union membership. Such conduct constituted a disincentive or restraint on the use by employees of union membership to protect their interests”.

There was further a rather vague incantation that “a trade union must be free to strive for the protection of its members’ interests and the individual members have, in order to protect their interests, that the trade union should be heard” (para 45). The only elaboration of the scope of this concept was in the next paragraph of the Judgment to the effect that “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 or to take action in support of their interests on their behalf”. The Court spoke about conduct putting a “disincentive or restraint on the use by employees of union membership to protect their interests”. Thus what was allowed and prohibited was not clear which is some mitigation for the poor drafting of s145B.

[[The Explanatory Notes to the Bill which became the Employment Relations Act 2004 stated “The Government believes that the principles underlying the decision of the Court extends beyond the facts in Wilson & Palmer and is applicable to a number of other comparable circumstances”. It was however somewhat loose with any definition of what those other comparable circumstances were and history has proved that many situations would fall within the scope of s145B which were not anticipated.

The purpose

To be a breach of the subsection, the employer’s sole or main purpose must be to reach the result which is prohibited (that “the workers' terms of employment, or any of those terms, will not (or will no longer) be determined by collective agreement”). That issue of identifying the employer’s purpose is the aspect of the section which is thus usually pivotal in any decision making process (and may be quite difficult to determine depending as it does on assessment of often a large amount of evidence and on inference).

The key point which can cause some serious perturbation for tribunals in addressing the section (often after hearing much evidence) is whether it is appropriate to consider the immediate purpose of the employer or a wider underlying purpose (that is what might be expressed as a motive) on its part.

Harvey on Industrial Relations and Employment Law states that “the question is simply whether the employer was trying to achieve the prohibited purpose. Why he should want to achieve that purpose is neither here nor there, save as a matter of evidence to shed light on the issue of motivation. So, it is no excuse for an employer to say that he wanted to abandon collective bargaining ‘in order to achieve efficiency’ (cf ABP v Palmer [1995] IRLR 258).”]] Motive on the part of the employer is thus only of evidential significance as is the case in discrimination cases. Naturally the onus of proof rests on the employer in this respect[8].

Such evidence about purpose may be wide ranging, delving into any management strategy and the attitudes which have been expressed at different levels of management and often at various stages of the whole elongated process of the approach to the unions. The overall result often in effect depends on whether the tribunal considers that the employer has made sufficient efforts in good faith to address the issues which it has with the union before moving to unilateral and individual implementation of all or any terms in due course. What is reasonable in a particular case clearly differs depending on the various facts of the case, and will require consideration of industrial expectations in particular situations (which is more difficult in the absence of lay members of the Tribunal).

In Kostal  UK v Dunkley the majority of the EAT noted that the subsection does “seek to identify the employer’s future rather than immediate purpose” (para 58). It emphasised that “purpose” and “effect” are different concepts; purpose “connotes an aim, object or desire which the employer subjectively seeks to achieve, whatever the effect of the offers involved”. The EAT could see “no warrant for interpreting the purpose in a way that restricts an ET’s consideration to the next collective bargaining round or ignores the immediate effect of acceptance of offers in the context of considering the employer’s aims or purpose” (para 58)[9]. The protection afforded by the section is indeed to deter an employer’s persuasive tactics by way of the offer and not against harm being done.

The tribunal cases on purpose

It is necessary now to consider what purpose may pass muster in achieving a mass change of terms to fall foul of the section. For example, if the primary purpose of the employer in making the offer to employees is to reward and retain key staff that is acceptable and would not be in breach of the section. The contrast between two employment tribunal cases in this area (both involving local authorities) is instructive before coming to Kostal.

In Wyer v Pembrokeshire CC Case No 1601425/13 (which to some extent presaged the facts in Kostal), the tribunal dealt with the implementation of job evaluation for equal pay purposes and noted that the employer had in that case engaged in very long drawn out negotiations with the unions and had then hit a brick wall with them before they introduced the terms of the scheme which had the effect of decoupling the Council from collective negotiations. The Council then moved to implement only such terms as were required by that job evaluation. It was also done in the context of the local government single status national agreement on equal pay (and the period of negotiation had been longer). The ET accepted after consideration of the authorities that the key question of purpose in the section “includes an examination of the subjective intention of the respondent” (para 44)[10].

 The ET in Wyer decided that the employer’s purpose in acting was not to remove the union but instead was because

a.  The relevant union negotiations had been going on for years and “had genuinely reached an impasse” (para 45);

b.  The Council had agreed as part of national negotiations to implement equal pay by the fixed date of 1 April 2013 and this was being frustrated by the union (para 46);

c.  The Council “clearly did not wish to hinder or impede the process of collective bargaining save insofar as that was the inevitable conclusion of their desire to implement single status” (para 47).

They in effect found that the employer acted in good faith and that the purpose was not a prohibited one.

An important contrast may be seen in the case of Whittaker v Buckinghamshire CC Case 3300720/13, where the claimant was the local representative for the Association of Educational Psychologies (“AEP”). The Council offered him ￡750 if he decided to opt into the new concept of Contribution Based Pay (CBP). The Council wanted to introduce this as part of their “Delivering Successful Performance Framework”. The unions AEP, Aspect and UNISON all rejected the proposed changes as being detrimental to their members. The ensuing negotiations lasted some eighteen months. Employees were offered ￡750 each if they chose not to opt out of the scheme. Some 90% of employees in fact accepted the offer. The ET found that the employer had not discharged the burden of proof that the sole or main purpose in making the offer was other than to achieve the prohibited result. The ulterior purpose was in fact to improve efficiency and salary progression principles which would reward staff on the basis of merit and performance. The appropriate purpose for the tribunal to take into account was however the offer to achieve the prohibited result so that workers would cease to have their contractual position determined by collective agreement. 

The Kostal case

The first consideration of the section at an appellate level arose when collective bargaining between Kostal and Unite broke down in December 2015 over pay. This was a matter of just months after a Recognition Agreement was signed between the parties. Kostal made two pay offers to a number of employees which was covered by Unite’s collective bargaining agreement. In a ballot, 80% of employees voted to reject the company’s proposal which involved as well as an increase to basic pay a reduction in sick pay for new starters and two other detrimental terms (“the three detriments”).

The employers said that they were going to implement their pay plans (offering individual agreements rather than as part of a collective agreement) because they wanted staff to have an opportunity to gain their Christmas bonus (which was of course not within the scope of the prohibited result under s145B); on all other points however a collective agreement was reached between the parties. As part and parcel of acceptance of the terms the employees would have to accept the three detriments.

57 employees brought claims in the employment tribunal. This was not however a case in which hostility to the union had been made out which is one of the factors in deciding on the relevant purpose set out for consideration in s145D(4) and this was conceded to be the case by the Claimants’ Counsel.

The ET decided that “if there is a Recognition Agreement which includes collective bargaining, the employer cannot drop in and out of the collective process as and when it suits its purposes” so that the prohibited result was indeed found to be the purpose behind their actions.

The EAT did not reach a unanimous conclusion. In addressing this most important point of the interpretation of the more natural meaning of the “prohibited result”, the EAT majority started from the viewpoint of giving the words of the subsection what they judged to be its “ordinary natural meaning” and thought that the reason for the future tense being used (“will not”) (on which the employers’ Counsel placed great reliance) was merely that an offer could only be accepted in the future after it was made. The necessary questions to be answered were these in the view of the majority of the EAT

a.     What effect would the offers have if they were accepted (after being made) and

b.    The employer’s purpose in making the offer (para 49)[11]

The EAT thus decided that the prohibited result occurs where offers, if accepted, result in any term being agreed directly between the employer and employee and not through collective negotiations, whatever else is in fact actually agreed by way of terms and conditions through such collective bargaining. Thus on this view there may be 99 terms agreed collectively but if only one term is decoupled from those negotiations the prohibited result is in play.

As to the appropriate time horizon for application of the section, the EAT majority noted that there was nothing in s.145B that deals with the duration of the effect of the inducement, or requires a permanent surrender of collective bargaining for the future. Thus, as a matter of construction there were found to be two types of prohibited results to be identified in the subsection:

a.     Where the entirety of the terms will no longer be determined by collective bargaining (the Wilson & Palmer situation on which the subsection was based); and

b.    Where any one of those terms will not be so determined[12].

The ET had rejected the suggestion that there was some imperative for the Christmas bonus to be paid in December. The prohibited result had not been negatived by the employer. The EAT thus upheld the ET’s decision, but the Court of Appeal took a quite different view.

Bean LJ for a unanimous Court of Appeal thought that the EAT decision was “possible as a matter of literal interpretation of the words used” (para 40) but thought it “extremely unlikely that it is the result which Parliament intended”. This was supported by a close consideration of the legislative history. A result which would give the union a veto over any changes in terms “would go beyond curing the defect in UK law identified by the Strasbourg court in Wilson v UK”. There is no right of workers under Article 11 to impose their will on the employer”. This was fortified by the principle that “courts and tribunals should not try to decide which side in a trade dispute is behaving reasonably and rationally” (para 43). The concession already mentioned that Kostal were not motivated by hostility to trade unions was of importance.

There were according to the Court of Appeal only two cases which were covered by the section. Firstly, where a trade union is seeking to be recognised and the employer makes an offer whose sole or main purpose is to achieve the result that the workers’ terms of employment will not be determined by a collective agreement. The second situation is where all or some of the terms will no longer be determined by collective agreement. The words “no longer” must mean “a change talking the term(s) outside the scope of collective bargaining on a permanent basis” (para 51). There was not however a third type of case within the Kostal facts where the offer is to the effect that one or more of the terms “will not on this occasion be determined by collective agreement” (para 52). This was because of the penal nature of the provision; such a veto would go too far.  

A more blatant case on the facts which fell within the first case was Davies & Others v ASDA Stores Ltd Case No 2501510/05 where there was a heavy communications campaign launched by the employer about the continuing role of the trade union GMB. One slide used in presentations said “GMB partnership rather than collective bargaining”. A brochure headlines included “Don’t let others put your future at risk. Union recognition. Can you afford to risk it?” The employer wanted the unions to agree what it called the Modern Alternative (“MA”) approach to employee relations. The unions had little concern about these new terms other than decoupling from collective bargaining. The policy included a 10% pay increase and higher shift premia.

Although Miss Gill a witness for ASDA said that the purpose behind MA was to improve flexibility and consolidation which would lead to increased productivity the ET held that the documents showed that removal of collective bargaining was a primary objective. 

The removal of collective bargaining was held to be an essential component of the Modern Alternative proposals in which it was to be replaced by other internal ASDA mechanisms. The ET cited Gallagher v Post Office [1970] 3 ALLER 714 to the effect that “In my judgment in this context ‘for the purposes of’ connotes an object which the employer desires or seeks to achieve”.

On the balance of probabilities it was the main purpose of the employer to remove collective bargaining; and the ET put great emphasis on the material produced by Portland a PR company engaged by ASDA which was hostile to trade unions and which was highly disparaging of the whole process of collective bargaining.

Compensation and remedy

Employees under this section in effect gain a windfall as the amount awarded to them under it is not based on any loss which the employee has suffered (s145E(4)(a)).

This was the other key aspect considered by the EAT in Kostal (but which did not arise in the Court of Appeal). The amount of compensation (at the time ￡3,800 per ‘prohibited result’) is fixed, and there is no discretion for a tribunal to reduce an award. Kostal had contended that its two offers amounted to a single course of conduct, so that only one award should have been made by the ET. The tribunal however found there were two separate offers and the EAT would not interfere with this conclusion. There was a proper basis for finding two different offers; the first provided for payment of a Christmas bonus but the second did not, but it did include a threat of dismissal if the offer was not accepted which was not present in the first. ]]

Conclusion

In making submissions in the case of Kostal UK, Mr Brittenden described the drafting of s145D(4) as “a bit of as hash”. It is hard to disagree with this conclusion and indeed to generalise it to much of s145B. S145B bears the hallmarks of a section which was rushed through Parliament initially to deal with a specific issue from the conjoined decisions in the European Court of Human Rights in Wilson. This was because there was a Bill (the Employment Relations Bill) going through Parliament at the time of the judgments onto which it could be attached. The Court of Appeal decision in Kostal restores an appropriate balance to the wording of the section and anchors it within the principle which was intended to be laid down in Wilson. It is however appropriate that the section should be amended so as to be more tightly worded given what is at stake.

JOHN BOWERS QC

Principal Brasenose College Oxford; Littleton Chambers

[1] [2019] ICR 768

[2]

It is a commonly found provision in an individual contract that “terms and conditions are to be set according to the collective agreements reached from time to time with the relevant trade union”. It is the removal of a term such as this on which the section normally bites.

[3] (2002) 35 EHRR 20

[4] The facts were somewhat different in the various conjoined cases, the Associated Newspapers offered a 4.5% increase in basic pay to decouple from collective bargaining, in the ABP case which concerned the ports of Southampton and Cardiff it was a 10% pay rise and free medical insurance which were offered if employees signed up to personal contracts;

[5] This is thus an individual right, and specifically is not a collective one. It is for individual employees to make the claim for compensation (and there is no injunctive possibility). Linked with this is in effect a collective right that although the agreement to vary the contract in breach of the section in the future is unenforceable if the subsection is breached; however any variation which has taken effect already is enforceable even though a tribunal has found that it was effected by an inducement which is declared to be unlawful (s145E(4)).

[6] The section only applies to unions which are recognised or seeking togain that status[6] and extends to workers and not just employees.

[7]

To fall within the section, there must be an offer as such which is made by the employer and even the definition of this may be contentious. In Davies & Others v ASDA Stores Ltd Case No 2501510/05, it was argued by the employer that the terms of the new structure of terms and conditions known as the “Modern Alternative” as put in a ballot did not constitute an offer but rather an invitation to treat. The ET gave this contention short shrift, saying at Para 29 there was “not a shred of doubt that this was a last ditch attempt by Mr Noble to persuade his workforce with unconditional guarantees” and that it had “every appearance of being an offer” (para 31). Further, they commented (at para 34) “Given the weight of evidence the respondent’s description of the purpose of the ballot as merely an opinion testing exercise is not remotely credible…this was a workplace offer…”

[8] This part of the EAT’s Judgment is not affected by the overturning of the result by the Court of Appeal.

In Whittaker** it was stated as to burden of proof “it is for the complainant to raise a prima facie case and if that is made out, the employer must prove on the balance of probabilities that it had an alternative, proper purpose which was either its only purpose, or at least an equally important purpose in making the offers”.

[9]

[10] The case did not proceed to appeal so the decision is not determinative but it is likely to be followed on this point.

[11] ss1(a) and (b).

[12] It was held that the fact that the result is temporary in the sense of being a one off direct agreement (and not setting a future pattern of decoupling from collective agreement or lasting forever) does not affect the issue because “there is nothing in s145B that deals with the duration of the effect or requires a permanent surrender of collective bargaining for the future” (para 52).