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EAT decision shows employers must take care over changes to collective terms, expert warns

Out-Law News | 14 Dec 2017 | 3:36 pm | 4 min. read

Employers keen to make changes to employee terms and conditions but who are unable to come to an agreement with a recognised trade union must be wary of collective bargaining laws, an expert has warned.

Although it dealt with an extreme case, a recent decision by the employment appeal tribunal (EAT) underlines the need to seek legal advice where agreement with the union cannot be reached, according to Sarah Ashberry of Pinsent Masons, the law firm behind Out-Law.com.

The EAT was split in its decision on the meaning of the phrase "the prohibited result" in section 145b of the 1992 Trade Union and Labour Relations (Consolidation) Act (TULCRA), which prohibits employers from offering 'inducements' to give up some or all of their collective bargaining rights to their employees. It is therefore likely that the case will proceed to the Court of Appeal, Ashberry said.

"The decision highlights the potential pitfalls for employers when trying to force through changes to employee terms and conditions," she said.

"The EAT does not really say to employers what they 'should' do in order to comply with s145b, although it does say that 'if collective bargaining breaks down' and the employer acts reasonably and rationally and has a genuine business purpose, it retains the ability to make offers directly to the workforce - although it doesn't say what such an offer looks like. We suggest that a tribunal would expect the employer to at least have exhausted any dispute procedure or negotiation mechanism set down in its collective agreement, or which was customary at that workplace," she said.

Kostal UK, an electronics manufacturing business, had appealed against an employment tribunal's findings that it had made two unlawful inducement offers to 55 employees who were members of Unite, recognised as their trade union for collective bargaining purposes. Kostal had been ordered to pay the mandatory fixed award of £3,800 in respect of each unlawful inducement offer, a total of £418,000.

The firm had appealed, arguing that s145b only applied where an employer's sole or main purpose in making the offers was to achieve the "prohibited result" of inducing the employees to permanently give up their collective bargaining rights. It also appealed against the tribunal's conclusion that it should pay two awards of £3,800 to each affected employee, rather than a single award.

Unite and Kostal had failed to reach agreement on the firm's proposed pay offer for 2016. Kostal had proposed a 2% increase in basic pay plus an additional 2% for those earning less than £20,000, along with a substantial Christmas bonus, payable at Christmas 2015. In return, it sought a reduction in sick pay for new starters, a reduction in Sunday overtime and consolidating the two 15 minute breaks to which the employees were contractually entitled into a single 30 minute break.

The pay deal was rejected by union members in a consultative ballot. Kostal then wrote to each of the employees individually with the pay offer and term and condition changes, informing them that if they did not agree in time for December's pay they would not receive the Christmas bonus even if a revised offer was subsequently agreed with the union. The bonus was to be paid from the company's 2015 profits. The company later issued a further general notice about the pay offer, in which it stated that "77% of employees" had accepted.

Kostal's case was that it had never intended to induce its employees to opt out of collective bargaining. Rather, it wanted to inform them that they would lose their Christmas bonus if they did not agree to the changes in time. A collective agreement was eventually reached on pay and amended terms and conditions on 3 November 2016, by which time the issue of the Christmas bonus was no longer relevant.

The question to be settled by the EAT was, in its own words, "whether acceptance of the offer means that in future the terms will not be determined by collective bargaining, not how they have been determined by the acceptance itself". The offer, it said, must be to "not collectively bargain those terms in future". Although unable to settle this question unanimously, it said that a "straightforward reading" of the words in the statute meant that it was "sufficient" for acceptance of the direct offer to lead to "at least one term of employment [being] determined by direct agreement whenever that occurs, and not collectively".

"The fact that the result is temporary (in the sense of being a one-off direct agreement following acceptance of the offers) rather than permanent does not affect this question, as both sides agree," the EAT said. "There is nothing in s145b that deals with the duration of the effect, or requires a permanent surrender of collective bargaining for the future ... If that was parliament's intention, it would have been easy to say so."

"On this basis, we consider that the ... question will usually be a straightforward question of fact about the effect acceptance of the offers would have and is to be judged at the date when relevant offers are made. We do not agree with [Kostal] that this question can only be judged when offers have been accepted or rejected. The conditional tense ... makes that clear because the offers need not be accepted at all," it said.

The EAT added that whether a direct approach to employees would be considered unlawful would be dependent on the facts of each individual case. Tribunals faced with a s145b case may have to consider an "infinite spectrum" of facts; however, "as with other detriment cases, where an employer acts reasonably and rationally and has evidence of a genuine alternative purpose, tribunals are likely to be slower to infer an unlawful purpose than in cases where the employer acts unreasonably or irrationally or has no credible alternative purpose".

The EAT said that this decision did not give trade unions a "veto" over changes to terms and conditions.

"If collective bargaining breaks down, to the extent that the employer has a proper purpose for making offers directly to workers, there is nothing to prevent such offers being made," it said. "What the legislation seeks to prevent is an employer going over the heads of the union with direct offers to workers, in order to achieve the result that one or more terms will not be determined by collective agreement with the union if offers are accepted."

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