News & Events


Good news for Employers – a pay offer to employees outside collective bargaining was not unlawful

The case of Kostal UK Limited v Dunkley & others has been heard in the Court of Appeal – and provides welcome news to employers where unions are recognised for collective bargaining purposes.

Kostal UK Limited (K) develops and produces electronic products. A number of its workforce are members of the Unite Union, and Unite are recognised for collective bargaining purposes.

In October 2015, pay negotiations started. K made an offer, which included a 2% increase in basic pay and a 2% lump sum bonus to be paid in December as a Christmas bonus. Unite were informed that the bonus money had to be paid in December from 2015 profits and would be lost if it were not paid in that month.

Unite refused to recommend the offer and balloted its members. 80% rejected the offer. K informed Unite that it now intended to write to every individual member of staff (as it did not know who was and who was not a union member) to offer the pay increase and Christmas bonus for those who agreed to accept the offer in December. K placed a notice to this effect on the noticeboards and sent a letter to all employees. It stated that “we are doing this due to the short timeframe in order to pay a Christmas bonus which can and will only be paid in December’s pay”.

A pay negotiation meeting took place on 14 December 2015. Unite accused K of “bypassing the collective bargaining agreement”. A further notice was issued by K in late December, urging employees to sign up to the changes and receive their bonus. 77% of employees had by that time signed up to the pay offer.

In January 2016, Unite told K that they believed that K had breached s145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) by approaching the employees directly. K disagreed. It stated that “it was never the company’s intention to induce people to opt out of collective bargaining” and reiterated that it wanted as many employees as possible to receive a Christmas bonus which had to be paid in December. In January 2016, K wrote letters to those employees who had not accepted the offer, making a further offer. Dunkley (D) and others raised claims to the ET that their rights under s145B TULRCA had been breached.

S145B TULRCA gives a right to employees who are members of a recognised trade union not to have an offer made to them by their employer if:

  • accepting the offer would have the “prohibited result” (namely, that any terms of their employment would not or would no longer be determined by collective agreement); and

  • the employer’s sole or main purpose is to achieve that result.

the purpose of s145B is to stop employers offering inducements to employees to opt out of all collective bargaining, and the penalty for breaching this at the time was a specified amount of £3,800.

At ET and EAT the courts found that the “prohibited result” is that one or more terms of a contract are determined directly and not by collective agreement – even if it is a one-off. They also found that K’s sole purpose was to change this term and, therefore, it was illegal. They found two breaches, and employees were awarded £3,800 per breach.

The Court of Appeal has now delivered its judgment. It allowed K’s appeal. It found that the literal interpretation of the words in s145B could lead to the interpretation of the ET and the EAT, but this was “extremely unlikely” to be what Parliament intended, as this would effectively give the union a veto over even very small changes in terms and conditions.

It used the following example - an employer wants to introduce bank holiday working, and the union says no unless employees are paid at triple time (say £300 per day). An impasse is reached, but the bank holiday is approaching so the employer directly offers employees double time for the day. If the ET and EAT were correct, the employer would be liable for a penalty of £3,800 to each person approached, giving the Trade Union a veto over the change.

The Court of Appeal construed “prohibited result” as one of two scenarios:

  1. An independent trade union seeks recognition and the employer makes an offer to employees to achieve the result that terms of employment will not be determined by collective agreement; or

  2. An independent trade union is already recognised, and terms of employment are determined by collective agreement. The employer makes an offer to achieve the result that any or all of the terms will no longer be determined by collective agreement.

It said that the third type of case, where the offer was only to change terms on one occasion and the union would continue to be recognised for collective bargaining purposes, did not achieve the “prohibited result”. The union was not rendered powerless, it could (and did, in this case) ballot for industrial action, and it remained recognised for collective bargaining.

What does this mean for you or your business?

For employers who have recognised trade unions for collective bargaining purposes, this is an important decision. The ET and EAT gave much more power to unions in circumstances where employers and unions had reached an impasse on negotiations on terms and conditions. This Court of Appeal decision restores some balance and leaves open the option that employers can approach employees with an offer as long as it is a one off and does not impact on the collective bargaining arrangement. It is, however, still safer to seek to agree changes with the union, as an inadvertent breach of this little used provision of TULRCA can be costly.

Unite has said that it will be appealing to the Supreme Court on this decision, so watch this space…

What do you need to be doing now?

Make sure that you remain cautious about approaching employees directly to make an offer, particularly if the sole or main purpose is to bypass collective bargaining. It is not a free for all, and unions are better as your friend than your enemy!

If you have any trade union queries, please do contact us for advice.


These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

Get in touch

Talk to us about your legal challenges and discover how our expert, pragmatic legal advice and broad commercial acumen can help.