The Supreme Court’s judgment in Kostal UK Ltd v. Dunkley and others (handed down 27 October 2021) provides long-awaited clarification for both employers and unions on collective bargaining rights and, in particular, whether an employer can approach its staff directly to try to agree changes to their terms of employment where negotiations have reached an impasse, solicitors at Irwin Mitchell have said.

In February 2015, employer Kostal signed a union recognition agreement with union Unite and set in motion a round of wage negotiations with employees. However, the majority of employees (80%) voted against the offer.

Despite the agreement with the union, Kostal proceeded to directly contact union members, encouraging them to take the offer. They were told if they did not accept the offer they would lose a pay increase and their Christmas bonus.

In January 2016, Kostal again approached employees with the same offer, but this time threatened that if they did not agree, the company may serve notice.

The case went through two Employment Tribunals, which ruled that Kostal had conducted “unlawful inducements”. However, at the Court of Appeal the ruling went against this. Ultimately, the Supreme Court ruled in favour of the union, which argued that Kostal was attempting to induce its staff out of collective bargaining which is prohibited by the Trade Union and Labour Relations Act.

Said Elaine Huttley, Partner at Irwin Mitchell:

"Overturning the Court of Appeal’s decision, the Supreme Court ruled that employers can make direct offers to staff to agree changes to terms and conditions but only where an employer has first followed, and exhausted, the agreed collective bargaining procedure. As Kostal had made a direct offer to its staff whilst the collective bargaining process was still ongoing, the Supreme Court held that it had acted unlawfully and found in favour of the union-backed employees.

“The financial consequences for employers in getting this matter wrong can be huge (over £400k for Kostal in this case). As such, following this decision, it’s advisable that employers revisit and review any collective bargaining agreements in place to ensure that these are clear and, in particular, define when the collective bargaining process will be taken to be exhausted - for example, giving prescribed timescales or the ability for a party to declare this.

“The outcome is, arguably, a position of compromise between employers and unions – ensuring that unions do not have an effective veto in collective bargaining and that employers (and, likewise, unions) follow and exhaust any collective bargaining agreement in place before an employer can directly approach its employees. Where an employer has genuinely participated in, and exhausted, an agreed collective bargaining process, it feels fair that it should be given a final opportunity to reach out to its employees to try to overcome any impasse.

“Ultimately however, whilst, in principle, it may sound straightforward that a direct offer can be made where a collective bargaining procedure has been exhausted, in practice it will be incredibly fact sensitive and the arguments both for and against whether this point has been reached (and so whether any direct offer is permitted or not) will be complex. We recommend that legal advice is sought in this situation, and also in advance of this situation so that any collective bargaining/recognition agreement anticipates this eventuality.”