Sharon Graham, General Secretary of Unite, commented on the result: “This judgment is a game changer. It means that employers cannot ignore legally established collective bargaining rights just because they suddenly choose to ignore them or subvert them.”
On 27 October 2021 the Supreme Court handed down judgment in Kostal UK Ltd v Dunkley & Ors  UKSC 47, allowing the appeal by 57 members of Unite the Union, recognised by Kostal for collective bargaining purposes. This is the first occasion the appeal courts considered the interpretation of section 145B of the Trade Union & Labour Relations (Consolidation) Act 1992, which was introduced following the decision of the ECtHR in Wilson/Palmer v United Kingdom  IRLR 568. S. 145B gives trade union members the right not to receive offers from their employer which, if accepted, would have the result that one or more terms of their employment will not (or will no longer) be determined by collective bargaining (the “prohibited result”), if (but only if) if the employer’s sole or main purpose in making the offers is to achieve the prohibited result. Where liability is established, the Employment Tribunal (ET) must make a prescribed award (currently £4,341) to each member to whom the offer is made.
Facts and procedural history
During annual collective bargaining negotiations in 2015, Kostal had tabled an offer to Unite which included a 2% increase in basic pay and a Christmas bonus equating to 2% of basic pay, in return for a reduction to overtime rates, sick pay, etc. In a union ballot, that offer was rejected by almost 80% of members. Before the dispute resolution procedures in the Recognition Agreement had been exhausted, Kostal made direct offers to the workforce, informing staff that they would not receive the Christmas bonus if they did not accept by a deadline. Some 90% of staff accepted those individual offers, with the result the Union’s mandate was, the ET found, “destroyed”. In January 2016, the Company made a similar offer to those who had not yet accepted, this time without a Christmas bonus, but warning that if not accepted it may lead to termination of their employment.
The ET upheld the members’ claims under s. 145B in respect of both sets of offers, finding that Kostal had taken a decision to bypass further meaningful negotiations with Unite. The total award was £421,800.
The EAT (by a majority) rejected Kostal’s appeal on the issue of prohibited result (Kostal did not appeal the finding as to purpose in making the offer). The EAT held that the prohibited result occurs whenever an employer who has recognised a union for collective bargaining makes offers directly to the workers to agree term(s) outside of the collective bargaining process; and the focus then turns to whether the employer’s main purpose was to achieve that prohibited result, or whether it was some other genuine commercial purpose.
The Court of Appeal upheld Kostal’s appeal, holding that the prohibited result only occurs where acceptance of the direct offers would have the effect of taking term(s) outside the sphere of collective bargaining on a permanent basis; and not where acceptance would mean only that the term(s) would not determined by collective bargaining “on this occasion”.
The Supreme Court
The Supreme Court unanimously allowed the claimants’ appeal. Lord Leggatt (with whom Lords Briggs and Kitchin agreed) wrote the leading judgment. Lady Arden and Lord Burrows also wrote a Judgment which agreed with the result but differed in analysis.
Issues on which all members of the Court agreed
The Court endorsed the approach to statutory construction set out in Uber BV v Aslam  ICR 657: it is key to identify the purpose of the legislation, and then to interpret the language in light of that purpose [30, 109].
On the primary dispute of linguistic construction, the Court rejected Kostal’s argument that where a union has already been recognised s.145B only applies where the effect of acceptance of the employer’s offers is that the relevant terms “will no longer” be determined by collective bargaining, and not when they “will not” be so determined. All members of the Court held that where a union is already recognised s. 145B applies in both cases [32-33, 111].
Relatedly, therefore the Court rejected the Court of Appeal’s finding that the prohibited result only occurs where there is a permanent or ongoing removal of terms from the collective bargaining process (the offers made by the employers in the Wilson/Palmer cases). The prohibited result, the Court held, can occur on a single occasion [36, 117-118].
The analysis of Lady Arden and Lord Burrows
Lady Arden and Lord Burrows approved in all material respects the reasoning of the majority of the EAT. In particular, they agreed that the prohibited result occurs whenever an employer who has recognised a union for collective bargaining makes offers directly to the workers to agree terms outside of the collective bargaining process; and the tribunal’s focus then turns to whether the employer’s main purpose was to achieve that prohibited result, or whether it was some other genuine commercial purpose. As to the employer’s purpose, they inferred that it is the employer’s underlying purpose that must be determined, as a matter of fact, by the tribunal; that was clear from s. 145D(4)(c) which suggests that offers made to particular workers based on performance or retention are not made with the purpose of achieving the prohibited result, even where (if accepted) they do achieve that result [113-114].
The analysis of Lord Leggatt
Lord Leggatt was not prepared to accept that the prohibited result would arise whenever an employer who has recognised a union for collective bargaining makes offers directly to the workers to agree terms outside of the collective bargaining process. Essentially for two related ‘policy’ reasons: (a) “Where an employer has negotiated with the union and the parties have exhausted the procedure for collective bargaining without being able to reach agreement, there is no justification in terms of the policy of UK law for preventing or deterring the employer from at that point making an offer directly to workers.”; and (b) “… showing the purpose in making the offers cannot anyway provide a secure or stable defence to the employer. It could always be said that achieving a change in terms of employment which had not been collectively agreed was the employer’s main purpose in making the offers”.  He held that requiring a tribunal to determine whether the employer’s main purpose was a genuine commercial one, unconnected to wanting to agree terms outside of a collective bargaining structure, was “not a workable test and is incapable of providing … legal certainty”. 
His preferred construction of the prohibited result instead requires determination of whether the offers were such “if accepted, [they] would in fact cause arrangements for collective bargaining which have been agreed with the union to be by-passed (in whole or in part)” . Basing his analysis on the ECtHR decisions in Wilson/Palmer and Unite the Union v United Kingdom  IRLR 438, he held that Article 11 requires that “an employer which has recognised a trade union for the purpose of collective bargaining and agreed to follow a specified bargaining procedure cannot be permitted with impunity to ignore or by-pass the agreed procedure, either by refusing to follow the agreed process at all or by being free to ‘drop in and out of the collective process as and when that suits its purpose’ (as it was put by the employment tribunal in the present case).” 
His conclusion was that ‘prohibited result’ must be construed so that “in order for offers made by the employer to workers to be capable of having the prohibited result, there must be at least a real possibility that, if the offers were not made and accepted, the workers’ relevant terms of employment would have been determined by a new collective agreement reached for the period in question.” 
That meant, he held, that where an employer exhausts the collectively agreed dispute resolution procedure before making direct offers, the prohibited result would not arise. Indeed, turning to the ‘main purpose’ test, he held that even where an employer “genuinely believes that the collective bargaining process has been exhausted, it cannot be said that the purpose of making direct offers was to procure the [prohibited] result” .
It is unclear how the judgments in this case will be applied in cases where an employer goes through the agreed dispute resolution steps but the workers accuse it of not doing so in good faith. Lady Arden and Lord Burrows observe at , “just because the collective bargaining process for this round has been exhausted … an employer who has been determined to thwart the bargaining process does not have a genuine business purpose (and indeed would fall within section 145D(4)(a))”. They assume that on the analysis of the majority of the Court, such an employer might escape liability. Lord Leggatt, however, does not address that situation in terms, and we suggest that it is implicit in his analysis that for an employer to be able to rely on exhausting the collective bargaining process it must have done so in good faith. He describes the right that, on his construction, s. 145B is protecting as the “right to be represented in collective bargaining conducted in accordance with the Recognition Agreement”. It is, we suggest, always implicit and often explicit in Recognition Agreements that such collective bargaining be conducted in good faith.
Secondly, it is a little surprising that Lord Leggatt expresses such concern about ETs being able to make determinations of fact about the employer’s main underlying purpose. That is the sort of determination ETs routinely make in discrimination and detriment cases; and, as Lady Arden and Lord Burrows observe at , “We do not accept that a reasonableness test without precise criteria is unworkable. For example, a test of whether the employer has acted within ‘a band or range of reasonable responses’ to an employee’s misconduct is applied in the context of unfair dismissal”.
It should be emphasised, however, that notwithstanding some uncertainties remaining after these judgments, at their heart is a ground-breaking statement by the Supreme Court of the requirement of fair dealing in the industrial relations arena – that employers should adhere to the collective bargaining framework they have signed up to (or has been imposed by the Central Arbitration Committee). In terms of UK law, that is an important extension to the rights of trade union members deriving from Article 11 ECHR.