Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
What can an employer do when its negotiations with a recognised union break down, and they cannot collectively agree on changes to terms?
Where there is a breakdown in negotiations with a recognised union over collectively agreed terms, what many employers would look to do would be to seek to negotiate and agree on changes in the terms directly with its workforce. In the case of Kostal UK Limited v Dunkley and Others, the EAT considered whether a direct approach was an unlawful inducement with the result that a workers terms of employment, or any of those terms, will no longer be determined by collective agreement.
Kostal UK Limited had agreed that annual formal negotiations on pay would take place with is recognised union and that they would negotiate any changes in pay with the union. Kostal was proposing a 2% increase in basic pay and 2% of basic pay to be paid in a lump sum as a bonus, amongst other changes. In return, they were seeking a reduction in sick pay, changes to overtime arrangements and break arrangements.
The unions balloted their members on the proposed changes, resulting in a rejection of the new package of terms (only 21% voting in favour). Kostal then indicated it would write to all employees individually to offer the same package and stated that a failure to agree would lead to no Christmas bonus and no pay increase for the year. Employees were urged to agree on the changes within a limited period. Kostal argued that the reason it would make the direct approach was that it wanted the staff to have the opportunity to receive a Christmas bonus. The union alleged Kostal was seeking to induce staff to opt out of collective bargaining. Whilst a collective agreement was eventually reached, a large number of the employees brought claims in the Employment Tribunal alleging that their rights not to be induced out of collective bargaining rights had been infringed. The claims were successful in the Employment Tribunal, and that led to mandatory awards of £3,800 per employee.
Kostal argued that they were only prohibited from making an offer that would take future negotiations out of the collective agreement altogether. The employer appealed to the Employment Appeal Tribunal who accepted the reasoning of the Employment Tribunal and found that even temporary changes that did not remove all collective bargaining for the future were barred. They felt the purpose of the legislation was to seek to prevent an employer going over the heads of the union with direct officers offers to workers.
This case appears to make it difficult for an employer to agree terms where negotiations with a recognised trade union have broken down. The EAT was clear in saying that where an employer has a “proper purpose” for making offers directly to workers, there is nothing to prevent such offers being made. The EAT decision suggests that where negotiations have reached a genuine impasse, it may still be possible to go directly to staff. Taking such an approach can be high-risk given the potential liabilities. In this case, the total award to the Claimant group was around £425,000. Any employer who is contemplating making offers directly to staff that would change collectively agreed terms (even if the union will be able to renegotiate at a later date) will need to be sure that they have exhausted the agreed negotiation procedures with the union, and any dispute provisions, so they can evidence a genuine impasse before considering a direct approach to staff based on business need.
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