In Kostal UK Ltd v Mr D Dunkley and Others[1] the Employment Appeal Tribunal (EAT) has upheld an employment tribunal’s decision that an employer had unlawfully induced workers to vary the terms of their employment contract to avoid collective bargaining. Employment legislation protects collective bargaining by penalising employers who induce workers (who are members of a recognised trade union) to vary the terms of their employment in order to exclude a collective bargaining process.
Background
The employer (Kostal) recognised Unite as a trade union for collective bargaining purposes in 2015. Towards the end of the year the collective bargaining process between Kostal and Unite began to break down after Kostal made an offer that Unite felt it could not recommend to members. The offer was for a 2% increase in basic pay and a Christmas bonus in exchange for reduced sick pay and Sunday overtime rates. Kostal wrote to all employees stating that if the offer was not accepted before Christmas, then employees would not receive a Christmas bonus. In January, they wrote again to employees who had not accepted the offer. This time they promised a 4% increase in basic pay for those who accepted the offer and threatened dismissal to any employee who refused.
Subsequently, a group of 56 employees who were members of Unite raised employment tribunal claims on the grounds that the letters were unlawful inducements contrary to the relevant employment legislation. The tribunal agreed and found that there had been two unlawful inducements. The liability to Kostal was over £425,000.
Kostal appealed against the tribunal’s decision on a number of grounds however the EAT upheld the employment tribunal’s decision and dismissed all of Kostal’s grounds of appeal.
Automatic Enrolment and Inducements?
The Kostal case throws up some interesting issues in relation to the ban on employers inducing workers to opt out of pension saving.
Under s.54 of the Pensions Act 2008, employers must not take any action with the ‘sole or main purpose’ of inducing a jobholder to opt out, or give up membership, of a qualifying pension scheme (without becoming an active member of another scheme). It is also unlawful to induce an entitled worker to give up membership of a relevant pension scheme. It is irrelevant whether or not the inducement succeeds in persuading the worker to opt out or give up membership.
The ‘sole or main purpose’ test was considered in the Kostal case with the EAT confirming that for a prohibited result (i.e. to stop the collective bargaining process) to be triggered the employer’s sole or main purpose in making an offer must be just that – to stop the collective bargaining process. The burden of this lies with the employer who must evidence that there was an alternative, proper purpose that led them to make the offers. In this case, Kostal only gave one reason for making direct offers to the workers – to avoid them missing out on their Christmas bonus. The tribunal considered that this was not an alternative proper aim or purpose, particularly because the second offer was made in January, when the workers’ would already have missed out on their Christmas bonus.
Although cases will inevitably turn on questions of fact and the degree of the inducement, the EAT did state that:
“…we consider that employers who act reasonably and rationally for proper purposes and are able to demonstrate that their primary purpose in making individual offers is a genuine business purpose, retain the ability to make offers directly to their workforce without fear of contravening [the sole or main purpose test]”.
It would be unlawful, for example, for an employer to offer a worker a bonus on the express condition that he or she opt out of the qualifying pension scheme. A less explicit inducement to opt-out could still be unlawful under s.54; it is the employer’s purpose that is relevant. Guidance from the Pensions Regulator[2] on Safeguarding individuals gives the example of a flexible benefits package where membership of a pension scheme is one of a range of elements on offer but which also includes non-pensionable benefits or cash alternatives such as a higher rate of pay. The Pension Regulator states that employers that offer such a scheme must be confident that their main or sole purpose is not to induce workers to give up membership of a qualifying scheme.
Wedlake Bell’s view
The ‘sole or main purpose’ of inducing an individual to give an opt-out notice will inevitably come down to a question of fact. The EAT’s decision is a handy reminder of the principles underlying this test. In a pensions context, it is essential that employers thoroughly document their purpose and decision-making processes. Furthermore, communications need to be fair, clear and neutral so that workers can make a free and informed choice. As agile working and ‘flexibility’ becomes a staple part of the working environment, the popularity of flexible benefits will only increase thereby leading many to opt-out of a workplace pension. In light of this, it is encouraging therefore to know that where there is a genuine business purpose, the ban on inducements should not pose a threat to a properly intentioned employer.
[1] UKEAT/0108/17 and UKEAT/0109/17
[2] Safeguarding individuals: The new safeguards for workers
For further information please contact Justin McGilloway