Decision to impose pay increase was unlawful inducement
Released On 6th Jul 2022
In Ineos Infrastructure Grangemouth Ltd v Jones and others and Ineos Chemicals Grangemouth Ltd v Arnott and others, the Employment Appeal Tribunal (EAT) found that an employer’s decision to impose a pay increase on employees when collective bargaining with the recognised trade union had not been exhausted constituted an unlawful inducement under section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
Below, we consider the EAT’s judgment and the implications of this case for employers.
The facts
The claimants were employed by Ineos to work at its Grangemouth site and were members of the trade union Unite, which Ineos recognised for collective bargaining in relation to pay. Collective bargaining agreements (including a recognition agreement) existed between Ineos and Unite, however these did not set out clear bargaining or dispute resolution procedures, were not legally binding and could be terminated by either party on three months' notice.
Between November 2016 and March 2017, management at Ineos and representatives of Unite were engaged in protracted pay negotiations. The negotiations took place over five meetings, which were at times acrimonious. Ineos initially offered a pay rise of 2.3%, to which Unite submitted a counter-offer of 3.25% (together with enhancements to other terms). The negotiations were heated and at the final meeting on 17 March 2017 Unite stated that they could not recommend anything below 3% to their membership.
Also at that meeting, Ineos made what it referred to as a “best and final offer” of 2.8%, which Ineos understood would be put to a final vote by Unite’s members. Notably, on that same day, two other events occurred which the Employment Tribunal found had a bearing on the negotiations: firstly, there was a book launch by a Unite representative who had been instrumental in initially closing the Grangemouth site some years previously, which was highly critical of Ineos; and secondly, an item was published on the Unite website concerning a commercial sale which criticised Ineos’ attitude to its employees. Unite did explain Ineos’ 2.8% offer to its members, but did not put it to a vote, instead obtaining its members’ agreement to Unite seeking further talks with Ineos.
Ineos was disappointed by the outcome of the negotiations with Unite and, despite the relative proximity of their respective negotiating positions, took the view that collective bargaining had reached an impasse. Ineos decided to award the pay increase to employees unilaterally. On 5 April 2017, Ineos wrote to employees stating that a pay increase would be awarded "as described in our latest offer". Ineos also explained in the letter that it was no longer able to work with Unite and had served Unite notice to terminate the relevant collective bargaining agreements (having found, by way of example, the mass meetings to have been “rude” and “abusive”). Ineos confirmed that it was happy to negotiate with a works council or alternative union in the future, but not with Unite.
The claim and the relevant law
The employees brought claims against Ineos for unlawful inducement contrary to section 145B of TULRCA. Under section 145B an employer is prohibited from making a direct offer to workers who are members of a trade union, if acceptance of the offer would have a “prohibited result”, and the employer's sole or main purpose in making such an offer is to achieve this “prohibited result”. The “prohibited result” is that the workers' terms of employment will not (or will no longer) be determined by collective agreement negotiated by or on behalf of a recognised union (or a union seeking recognition). If a tribunal finds that section 145B has been breached, each affected employee is entitled to a fixed mandatory award (i.e. an award which is not subject to any discretion or deductions). This was £3,830 per employee at the time the claims against Ineos were brought, but has since increased to £4,554 per employee.
Employment Tribunal’s judgment
The tribunal upheld the employees’ claims, concluding that: Ineos’ letter to the employees on 5 April 2017 constituted an “offer” for the purpose of section 145B; that offer had the prohibited result referred to in section 145B(2); and achieving the prohibited result had been Ineos' sole or main purpose. Accordingly, the tribunal found that Ineos had breached section 145B and was liable to pay mandatory awards to the employees.
Ineos’ appeal and the Kostal case
Ineos appealed to the EAT. Ineos’ appeal was subsequently delayed pending the outcome of a similar case, Kostal UK Ltd v Dunkley, which had progressed to the Supreme Court.
Kostal addressed for the first time the proper approach to claims under section 145B and made clear that a test of causation should apply when determining whether section 145B had been breached. The Kostal judgment stated that, where there is a recognised union, an employer can only make a direct offer to workers in relation to a matter which falls within the scope of a collective bargaining agreement if the employer has exhausted the agreed collective bargaining procedure. For a summary of the Kostal judgment, see our e-alert.
EAT’s judgment
The EAT dismissed Ineos’ appeal. It confirmed that, when applying the test of causation as set out by the Supreme Court in Kostal, Ineos’ actions amounted to a breach of section 145B. The EAT found that Ineos’ letter of 5 April 2017 constituted an “offer” to vary employees' contracts as to pay. The EAT said that it was “fortified” in reaching its conclusion by the fact that Ineos had expressly referred to implementing its “latest offer” – this was consistent with an implementation of an offer already made with the result that the employees’ contractual terms as to pay would be varied.
The EAT also agreed with the tribunal’s finding that Ineos’ offer had achieved the prohibited result, and that their sole or main purpose had been to achieve that result. The EAT concluded that the ET had not erred in law in reaching its conclusions. Accordingly, Ineos remains liable to pay mandatory awards to the employees.
Implications for employers
This case is a cautionary tale for employers about the risks of making direct pay offers to, or unilaterally imposing pay increases on, employees before collective bargaining with a recognised union has been fully exhausted.
Although the pay negotiations in this case took place against a background of industrial disputes at Ineos’ Grangemouth site, there was unchallenged evidence on the facts that, viewed objectively, Ineos and Unite had been close to reaching an agreement when Ineos unilaterally declared that the negotiations were over. The tribunal had found that “the respective positions of the two sides were sufficiently close that an observer would regard it as more, rather than less, likely that agreement would have been achieved by further collective bargaining. The EAT agreed with Unite that it would be “anti-purposive” if an employer could avoid its obligations under section 145B by simply stating that any particular offer was a “final” one.
Following Kostal and Ineos, future tribunals faced with determining whether an employer’s actions amounted to an unlawful inducement will no doubt look carefully at what written dispute resolution mechanisms, if any, are included in any applicable recognition agreement and, based on the wording of those mechanisms, at what point negotiations will be deemed to have been exhausted. Notably, in Ineos the collective bargaining agreements were described as “simple” (for example, although they included a form of dispute resolution procedure in the schedule, this did not apply to collective bargaining negotiations) and no formal minutes were taken of the collective meetings. It is important for employers to remember the significant role that paper trails can play in any analysis of facts, particularly in cases such as this where the parties are in dispute as to whether collective bargaining negotiations have genuinely been exhausted. Think too about how best to “manage personalities”, particularly when negotiations appear to have stalled. In this case, for example, management had asked for certain people not to be included in discussions and reacted badly when they discovered that those people were involved.
It is estimated that Ineos’ breach of section 145B will cost the company over £100,000 in compensation. Given the significant financial cost risks if an employer is found to have breached section 145B, we strongly recommend that you seek legal advice if you find yourself considering making individual offers or imposing a pay increase where collective bargaining is proving difficult and/or you think that the process is exhausted.
How we can help
We know from working with our member companies that many employers are facing increasing difficulties reaching pay deals with their recognised trade unions, especially in the context of the cost of living crisis. Our recent survey of manufacturing employers revealed that the median pay settlement figure is 4% (higher than six months ago when it was around 2-3%) and the mean pay settlement figure is over 9%. Given current economic challenges, it is not unusual for pay negotiations to become adversarial and/or protracted, and we have heard of some unions seeking to come back to the negotiating table to discuss pay deals that were agreed last Autumn. Equally, given the rising cost of living, some employers engaged in protracted negotiations might be tempted to put in place an interim pay rise while continuing to talk to the union. However, in light of the purpose of the legislation and the thrust of the case law, this approach would not be without substantial risk.
If you are a Make UK member, you can speak to your regular adviser for guidance and support on managing your relationship with recognised trade unions. This could include us supporting you in the workplace on a consultancy basis when interacting with trade unions in relation to pay. We can also assist you with drafting and updating recognition agreements (for example, to include clear bargaining and dispute resolution procedures).
If you are not a member, our expert HR and legal advisers can offer guidance on a consultancy basis. For further information, contact us on 0808 168 5874 or email enquiries@makeuk.org.
