Can Settling With Employees Unsettle Your Case?

What is "without prejudice"?

'Without prejudice' negotiations are genuinely aimed at settling a dispute between the parties and cannot be referred to in evidence during litigation if those negotiations fail.

Why does it exist?

To encourage parties to settle their disputes without resorting to litigation, thereby reducing costs for those in dispute (saving public money).

When does it apply?

Best practice is to declare a negotiation to be 'without prejudice' at the outset.  This can be done by simply asking the other party at the start of the conversation to speak on a 'without prejudice' basis.  If the negotiations are in writing, the words should be written at the top of the letter, email, compromise agreement etc.

However, whether and Employment Tribunal or the Courts will subsequently view the negotiations as 'without prejudice', is a matter of law and not one for agreement between the parties.  The key is that the discussions must be a genuine attempt to settle a dispute and not subject to any of the exceptions referred to below.

If the parties forget to label the negotiations 'without prejudice', an Employment Tribunal or Court can rule that the evidence has the benefit of 'without prejudice' status even if not specifically mentioned at the time.  However, to avoid uncertainty, it is important to ensure that the wording is specifically cited.

How does this affect employers?

In the employment context the most common situation in which 'without prejudice' discussions arise is on termination of employment.  The rule gives the employer the opportunity to have an early and frank discussion regarding settlement of any possible claims.

Exceptions:

'Without prejudice save as to costs'

If this label is attached to settlement discussions which subsequently break down, the party making the offer could later bring the offer to the attention of the court when it is considering the issue of costs.

This is a useful tactic for employers who are making a reasonable settlement offer that the employee is unlikely to improve through litigation, as it may have the opportunity to recover some of its costs from the employee if the offer is not improved.

Waiver

Parties can agree to waive 'without prejudice' status attached to any document or discussion, for example a compromise agreement, but this must be done with the consent of both parties.

Unambiguous impropriety

The 'without prejudice' rule does not give employers (or employees) carte blanche to say and do whatever they wish to achieve a settlement.  If there is evidence of unambiguous impropriety by either party, the court can consider the matters discussed regardless of whether the parties agreed that the discussions would be on a 'without prejudice' basis.  Examples include an attempt to blackmail the other party or to subject the other party to another unlawful act, for example, further discrimination.

Meaning of 'dispute'

To invoke the 'without prejudice' rule, there must be a dispute.  In one case, the employee raised a grievance about the way she has been treated prior to and on her return from maternity leave, alleging discrimination.   The employee was asked to stay at home whilst her grievance was being investigated.  The employee was then invited to a meeting to discuss her position.  At the start of the meeting, the employer said that it wanted the meeting to be "without prejudice"   After explaining that it was not possible for the employee to return to her old job and that there was no available alternative position for her, the employee proposed to terminate her employment in return for the standard redundancy package, which in her case was nearly £100,000.  The employee brought a tribunal claim alleging sex discrimination and victimization by her employers in seeking to terminate her employment after she had raised a grievance.

In its defence, the employer claimed that the without prejudice discussions could not be referred to.  The employment tribunal chairman ruled that the evidence from the meeting could be referred to because there was no existing dispute between the parties relating to the termination of the employee's employment.  The employee's grievance related to her not being able to return to her old job, rather than there being no job at all for her to return to.  The employers appealed against that decision.

The Employment Appeal Tribunal upheld the chairman's decision finding that the "without prejudice" rule did not apply and therefore the discussions could be referred to by the employee in support of her tribunal claim.  For the "without prejudice" rule to apply, there must be a dispute between the parties and the written or oral communications to which the rule is said to attach must be made for the purpose of a genuine attempt to settle that dispute. The act of raising a grievance does not by itself mean that the parties to an employment relationship are necessarily in dispute. The employers' conduct, fell within the 'unambiguous propriety' exception to the 'without prejudice rule referred to above - the employee raised a grievance and the employer decided to terminate her employment in response to that grievance.

This case influences the timing of settlement discussions.  The safest option for employers is to go through the statutory procedures and then, if appropriate, issue a notice of dismissal, thereby ensuring that there is a 'dispute' at which point they can enter into 'without prejudice' discussions.

In another case, the employer sought to invoke a clause in an employee's fixed-term contract to terminate his employment early. There followed protracted negotiations about the employee's precise entitlements under this arrangement and the employer made several offers in this respect.  The employee rejected these offers and later lodged a claim for wrongful dismissal, that is to say, a failure by the employer to serve the correct notice.  In this claim he referred to the negotiations that had taken place.

The employer sought to have reference to the earlier negotiations excluded from the court case as they were 'without prejudice'.  The employee argued that the negotiations were not conducted with a view to settling a dispute, but only to vary the terms of his employment contract and so did not fall under the 'without prejudice' rule.

In the original decision the court found that the 'without prejudice' rule did not apply because the discussions took place before the contemplation or commencement of litigation, and that as such it followed that there was no 'dispute'.

The Court of Appeal took a different view referring once more to the public policy reason for the 'without prejudice' rule (namely that the parties should be encouraged, so far as possible, to settle their dispute without resort to litigation).  Accordingly it is possible to engage in 'without prejudice' negotiation, even though litigation has not yet begun.

The Court of Appeal stated that discussions would be protected by the 'without prejudice' rule if, in the course of negotiations, the parties contemplated or might reasonably have contemplated litigation in the event that they could not reach agreement.

This seems to open the door once more for employers to have 'without prejudice' discussions with employees at an earlier stage, possibly prior to dismissal if there is a real possibility of litigation if they cannot resolve their dispute.

In a third case, two employees brought Employment Tribunal claims for racial discrimination against a university employer.  In the course of Employment Tribunal proceedings, there were 'without prejudice' discussions which were unsuccessful.  The University's Vice Chancellor subsequently published articles in the University newsletter criticising union support for the employees' claims and referring to their complaints as 'unfounded' and accompanied by 'unwarranted demands for money'.

The employees raised victimisation grievances against the University.  The University conducted an investigation into the grievances which were heard by an independent panel, made up of Brunel employees not previously involved in dealing with the earlier discrimination claims.  During the hearing, reference was made to the 'without prejudice' discussions that took place to try to settle the employees' claims for discrimination.

The employees subsequently lodged claims with the employment tribunal and made reference in their application to the grievance hearing and also to the 'without prejudice' discussions which had given rise to the Vice Chancellor's comments (which they claimed to be an act of victimisation).

In its defence, the University also made reference to the grievance hearing and annexed the report produced by the independent panel which included reference to the 'without prejudice' discussions.  The University also subsequently disclosed a witness statement from the Chairman of the grievance panel which referred to the settlement discussions.

At the tribunal hearing the university argued that the court should not be permitted to consider some of the evidence presented by the employees as it concerned matters discussed on a 'without prejudice' basis.

The matter went before the Employment Appeal Tribunal which decided that the University had waived its right to claim 'without prejudice' status for the earlier settlement discussions by arranging proceedings to deal with the grievance which were 'formal and adversarial' and which comprised individuals not previously involved in the settlement discussions.

The court also suggested that it had some sympathy for the fact that, if they were unable to refer to the 'without prejudice' discussions in open court, the employees would not be able to get their victimisation claims off the ground.  This marks a further exception to the 'without prejudice' rule: sometimes the need to get to the truth of what had occurred for the purpose of eradicating discrimination might "tip the scales" against the need to protect 'without prejudice' privilege.

Practical tips

These cases should give employers more confidence to hold settlement discussions at a fairly early stage where it is clear that without resolution the parties are likely to resort to litigation, and that these 'without prejudice' discussions will remain so.

Employers should continue to mark any documents during settlement negotiations 'without prejudice' and to declare the same prior to any verbal discussions that take place.

'Without prejudice' meetings should be distinct and separate from any formal disciplinary or grievance meetings, and ideally there should be a break between them with both parties aware that they are reconvening to discuss matters on a 'without prejudice' basis.

As usual notes should be taken of all meetings, reference made in the notes to the 'without prejudice' status of the meeting and copies sent to all participants for their records.

A final cautionary note

Employers should be extremely careful before attempting to conduct 'without prejudice' negotiations where an employee has raised allegations of discrimination. These discussions may not only give rise to further claims from the employee if he/she is not amenable to settlement discussions, but the courts may also decide to allow the employee to make reference to the 'without prejudice' discussions to support their case.

This article is general in nature, and does not purport in any way to be comprehensive or a substitute for specialist legal advice in individual circumstances.

If you have any employment law questions, please call our employment law solicitor, Wendy Smith on 01273 806570 or email wendy.smith@acumenbusinesslaw.co.uk