Introduction

Employers will often use "without prejudice" negotiations to settle a dispute and/or deal with the exit strategy of an employee.  The advantage of genuine without prejudice communications is that they are essentially "off-the-record" and cannot be relied on in a Court or Tribunal as evidence in subsequent related litigation. However, the scope of this rule has been scrutinised in a number of recent cases which has meant that the label should be used with caution in some circumstances.

One of the principal uses of without prejudice discussions which employment lawyers see is the classic "fork-in-the-road" conversation. Often an employer will give an employee a choice of going down, for example, a formal disciplinary route (and potentially be dismissed as a result) or the opportunity for the employee to resign at that stage, without formal proceedings commencing. The aim is to allow the employee to leave with their dignity intact, and usually some form of ex gratia payment or deal is struck, in consideration for the employee signing a compromise agreement waiving their rights.

Adopting such an approach does come with the risk of a subsequent constructive dismissal claim. In such circumstances would an employer be able to rely on the exit discussions as being without prejudice and thereby attracting legal privilege, in the event that a deal is not achieved?

Recent cases

The main point to note is that following the Mezzoterro -v- BNP Paribas case1 in 2004, the Employment Appeal Tribunal (EAT) confirmed that there must be an actual "dispute" at the time the "without prejudice" negotiations take place and the negotiations should be a genuine attempt to settle the dispute. In addition the EAT confirmed that any such negotiations must not amount to unambiguous impropriety.  This might particularly be relevant when dealing with discrimination or victimisation cases.  

In the subsequent case of Framlington Group Ltd -v- Barnetson2 last year, the Court of Appeal considered what constituted a dispute and at what stage did negotiations attract the privilege.  The Court considered the point that negotiations will attract the without prejudice privilege where the dispute is a matter capable of being resolved by compromise and from which, if not resolved, the parties could reasonably contemplate that litigation would ensue. Whilst this clearly widens the scope of the rule, the Court went on to consider the proximity of such discussions to the start of the litigation – ie how proximate did unsuccessful negotiations have to be to the start of the litigation to attract the "without prejudice" label?  In this particular case, the Court of Appeal accepted that both parties were clearly conscious of the potential for litigation at the point they entered into the relevant discussions. The Court accepted therefore that the negotiations were covered by the without prejudice rule and could be used to discuss how to avoid the dispute becoming a legal claim.

In another recent case, Brunel University and another -v- Vaseghi and Webster3 the Court of Appeal considered the rule in a discrimination case and the question of whether without prejudice discussions could be used to support an argument of victimisation.  In this case, during a grievance hearing, evidence relating to previous without prejudice discussions was heard.  In essence, the Court accepted that both parties had waived any privilege attached to the discussions by asking for them to be heard in the grievance meeting. Even if there had been no waiver of privilege, it was noted that the report of the grievance meeting would still have been admissible in the Employment Tribunal proceedings since to have refused to admit the evidence would have severely prejudiced the employees' claims.

The facts of this case were quite unusual and the Court of Appeal noted that in most cases, where a grievance meeting takes place in the usual way, internally, there will be no question of waiver if the parties mention matters covered by the "without prejudice" privilege.  In the particular circumstances of the case, where the proceedings were in effect a trial of the victimisation issues by an independent panel and where both parties called or gave evidence of the previous negotiations, the Court could conclude that privilege had been bilaterally waived.

Practical guidance

So what does the latest case law mean for employers? Well first, caution should be exercised when attaching the without prejudice label to negotiations. In addition, set out below are some further important tips and practical considerations:

·         You must ensure that there is a genuine existing dispute to gain the protection of the rule.  It is not sufficient simply to label discussions as "without prejudice" in the absence of such a dispute.

·         Warn the employee that a discussion will be held on a without prejudice basis; if necessary explain what this means and seek their agreement to this.

·         All communications must be labelled clearly stated to be "without prejudice" including those made orally.

·         Reference to "without prejudice" communications at "open" meetings may result in a waiver of privilege.  If this is the case, you should make a formal objection to any such references.

·         It is not clear whether by starting a "fork in the road" conversation and stating that you are contemplating an employee's dismissal, you would raise the discussion to the level of a "dispute" so as to trigger the without prejudice rule.  If in doubt, seek specific legal advice.

·         Be aware that the without prejudice label may not protect impropriety, and any discriminatory conduct or comments could be referred to in subsequent proceedings.

·         Ensure that any managers involved in this type of conversation have received equal opportunities training.

Claudia Rooney

Employment and Pensions Team

Farrer & Co