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On the record: off the record. What’s said without prejudice stays without prejudice (or does it?)

In 'Pre-termination settlement negotiations: good, bad or indifferent?' I touched on issues surrounding the limitations of the without prejudice rule.  The fairly robust decision of the EAT in Portnykh v Nomura International plc suggests I might have undersold the parameters of that rule.  Let’s have a look at how the facts of that case play out in practice:-

  • You’ve had conduct issues with an employee – Dr P – and have told him that you’re intending to dismiss for misconduct, albeit that the intention is to reach a negotiated settlement. He asks (as is so often the case) for the reason for dismissal to be changed: redundancy being so much less damaging a rationale for departure. You agree, subject to reaching compromise terms;
  • You then engage in settlement negotiations with him during which sustained ‘without prejudice’ correspondence (including an exchange of a draft compromise agreement) takes place;
  • The negotiations come to nothing.  Dr P is dismissed for misconduct;
  • Dr P brings a claim against you, claiming unfair dismissal under the whistleblowing legislation (and indicating, amongst other things, that you have given him no reasonable explanation for his dismissal).

Is the without prejudice correspondence admissible in tribunal?  A quick straw poll around the office leaned towards a cautious ‘no’.  Nomura certainly argued strongly that it should be admitted – it really needed to have that evidence before a judge to show that it did have a clear reason for dismissal and that Dr P had wanted that reason amended.  It said that there was no dispute between the parties justifying its exclusion (this being a fundamental plank of the without prejudice rule).  Absent such dispute, the correspondence was admissible.  This seems on the face of it to be a tough argument to run, given that Nomura had effectively told Dr P that he would be dismissed.  Nomura took the line that it had always intended to agree compromise terms and the relevant correspondence was about those terms.  This didn’t, in its view, mean that there was a dispute in existence at the time for the purposes of the without prejudice rule.

The employment judge at a pre-hearing review agreed, holding also that the facts fell within the ‘unambiguous impropriety’ exception.  In other words, given that it was clearly going to be a fundamental issue at the substantive hearing as to whether or not Dr P had requested that his dismissed be re-framed as a redundancy, it would be an abuse of privilege not to permit sight of the relevant correspondence.

The EAT disagreed. The judge in the EAT held that the tribunal judge had misdirected herself on the following basis:-

  • There was a dispute in existence between the parties at the time the without prejudice discussions began – in other words, the employment judge had got her facts wrong.   The EAT didn’t consider that there would automatically be a dispute in every case where compromise terms are offered (sadly for employers), but here, the earlier factual matrix clearly demonstrated an actual dispute.   However amicable the subsequent discussions over settlement may be, it is hard to see how an indication by an employer that it intends to dismiss for misconduct suggests anything other than the existence of a dispute.  In any event the draft of the compromise agreement which trundled backwards and forwards ‘amply illustrated the parameter of the dispute which had arisen’.  That dispute was about money and the reason for termination, which was sufficiently specific for the without prejudice rule to apply.  There is useful commentary in the decision which makes it clear that for a dispute or potential dispute to have arisen, the parties need not be at loggerheads.  Indeed, the discussions between them may be perfectly amicable – but they can still be in dispute for these purposes;
  • The judge also rowed back from the application of unambiguous impropriety to this situation.  He made it very clear that this is a very limited concept.  It ‘means far more than being disadvantaged by the exclusion of evidence’ and applies only in exceptional situations (eg perjury, blackmail).

The correspondence between the parties was therefore withheld when the case was returned to the employment tribunal for consideration of the substantive claim.  The judge in the EAT gave pretty wide scope to the without prejudice rule and reiterated the proper application of the ‘unambiguous impropriety’  exception.  In general, this will be good news for employers who may (unlike Nomura in this instance) wish to restrict the use of evidence of negotiations with their employees.

So, in summary – here is where I think things currently stand:-

  • The without prejudice rule operates to prevent statements made in a genuine attempt to settle a dispute, whether orally or in writing, from being put forward as evidence in court.  The public policy aim remains to encourage potential parties to litigation to settle out of court without fear of those discussions coming back to haunt them;
  • There must be a dispute.  This is a question of fact.  Be careful also in that where there is a dispute, the without prejudice rule won’t cover correspondence where the parties merely set out their views on that dispute/each other – there must be a genuine attempt to settle;
  • Always mark any relevant documents ‘without prejudice’. The label is not conclusive (and indeed, some material not so marked can still attract privilege – and vice versa) but it can only be helpful;
  • There are narrow exceptions to the rule, including unambiguous impropriety, misrepresentation, fraud;
  • As set out in pre-termination settlement negotiations, since July last year details of any conversations/material falling within the ‘pre-termination negotiation’ framework can’t be used in evidence in an ordinary unfair dismissal claim. In other words, the requirement for there to be an existing dispute falls away as far as specific claims are concerned. But the critical limitation is that such protection doesn’t apply to discrimination or anything other than ordinary unfair dismissal complaints. This will inevitably lead to uncertainty about the treatment of evidence, not least in cases where an individual raises multiple causes of action.
  • The inadmissibility rule for pre-termination negotiations won’t apply where there has been ‘improper behaviour’.  There is little definition here, though the Acas Code of Practice http://www.acas.org.uk/media/pdf/j/8/Acas-Code-of-Practice-on-Settlement-Agreements.pdf  gives some examples – it appears to be a wider concept than ‘unambiguous impropriety’.

At its simplest, it will be a balancing act.  When scripting without prejudice conversations I tend to work on the basis that I don’t really include anything I wouldn’t be comfortable seeing come out again in tribunal, albeit (obviously!) I try to put all the arguments together in the way most likely to be persuasive.  Often, clients are able to form clear views as to what approach will work with which employee, and there may well be cases where to get someone to the table, you need to go further than you ideally might in going off piste with the discussion – albeit not straying into unambiguous impropriety territory (and in some ways, in ordinary unfair dismissal terms, it may remain more attractive to rely on ordinary without prejudice principles rather than the slightly more onerous pre-termination negotiation requirements, provided of course you do have a dispute in existence) The Nomura case reiterates the slenderness of that exception and does give some comfort to employers in this respect.  

Meanwhile, Dr Portnykh was happy too – not only did he get judgment in his favour at the EAT but he got a costs order for the respondent in respect of the EAT fees (£1,600 in all).  This seems to be one of the first decisions of its kind under the new rules (so he now has his name in the law books in two different chapters) – the EAT judge made it clear that he was not criticising Nomura for having resisted the appeal (it was a difficult case) but took into account the fact that (a) Nomura had lost pretty conclusively on appeal and (b) it did, after all, have the means to pay.  This was notwithstanding the fact that Dr P was found to have been unhelpful and uncooperative in the conduct of the litigation.

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