It is a commonly held belief that an employer can talk to an employee with impunity about the proposed termination of their employment merely by labelling the conversation as “off the record”. Unfortunately, the law in this area is not quite so straightforward. In the recent case of Faithorn Farrell Timms LLP v Bailey, the Employment Appeal Tribunal considered the extent to which the common law “without prejudice” rule and section 111A of the Employment Rights Act 1996, which allows for protected conversations about the termination of employment, applied where both parties had already referred in their employment tribunal pleadings to their settlement negotiations and correspondence.

Background

Mrs Bailey was employed as an office secretary by Faithorn Farrell Timms LLP until she resigned on 26 February 2015. Mrs Bailey had worked part-time but towards the end of 2014, the firm made it clear that this would not be an option going forward and Mrs Bailey therefore initiated settlement discussions on 10 December 2014.

By early 2015, the parties were in dispute, and Mrs Bailey’s solicitors wrote a “without prejudice – subject to contract” letter to the firm which, at the end of the letter, referred to the settlement discussions and the offer made by Mrs Bailey. The concept of “without prejudice” correspondence is to allow the parties to settle an existing dispute safe in the knowledge that any offers or concessions made cannot be used against the person making them if the dispute does not settle and ends up in a court or tribunal. 

The firm responded but failed to mark its letter “without prejudice”. It similarly set out its position, with only passing reference to the settlement discussions. Mrs Bailey’s solicitors wrote a further letter marked without prejudice and the firm replied again without marking their letter as without prejudice.

Mrs Bailey raised a grievance in January 2015. She made it clear that she was relying on matters set out in her solicitor’s previous without prejudice letters. The firm failed to challenge Mrs Bailey’s reference to the without prejudice correspondence and indeed it also referred to the correspondence in its grievance report!

In May 2015, Mrs Bailey issued tribunal proceedings claiming constructive dismissal and sex discrimination and again referenced the settlement discussions in December 2014 and the subsequent without prejudice correspondence between her and firm. In its ET3, the firm denied Mrs Bailey’s claims but did not object to her references to the correspondence marked without prejudice.

Finally, however, at a preliminary hearing in October 2015, the question of the admissibility of the without prejudice correspondence between the parties was raised and, having considered submissions, the tribunal held that the parties were allowed to refer to Mrs Bailey’s initial offer of settlement and the subsequent correspondence with the firm in evidence, notwithstanding that some of that correspondence was marked as “without prejudice”.  The parties appealed.

Decision

In a useful clarification of the law in this area, the EAT made a number of findings about the workings of the without prejudice rule and the statutory protection afforded by section 111A of the Employment Rights Act 1996.

Section 111A

• The wording of section 111A, which provides that evidence of pre-termination negotiations is inadmissible in unfair dismissal proceedings, means it is not only the detail and content of negotiations which is protected but also the fact of the negotiations. 

• This statutory protection cannot be waived, unlike under the common law without prejudice rule. So the fact that the parties had referred to negotiations in the grievance documentation did not mean that they lost the benefit of the statutory protection.

• The fact that the settlement negotiations were not protected by statute when it came to the sex discrimination claim did not mean that the statutory protection was lost when it came to the unfair dismissal claim. The tribunal would have to take the evidence into account when considering the sex discrimination claim but treat it as inadmissible in respect of the unfair dismissal claim.

• Given that pre-termination negotiations are defined as “any offer made or discussions held, before the termination of the employment in question, with a view to it being terminated on terms agreed between the employer and the employee”, it is possible that the statutory protection may be lost if no offer of settlement or genuine attempt to settle the dispute has been made. In this case, that was a question which would have to be assessed by the tribunal.

• When it comes to the issue of improper behaviour, the tribunal should consider whether there has been such behaviour on either side having regard to the non-exhaustive list of examples in the Acas Code, and if there has, it should go on to decide the extent to which the negotiations should be afforded the statutory protection.

The Without Prejudice Rule

• It was accepted that when the initial negotiations between Mrs Bailey and the firm took place in December 2014, there was no ongoing dispute so those negotiations were not without prejudice. They were however covered by the statutory protection. By January 2015, the parties were clearly in dispute and so any settlement negotiations were also covered by the without prejudice rule.

• The without prejudice status of correspondence will be lost where the purpose of that correspondence is not in fact to settle the dispute. Just because correspondence is labelled without prejudice does not make it so.

• A mistaken reference to without prejudice correspondence in open correspondence or documentation will not usually mean that the without prejudice status of that correspondence has been waived. Even the fact that Mrs Bailey made it clear she was treating the without prejudice correspondence as “open” and then referred to it in her grievance and the firm did not object did not necessarily waive the without prejudice status of the correspondence.  However the fact that she had gone on to reference the correspondence in her ET1 and the firm had also referenced it in the ET3 demonstrated that the parties had clearly agreed that any without prejudice protection should be waived.

Faithorn Farrell Timms LLP v Bailey UKEAT/0025/16, 28 June 2016.