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Negotiations genuinely aimed at settling a dispute between the parties and which are referred to as ‘without prejudice’ cannot be referred to in evidence during litigation if those negotiations fail.

For public policy reasons, to try to encourage parties to settle their disputes without resorting to litigation, thereby reducing costs for those in dispute (as well as tax payers).

Best practice is to declare a negotiation to be ‘without prejudice’ at the very start. This can be done by simply asking the other party at the start of the conversation to speak on a ‘without prejudice’ basis or, if the negotiations are in writing, the words should be printed at the top of any communication (e.g. letter, email, compromise agreement etc).

However whether 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.

This rule of law also assists where parties forget to label the negotiations ‘without prejudice’. The court can rule that evidence enjoys ‘without prejudice’ status even if not specifically mentioned at the time. It is strongly advised, however, to ensure that the wording is specifically cited.

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.

Unambiguous impropriety
The ‘without prejudice’ rule does not give employers (and 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, e.g. further discrimination.

‘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 beat through litigation, as it may have the opportunity to recover some of its costs from the employee if the offer is not beaten.

Waiver
Parties can agree to waive ‘without prejudice’ status attached to any document or discussion but this must be done with the consent of both parties.

To invoke the ‘without prejudice’ rule there must be a dispute. In the case of BNP Paribas v Mezzotero [2004] IRLR 508 the employee raised a grievance about discrimination, which the employer then proposed to settle by offering a settlement and terminating her employment, even though this was not what she had requested. The court found that the mere raising of a grievance did not mean that there was a ‘dispute’ between the parties and accordingly the employer’s settlement offer in this case could be referred to in evidence.

This case impacted on the timing of such discussions and employers were advised that the safest option was to go through the disciplinary procedure and issue the notice of dismissal, thereby ensuring that there was a ‘dispute’ at which point they could enter into ‘without prejudice’ discussions.

The case also highlighted the ‘unambiguous impropriety’ exception as the employee in question raised an allegation of discrimination. The employer subsequently attempted to settle this claim but in doing so subjected the employee to further discrimination.

There were also question marks over the employer’s conduct as it gave the employee no notice of its intention to have these ‘without prejudice’ discussions.

The court held that the employer should not be permitted to hide discriminatory conduct from the court just because the discussions were stated (by the employer only) to be on a ‘without prejudice’ basis, as this would be an abuse of process. The employee was therefore entitled to refer to the employer’s comments in her case against it for discrimination.

In this case Framlington 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, i.e. a failure by the employer to serve the correct notice. In this claim he referred to the negotiations that had taken place.

Framlington 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 commencement of litigation, or any basis for potential litigation, and that as such it followed that there was no ‘dispute’.

Thankfully 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 a dispute may engage the ’without prejudice’ rule notwithstanding that 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, possibility prior to dismissal if there is a real possibility of litigation if they cannot agree, e.g. in a redundancy exercise.

Professor Vaseghi and Ms Webster were employees of Brunel University who each, in 2003, made a complaint of racial discrimination against the University. Each took their claims to the employment tribunals and in the course of proceedings there were ‘without prejudice’ discussions which tried, unsuccessfully, to settle the claims. The University’s Vice Chancellor subsequently wrote published articles in the University newsletter criticising union support for the employees’ claims and referring to their complaint 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 their 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 submitted to the tribunal the University itself 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 Brunel 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.

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 at 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 therein to the 'without prejudice' status of the meeting and copies sent to all participants for their records.

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 was first published on Consult Gee HR during April 2008. www.consultgee.co.uk

This document reflects the law and practice as at April 2008. It is general in nature, and does not purport in any way to be comprehensive or a substitute for specialist legal advice in individual circumstances.