If you have settlement discussions with an employee but ultimately don’t reach agreement, there is a risk that the employee will seek to rely on the discussions as evidence to support an employment tribunal claim. In certain circumstances, however, discussions will be ‘off the record’.

The without prejudice rule

Discussions may be off the record where the statements are made in a genuine attempt to settle an existing dispute. This is the general without prejudice rule which covers any potential employment claim but, importantly, only applies if there is an existing dispute (e.g. disciplinary proceedings or threatened / actual litigation). The rule will not apply in a few limited situations, including where there is ‘unambiguous impropriety’ (e.g. blackmail, unlawful discrimination or intimidation).

The pre-termination negotiations rule for unfair dismissal claims

Since July 2013 pre-termination negotiations have been inadmissible in ordinary unfair dismissal claims where the discussions took place with a view to the employment being terminated on terms agreed between the employer and the employee (‘the pre-termination negotiations rule’). This is the position regardless of whether or not there is an existing dispute. However, if there has been ‘improper behaviour’ (e.g. harassment, bullying; discrimination; putting undue pressure on an employee), the rule will only apply to the extent the tribunal considers just. This could mean full or partial disclosure of the details of the settlement negotiations.

The without prejudice and pre-termination negotiations rules can run alongside each other. They were both considered in the recent case of Faithorn Farrell Timms v Bailey (as only some of the discussions took place after there was a dispute between the parties). It was the first time that the Employment Appeal Tribunal had ruled on the operation of the pre-termination negotiations rule for unfair dismissal claims.

The facts

Mrs Bailey was employed as a secretary in a surveyors’ firm until she resigned in February 2015 after it was made clear that she could no longer continue to work part-time. Before leaving she initiated discussions about a settlement agreement. In January she and her employer exchanged without prejudice correspondence about possible settlement terms. Mrs Bailey then sent a grievance letter ‘in open correspondence’ (i.e. expressly stated not to be without prejudice). Her employer’s replies were, however, expressed to be without prejudice. Mrs Bailey stated that she did not accept that the discussion was privileged. Ultimately agreement could not be reached and she raised claims of unfair constructive dismissal and sex discrimination.

The ET1 referred to the settlement discussions. The ET3 did not object and, in fact, referred to the same material. The question of admissibility of the settlement discussions was, however, raised at the tribunal hearing.

The decision

The EAT decided that the without prejudice rule did not apply as it had been waived. This was because Mrs Bailey’s employers had failed to object to the evidence raised in the ET1 and had referred to the settlement discussions in their ET3.

It is not possible, however, to waive the pre-termination negotiations rule for unfair dismissal claims. Therefore, the case was sent back to the employment tribunal to decide whether the settlement discussions were protected from disclosure. As part of this, the tribunal will have to decide whether there had been improper behaviour (Mrs Bailey alleges that she had been threatened with disciplinary sanction and subjected to bullying and discrimination). If there was, it could order that some evidence about the settlement offer and discussions should be allowed to be heard during the unfair dismissal proceedings.

Interestingly, the EAT highlighted the fact that the pre-termination negotiations rule can apply to both the mere fact that a settlement offer was made / discussions took place as well as the content of any offer / discussion. Also, the rule can apply to internal discussions between management and HR, in addition to the negotiations between the employer and employee. This potentially widens the scope of what can be treated as off the record discussions.

In practice

There are some practical steps you can take to help ensure that settlement discussions are off the record and cannot be relied on by an employee raising a tribunal claim, such as:

  • Prepare by gathering all relevant information and deciding on the reasons for and terms of the settlement offer;
  • State that all meetings and correspondence are confidential and without prejudice. You could also specifically state that it is your intention that the offer / discussions would not be admissible in any unfair dismissal claim. This will not necessarily mean that a court or tribunal will agree that discussions and correspondence are off the record but it can be useful evidence of your intentions and might act as a deterrent to some employees;
  • Meet with the employee, giving them a reasonable period of time to consider your proposals – be prepared for a period of negotiation;
  • Give reasons for your position and present options to the employee;
  • Be careful what you say. Don’t put pressure on the employee to accept your terms and don’t make any incriminating or discriminatory admissions or comments.