In the last month, two Court of Appeal cases have considered the ‘without prejudice’ rule. Its ambit is now in doubt. This note is the result of a brainstorm with senior HR, in-house lawyers and leading counsel. It sets out some practical guidelines about conducting ‘without prejudice’ discussions so as to keep their details out of the court or tribunal. In summary, employers can still use the rule but they should be much more careful how they use it.

Moving people on is the stock in trade of HR. And for all sorts of reasons, employers often want that moving on to happen quickly.

The ‘without prejudice’ discussion has been a useful way of achieving this. Employers used these words as if they were magic, making conversations and documents invisible to the tribunal or court. Offers could be put, and alternatives to disciplinary or grievance procedures discussed, apparently without fear that anything said or written could be used in evidence against the employer.

But in the last month two Court of Appeal cases have focussed attention on what ‘without prejudice’ really means. While in some respects reassuring, there are worrying signs that courts will allow what was said in ‘without prejudice’ communications to be quoted in evidence. Certainly, employees and their advisers are now going to focus much more on ‘without prejudice’ communications, looking for any slip-ups by employers. Are the words ‘without prejudice’ still magic?

The reality is they never were. In practice, they were over used by employers and, looking back, it seems likely that HR got away with things it really shouldn’t have.

The basic law has been well established for some time. The courts have strongly supported the ‘without prejudice’ rule to encourage settlement. It is a rule of evidence that any communications with the purpose of settling an existing dispute cannot be put before the court unless both parties to the communications agree. This prohibition carries on even after the dispute itself has been concluded.

It was such a strong rule that perhaps employers became complacent. The case of Mezzotero v BNP Paribas in 2004 looks like an example. Ms Mezzotero brought a grievance alleging sex discrimination after her return from maternity leave. At a grievance hearing, the bank asked her if she would have a ‘without prejudice’ conversation so it could say something to her off the record. She agreed and it put a proposal to her for leaving her employment.

The EAT agreed that Ms Mezzotero could use that conversation in evidence. There were two lessons for employers. First, ‘without prejudice’ communications can only be used to settle a dispute, not to start one. Here, the first the employee heard she might be leaving was in the so-called ‘without prejudice’ conversation. That much is actually old law, although it probably came as a surprise to many employers. A grievance is only a ‘dispute’ about the subject matter of the grievance. Ms Mezzotero was not thinking her employer might dismiss her at that point in the grievance. Had the employer wanted a ‘without prejudice’ conversation about what the parties were already talking about, that conversation should have stayed off the record.

However, the second, new element, of the decision was that it raised the suggestion that courts and tribunals would look behind the ‘without prejudice’ cover to ‘root out the evil of discrimination.’ So in discrimination cases, could employers be sure that any ‘without prejudice’ communications would remain out of sight?

With employees’ advisers’ minds now focussed on the ‘without prejudice’ rule, it would not be long after Mezzotero before the next case. Sure enough, in the last month, two cases finished their long journey to the Court of Appeal: Brunel v Vaseghi and Webster and Framlington Group Ltd and anor v Barnetson. While Framlington gives some comfort to employers, the Brunel decision contains worrying implications.

In Framlington, the employee alleged there was no dispute between him and his employer at the time it made an offer to end his employment early. That offer contained elements relating to a couple of remuneration schemes, in respect of which he subsequently brought a claim.

The employee argued that for there to be a dispute, litigation must have begun or been expressly or impliedly clearly threatened and proximate. Furthermore, special considerations needed to be applied in the employment context to protect employees. The employer contended that it was enough that there was a dispute capable of being resolved by compromise, which if not resolved, the parties could reasonably have contemplated would result in litigation.

The Court of Appeal agreed with the employer. The ‘without prejudice’ rule applies in the workplace the same as it does everywhere else. In Framlington, the court found that the employer’s notification of its intention to dismiss Mr Barnetson before the end of his contractual term with settlement terms, demonstrated that it ws already at odds as to his contractual entitlement. All that followed over the next six or so weeks of exchanges amounted to wrangling over the terms of that entitlement. Here, where the employee had put forward his terms for ending his employment and his employer countered with a draft compromise agreement, there was clearly potential for litigation if the dispute could not be resolved by compromise.

That much is comforting for employers, but the Brunel case is more disturbing. The facts of the case are peculiar. The main question was whether the employee could put in evidence things said at a formal grievance hearing which had discussed ‘without prejudice’ attempts to settle an earlier dispute. This is not the kind of situation many employers will be faced with but the answer, for what it is worth, was yes.

These cases suggest the circumstances when a grievance may become a dispute. Most grievances are simply discussions about who is at fault in an everyday workplace situation. However, some move beyond that to a formal review of evidence, such as (in the investment banking context) many grievances about contractual bonus awards. The latter are more easily characterised as disputes because the greater degree of formality surrounding them indicates that there is likely to be a dispute. Indeed, the formality clarifies what the dispute might be.

But what about the second, wider, element of the Mezzotero decision: could courts and tribunals look into ‘without prejudice’ communications in discrimination cases? In Mezzotero, the EAT commented that as it was in the public interest that allegations of discrimination are heard, (directly or indirectly) discriminatory comments made in the course of ‘without prejudice’ discussions were admissible before the courts.

Perhaps fortunately, the court concluded it didn’t need to answer that question in Brunel. However, it did appear sympathetic to the point. It is perhaps a hint of the way judges are thinking. Another hint - no more than that - was when refusing leave to the employer to appeal the Mezzotero decision, the court indicated that it had no problem with this proposition. That indication has no force of law, but it does suggest which way the wind is blowing.

So what does all this mean in practice? Every situation is different and HR will have to approach all ‘without prejudice’ discussions cautiously. However, here are some practical tips: Keeping difficult conversations ‘off the record’ - some practical tips

The guiding principle is that you should only use ‘without prejudice’ conversations to settle disputes, not to create them. In practice this can be a very difficult line to draw. So think about the following:

• Remember discussions with an employee do not become ‘without prejudice’ just because they are labelled as such.

• Don’t fall into the trap of just because you think you know how this will play out that they will too. You can see a grievance or performance management process is likely to end with them leaving but they might not know that until you tell them.

• Let grievances, performance management or disciplinary procedures run as long as possible before starting ‘without prejudice’ discussions. Sometimes, this isn’t always possible or desirable, but the more established the differences between the parties then the more likely it is you have evidence of a ‘dispute’ capable of being settled ‘without prejudice’.

• In discrimination cases, never make damaging admissions or threats even in ‘without prejudice’ discussions. Don’t say “We know Fred is a sexist….” but instead “Fred isn’t a sexist but we can see why you might think that……” or “This grievance isn’t the best way to resolve any issues about Fred”. Similarly, don’t say “If this process carries on you will be fired” but “If this process carries on it is quite likely you’ll be fired”. And remember, since the age legislation came in, most employee advisers can find a discrimination angle to most cases…

…. • If practicable, in discrimination cases don’t have the decisionmaker in the formal procedure lead the ‘without prejudice’ discussions. If this comes out, it will look as if they personally had prematurely made up their minds, thus invalidating the procedure.

• Try to get the employee to make the first move towards settlement.

• Document ‘without prejudice’ proposals and clearly head them ‘without prejudice’. Record any counter-proposal or comments from the employee similarly in writing. Make sure the employee has a copy. While there is no magic in this of itself, it could be useful evidence to demonstrate what the parties at least thought they were doing at the time.