In the first appellate case to discuss “protected conversations” the EAT handed down important guidance on the scope of the statutory protection and how it interacts with “without prejudice” privilege under common law.
Faithorn Farrell Timms LLP v Mrs S Bailey confirms that where a conversation is protected under the statutory provisions, their scope is wide enough to extend to the fact and terms of that discussion. This case further underlines the need for employers to understand and apply the statutory and common law aspects of legal privilege, and crucially to avoid unintentionally waiving that privilege.
In July 2013 the Government introduced a new measure enabling employers to have confidential pre-termination discussions - often referred to as “protected conversations”. Prior to this the only way an employer could ensure that their off the record conversation would be protected in law was by relying on the common law without prejudice rule, a form of legal privilege. However this form of legal privilege has a number of limitations in an employment context, the main problem being the need for parties to be in a dispute before they can successfully rely upon the cloak of protection.
As such the statutory rules contained in s.111A of the Employment Rights Act were designed to plug that gap since no dispute is needed. On the other hand the statutory system only protects conversations relating to ordinary unfair dismissal claims and does not apply to other claims such as discrimination cases.
After the claimant, Mrs Bailey, an office secretary had been informed that she could no longer work on a part-time basis she initiated discussions about a settlement agreement. Solicitors for the claimant wrote to her employer in a letter marked “Without Prejudice – Subject to Contract.” Her employer replied and correspondence between the parties then followed concerning the agreement. Subsequently the claimant raised an internal grievance in a letter which began by discussing the upcoming tribunal hearing. The letter also stated that the internal grievance was “now in open correspondence” and previous without prejudice letters were referred to as a basis for the grievance. The grievance was not upheld and the claimant brought claims for constructive unfair dismissal and sex discrimination.
In the claimant’s tribunal form she relied on the settlement discussions, in particular the without prejudice correspondence as evidence of bullying and discrimination. Her employer also referred to the same material in their response, and did not object to the claimant’s reliance on privileged conversations. At a later stage of the tribunal process, the employer argued that the correspondence was inadmissible due to the common law without prejudice principle and by virtue of s.111A.
The tribunal ruled that the vast majority of the evidence was admissible subject to specific references of offers made, as it was of the opinion that s.111A only applied to details of any offers made or discussions held, and not simply the fact these offers and discussions had taken place.
On appeal, the EAT took a wider view, ruling that
- s.111A(2) was broad enough to protect the evidence of an offer being made, and was not restricted to just its content.
- the provision was also held to extend to an employer's internal discussions, including conversations between different managers and HR.
This case extends the scope of protected conversations beyond the without prejudice rule, which will not cover the fact that negotiations have taken place.
The EAT also considered the matter of waiver in the context of both the common law and statutory systems. Without prejudice discussions can be waived with the agreement of both parties - and this agreement can be implied by the actions of parties. The EAT agreed with the claimant’s argument that her employer had waived legal privilege. She argued that her employer’s failure to object to her reference to settlement discussions in her ET1 form and their decision to refer to the same material in their ET3 form amounted to waiver. However the EAT confirmed that the principle of waiver does not apply to the statutory system under s111A. This applies even if both parties agree to waive their previous position, which provides less flexibility than the common law.
Separately, the claimant argued that the discussions should be excluded from s.111A under the ‘improper behaviour’ exception. This was not something the EAT could consider without evidence and so remitted this point to be considered by the Tribunal. It is clear under the statutory provisions however that, where improper behaviour can be shown, the settlement discussions will become admissible in the unfair dismissal aspect of a claim.
Admissibility of evidence
Another factor which arose in this case was admissibility of evidence. As already noted, S.111A only protects in relation to ordinary unfair dismissal claims, which produces the rather absurd result that where a tribunal hears evidence of both a discrimination claim and unfair dismissal claim, they will only be able to hear evidence of settlement conversations with reference to the former. In practice it may be difficult for a tribunal to ensure they are not influenced by facts relating to the admissible element of the claim. In reality this highlights the need to preserve the common law without prejudice rule as a back-up protection.
This case highlights the complex interrelationship between the statutory and common law systems, and the need to ensure that anyone engaging in settlement negotiations understands both types of protection, and their limitations.
The case also clarifies the need to be wary of waiver under the common law system. In order to avoid waiving legal privilege we recommend employers adopt the following steps:
- All correspondence should be marked without prejudice, with a limited circulation list, and any other substantive issues should be dealt with in separate open correspondence,
- Any documents marked without prejudice should not be referred to in internal grievance meetings – only open correspondence should,
- If an employee refers to without prejudice correspondence in an internal grievance or an ET1 an employer should object straight away.