EAT rules on inadmissibility of pre-termination settlement negotiations

EAT rules on inadmissibility of pre-termination settlement negotiations

We look at the interplay between without prejudice discussions and pre-termination settlement negotiations after the Employment Appeal Tribunal considered the admissibility of the latter in the case of Faithorn Farrell Timms LLP v Bailey.

Pre-termination negotiations and without prejudice discussions – what’s the difference?
Without prejudice is a common law concept. When there is an existing dispute between parties, without prejudice discussions can be used to attempt to reach an amicable resolution. Conversations and correspondence which are without prejudice cannot be relied upon in legal proceedings and for that reason they are commonly described as being ‘off the record’.

Pre-termination negotiations are a statutory concept, introduced in July 2013 by section 111A Employment Rights Act 1996 (ERA). The regime allows employers and employees to have discussions about the possibility of terminating the employment relationship which are not admissible in court proceedings. They are similar to without prejudice discussions but there are important differences:

  • An employer can have pre-termination negotiations with an employee even where there is no existing dispute. An existing dispute is required for without prejudice discussions.
  • The s.111A regime only applies in relation to ordinary unfair dismissal claims. If another claim is pursued, such as automatically unfair dismissal, discrimination or breach of contract, the pre-termination negotiations would be admissible in relation to those claims, despite being inadmissible in relation to an unfair dismissal claim.
  • Discussions can become admissible in both cases through the actions of one of the parties, but the bar is lower for pre-termination negotiations than it is for without prejudice discussions.  Where a party acts with ‘unambiguous impropriety’ a court or tribunal can disregard the without prejudice rule. This is relatively rare but it can be established by overt discriminatory comments or blackmail. Pre-termination negations can become admissible where there is ‘improper behaviour’, such as intimidation, bullying, or undue pressure to accept the offer.

Mrs Bailey was employed by Faithorn as office secretary until she resigned, citing changes to her working arrangements. Before leaving, she initiated discussions about a settlement agreement which she referred to on an open basis in a later grievance. She went on to bring a claim for constructive unfair dismissal and indirect sex discrimination and referred to the settlement discussions in her particulars of claim. Faithorn also cited these discussions in its response and did not raise an objection to Mrs Bailey relying on them. Faithorn later objected to Mrs Bailey’s reference to the settlement discussions on the basis that they were either privileged or inadmissible under s.111A ERA.

The employment tribunal ruled that the evidence was not wholly inadmissible by either common law without prejudice rules or s.111A ERA. It held that the details of the offers were inadmissible, but that the fact that settlement discussions had taken place was not privileged. Faithorn appealed, and Mrs Bailey cross-appealed.

The Employment Appeal Tribunal (EAT) held that the pre-termination negotiations were inadmissible in their entirety, explaining that s.111A ERA is more extensive than without prejudice privilege. It applies to make inadmissible not only the details of any offers made, but also the fact that pre-termination negotiations took place and any discussions within the employer’s business about those negotiations, such as between a manager and HR.

The EAT also held that s.111A ERA privilege cannot be waived, and emphasised that ‘improper behaviour’ was broader and more flexible than ‘unambiguous impropriety’. However, it was held that Faithorn had waived their without prejudice privilege when they failed to object to Mrs Bailey’s reference to the negotiations in her claim and their own reliance on them in their response.

This decision will reassure employers that, even prior to a dispute arising with an employee, both the settlement offer and the fact that negotiations took place will be privileged by s.111A ERA and therefore inadmissible in unfair dismissal proceedings. Furthermore, that privilege cannot be waived, either intentionally or inadvertently.

However, employers should not be lulled into a false sense of security.  When contemplating pre-termination settlement negotiations, it is important to remember:

  • Anything an employer might later want to rely on in legal proceedings must be communicated on an open basis. For example, performance management discussions should be documented on an open basis alongside pre-termination negotiations, otherwise the employer risks there being a gap in its evidence or a delay in chronology it cannot explain in later tribunal proceedings.
  • S.111A privilege will not apply if the employee has a claim other than ordinary unfair dismissal. Where there is a possibility of a claim of discrimination, automatic unfair dismissal or breach of contract, an employer should not rely on s.111A but should instead proceed on a without prejudice basis, recognising that there must first be a dispute with the employee.

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