15 August 2016

When are employee negotiations confidential?

Employers facing claims from employees should understand when 'without prejudice' and/or 'protected conversation' rules apply to negotiations between them, and conduct those negotiations accordingly, or risk their statements being raised subsequently in court to their detriment.

A secretary at a professional firm started discussions about a settlement agreement, with a view to her leaving the firm. A settlement agreement is a legally binding, confidential agreement between an employer and an employee in which the employer offers the employee a severance payment; in return, the employee agrees to waive any legal claim they may have against the employer, whether arising out of the period of employment or its termination.

In this case, correspondence between them was marked 'without prejudice'. The law says that in a dispute or potential dispute of any kind, statements made orally or in a document with a genuine view to settlement are 'without prejudice' - meaning they cannot later be used in court - for example, as an admission of liability. Without the rule, parties would be nervous about making admissions and/or reasonable offers to settle in case it prejudiced them later.

An employer and employee are also permitted in law to have 'protected conversations' about the possibility of the employee leaving, and the terms upon which they might do so, without the employer being able to refer to those conversations if they subsequently claim unfair dismissal.

The employee started a grievance in which she referred to the without prejudice settlement negotiations. She later claimed constructive unfair dismissal and indirect sex discrimination. Her claim was, in part, based on the firm's behaviour towards her during negotiations.

The issue was whether the negotiations in relation to all her claims were protected under the without prejudice rules and/or, in relation to her unfair dismissal claim, under the protected conversation rules. This required the Employment Appeal Tribunal (EAT) to identify, for the first time, the differences between the two rules, and various questions concerning the scope of the protected conversation scheme.

Useful points from the EAT ruling include:

  • The protected conversation rules cannot be waived, even if the parties agree they can. Without prejudice protection can be waived if both agree (and agreement can sometimes be implied from their conduct);
  • The protected conversation rules protect not only the content of negotiations but the fact they have taken place at all. The employee cannot therefore raise the fact that there have been protected conversations in an unfair dismissal claim. In without prejudice negotiations only the content of without prejudice negotiations is protected - the fact they have taken place is not;
  • The protected conversation rules protect conversations about the settlement between other employees, such as between two managers, or managers and HR advisors, as well as conversations between the employee and employer;
  • Protection under the protected conversation rules is lost if there has been 'improper behaviour'. Without prejudice protection is lost if there has been 'unambiguous impropriety'. Improper behaviour covers a wider range of circumstances - for example, putting undue pressure on an employee by saying they will be dismissed if they do not sign it or pressuring an employee to sign the settlement agreement within a specific time.

The EAT made the specific point that parties could not rely on court decisions about the without prejudice rules to interpret the protected conversation rules. The two were entirely separate. This meant that evidence of negotiations might sometimes be admissible for an unfair dismissal claim but not any other claims, and vice versa.

In this case the employee was held to have waived her right to without prejudice protection, but could not have done so in relation to the protected conversation rules as waiving those rules was not allowed.

The issue of whether the protected conversation rules did not apply because there had been improper behaviour was sent back to the Employment Tribunal to be re-considered.

Recommendations

Employers facing unfair dismissal and other claims from employees should ensure they know whether the 'without prejudice' and/or 'protected conversation' rules (and exceptions) apply to negotiations between them, and conduct those negotiations accordingly. Otherwise, they risk what they say being raised subsequently in court, to their detriment.

Case ref:

Faithorn Farrell Timms LLP v Bailey [2016] UKEAT 0025_16_2806