Settlement Discussions - When Can Employers Safely Use The 'Without Prejudice' Rule?

For employers wanting to bring an employment relationship to an end, whether for disciplinary or performance related reasons or simply because it is not working out, it is often difficult to judge the right time to have a 'without prejudice' conversation with an employee. Get it wrong and the contents of that discussion may be used by an employee in a subsequent Tribunal claim as evidence of an admission of guilt or constructive dismissal. The recent EAT case of Portnykh v Nomura International Plc gives some useful guidance as to when the 'without prejudice' rule applies.

The 'without prejudice' rule

The 'without prejudice' rule means that communications between parties in an effort to resolve an actual or potential dispute are inadmissible in any subsequent court or Tribunal proceedings. This is important for an employer who may be involved in a dispute with an employee and wishes to bring the relationship to an end with an offer of settlement. If the 'without prejudice' rule does not apply, there are two very significant risks for employers in offering a settlement package to end the employment relationship:

Any offer of a financial settlement by an employer may be used by the employee as evidence of the employer's 'guilt'. If the employer is concurrently running a disciplinary or performance management procedure and offers settlement to cut the procedure short, but the employee is not interested, the employee could use the offer as evidence that the employer is not interested in the ongoing performance management or disciplinary procedure, and resign and claim constructive dismissal. There are limits, however, to the 'without prejudice' rule. It cannot be used to hide perjury, blackmail or 'unambiguous impropriety' (for example, blatant unlawful discrimination).

Two points about the 'without prejudice' rule can cause difficulty for employers:

When exactly are the parties 'in dispute' so the 'without prejudice' rule applies? What is 'unambiguous impropriety'? The Portnykh case provides some useful guidance on these issues.

Mr Portnykh's Case

Mr Portnykh was employed by Nomura, who sought to dismiss him for misconduct. Nomura alleged that Mr Portnykh had approached them requesting that his dismissal be categorised as being for redundancy. The parties then attempted to negotiate a compromise (now settlement) agreement and correspondence marked 'without prejudice' passed between them. The negotiations failed and Mr Portnykh brought a claim...