Termination discussions: Termination discussion was not “without prejudice”

Published 16 May 2023

The EAT has held that a termination discussion between an employer and an employee was not “without prejudice” because the parties were not contemplating litigation at the time of the discussion.

THE FACTS

If an employer makes a “without prejudice” settlement offer to an employee, evidence about the offer cannot be used against the employer or the employee in legal proceedings if settlement is not reached.  However, an offer will only be treated as “without prejudice” if, at the time the offer is made, there is a dispute. In this case it was found there was no dispute because at the time of the meeting over which without prejudice privilege was asserted the parties did not contemplate, nor might reasonably have contemplated, litigation if they did not  agree. 

Mr Evanson, a CFO, met with Scheldebouw, his employer, to talk about the possibility of his retirement (which they agreed would be reviewed a couple of months later) along with his outstanding holiday entitlement.   Scheldebouw subsequently offered Mr Evanson about £68,000 in respect of 168 days of accrued holiday. This was rejected, and a counter offer made for £81,190.  This was accepted in principle, but negotiations later broke down over other issues. 

Mr Evanson claimed that he had suffered an unlawful deduction from wages in respect of his holiday pay. He wanted to include evidence about the offer of £68,000 in his employment tribunal case. Scheldebouw argued that the offer had been made “without prejudice” and so could not be disclosed to the tribunal. 

At a preliminary hearing, the employment tribunal agreed with Mr Evanson that the offer had not been made without prejudice as, at the time it was made, the parties were not in dispute. Scheldebouw appealed to the EAT, which upheld the employment tribunal’s decision. 

The below points were key to both courts’ decisions.

• The settlement proposal was the result of “commercial sense and caution, not fear of litigation”.
• The words “without prejudice” were not used. Including, or excluding, the words “without prejudice” will not be determinative, but can be persuasive.    
• There was no suggestion that the proposed dismissal was a fault based dismissal: the employer simply had a diminished need for a CFO.
• If this had been a misconduct issue the stakes would have been higher and it would have been more likely that litigation was in contemplation.
• At the time the £68,000 offer was made, there was no hostility between the parties.
• The parties were discussing matters that they fully expected to resolve. They were not therefore contemplating litigation, until their positions hardened further down the line. 
• The outcome of the October meeting was described as a “gentleman’s agreement”.
• The scope of the disagreement about holiday pay was narrow and, at the time, apparently readily resolvable.

WHAT DOES THIS MEAN FOR EMPLOYERS?

Once litigation has actually been threatened, settlement conversations will be “without prejudice”. However, unless and until this has happened, there is a risk that employees will successfully argue that settlement communications should be admissible as evidence against their employer in employment tribunal proceedings. Given the risk that what’s said might be admissible if terms are not agreed, employers should exercise caution over how they conduct, and in what they say in, without prejudice discussions. They should flag to the employee that the communication is “without prejudice”, check that the employee understands what this means and agrees to communicate on that basis.  This will make it harder (though not impossible) for the employee to argue that the communication can be used as evidence against the employer. 

Scheldebouw v Mr Martin Evanson