Without Prejudice Discussions with Employees: What Employers Need to Know

Without prejudice discussions with employees can help employers explore a settlement without the negotiations normally being used as evidence in later legal proceedings.

However, writing “without prejudice” on an email or saying it at the start of a meeting does not automatically make the discussion confidential.

The protection usually depends on an existing dispute, a genuine attempt to settle it and the absence of serious improper conduct. Employers should understand these requirements before making an offer.

What are without prejudice discussions with employees?

The without prejudice principle protects genuine settlement communications between parties who are already in dispute.

Where the rule applies, the parties will not normally be able to refer to the negotiations as evidence in an employment tribunal or court. This allows them to discuss possible compromises more openly.

The protection can apply to written offers, emails, letters, telephone calls and meetings. It may cover disputes involving unfair dismissal, discrimination, breach of contract or unpaid wages.

However, the content and purpose of the communication matter more than the heading used on it.

When does without prejudice protection apply?

Three main requirements usually need to exist:

• the employer and employee are already in dispute;
• the communication genuinely attempts to settle that dispute; and
• there has been no unambiguous impropriety during the negotiations.

An existing dispute does not necessarily require an employment tribunal claim. It may exist where the employee has threatened legal proceedings or where both sides reasonably recognise that litigation could follow.

By contrast, an ordinary workplace disagreement may not be enough. For example, an employee raising a grievance does not automatically mean that a legal dispute already exists.

What counts as an existing dispute?

Employers should examine what had happened before the settlement discussion began.

A dispute may exist where an employee alleges discrimination, challenges a dismissal, disputes unpaid commission or threatens a breach of contract claim.

There should normally be a genuine difference between the parties that could lead to legal proceedings. The employer cannot create without prejudice protection simply by making an unexpected settlement offer.

For example, suppose an employer calls an employee into a meeting without warning and proposes ending their employment. If no dispute existed beforehand, the without prejudice rule may not protect that discussion.

Section 111A of the Employment Rights Act 1996 may provide separate protection in some pre-termination discussions. However, that protection is narrower and mainly concerns ordinary unfair dismissal claims.

Without prejudice and protected conversations

Employers often confuse without prejudice discussions with protected conversations under section 111A.

Without prejudice protection generally requires an existing dispute. However, it can apply to a wider range of legal claims, including discrimination and breach of contract.

Section 111A does not require an existing dispute. Nevertheless, it normally protects only pre-termination negotiations relating to certain unfair dismissal claims.

In some situations, both forms of protection may apply. In others, only one will apply.

Our article on how to approach a settlement agreement discussion considers the practical preparation needed before raising an offer.

When can an employer lose the protection?

The tribunal may allow evidence of settlement discussions where there has been unambiguous impropriety. This exception applies to serious wrongdoing rather than ordinary negotiating pressure.

Examples may include:

• blackmail or fraud;
• discrimination or victimisation;
• physical violence or threats;
• serious intimidation; or
• other clearly improper behaviour.

Employers should therefore avoid threats, discriminatory comments and misleading statements during negotiations.

A firm offer or robust commercial position will not necessarily remove protection. However, an employer should not threaten unlawful action or suggest that dismissal is inevitable regardless of any fair procedure.

How should an employer start the discussion?

Before contacting the employee, the employer should identify the dispute and decide what it wants the settlement to achieve.

The employer should also review the potential claims, available evidence and likely cost of continuing the dispute.

At the beginning of the meeting, it should explain that the discussion aims to explore a possible settlement. It should also state that the discussion is intended to take place without prejudice.

However, the employer should not promise that the conversation is confidential in every circumstance. Whether the rule applies ultimately depends on the legal requirements and the facts.

The employee should have a reasonable opportunity to consider the proposal and obtain advice. Pressuring them to accept immediately can undermine the negotiations and create further risk.

Making a written without prejudice offer

A written offer should explain the dispute, the proposed terms and the period allowed for consideration.

The employer may include:

• the proposed termination or settlement date;
• the financial payment offered;
• notice and holiday arrangements;
• an agreed employment reference;
• confidentiality obligations;
• the contribution towards independent legal advice; and
• any continuing post-termination restrictions.

The letter can carry the heading “Without Prejudice and Subject to Contract”. However, the heading alone will not create protection if no dispute exists or the offer does not genuinely attempt to settle it.

“Subject to contract” indicates that the parties do not intend the offer to become binding until they complete the formal agreement. Employers should still take care because the effect of negotiations can depend on their precise wording and circumstances.

Without prejudice discussions with employees save as to costs

An employer may sometimes make an offer marked “without prejudice save as to costs”.

This generally means that the tribunal should not see the offer when deciding the substantive claim. However, it may later consider the offer when dealing with an application for costs.

Employment tribunals do not normally order the losing party to pay all of the winner’s legal costs. Therefore, employers should not assume that rejecting an offer will automatically result in a costs award.

The wording and timing of any costs-related offer require careful consideration, especially once tribunal proceedings have begun.

What happens if the negotiations fail?

If the parties do not reach an agreement, the underlying employment dispute continues.

The employer may need to resume a disciplinary, capability, grievance or redundancy procedure. Alternatively, it may need to defend an existing employment tribunal claim.

The employer should keep the settlement negotiations separate from the formal process. Managers must not treat the employee unfavourably because they rejected an offer.

Where a tribunal claim has already started, our article on how to settle an employment tribunal claim explains the wider options available.

Recording the final agreement

A verbal agreement may not safely settle statutory employment claims. The parties will normally need a valid written settlement agreement or an Acas COT3 agreement.

A statutory settlement agreement must meet specific legal conditions. In particular, the employee must receive advice from an appropriate independent adviser, and the agreement must identify the claims being settled.

Employers can find more information on our settlement agreements for employers page.

Common mistakes during without prejudice discussions

Employers often create unnecessary risk by assuming that every settlement conversation is protected.

Other mistakes include using the phrase without prejudice where no dispute exists, mixing settlement discussions with disciplinary decisions, applying unreasonable pressure and making discriminatory remarks.

Employers should also avoid circulating settlement correspondence widely within the business. Access should normally remain limited to those who need the information.

Advice on without prejudice discussions with employees

Without prejudice discussions with employees can help resolve workplace disputes privately and commercially. However, the protection depends on the circumstances and not simply on the wording placed at the top of a letter.

EBS Law helps employers assess whether without prejudice protection is likely to apply, prepare settlement offers and negotiate legally binding agreements.