The 'without prejudice' rule: when does privilege apply?

The principle of privilege prevents discussions protected by the ‘without prejudice’ rule from being produced as evidence in Employment Tribunals. 

It is important to understand when this rule applies, what the test is and the sorts of discussions that can be protected. In this Briefing, we look at two recent cases which have considered the without prejudice rule and how it operates in practice.

1. Scheldebouw B.V v Evanson

In this case the Employment Appeal Tribunal (EAT) considered the point at which pre-litigation discussions between parties become covered by the ‘without prejudice’ rule so that they can’t be referred to in subsequent litigation.

Facts

Mr Evanson was due to retire. In September 2018, discussions started about his possible retirement, his outstanding holiday entitlement, and his car allowance. On 12 October 2018 the employer suggested it would pay just over £68,000 for accrued holiday pay. It was agreed that a settlement agreement would be drawn up, and none of the correspondence was marked ‘without prejudice.’

A settlement agreement was provided in December 2018, and Mr Evanson responded with a written counter-settlement agreement. In the event, agreement was not reached, and Mr Evanson was dismissed on 19 March 2019 with the dispute relating to holiday pay remaining unresolved.

Decision

The EAT confirmed that, when deciding if privilege applies, the crucial question is this: did the parties contemplate litigation during discussions, or might they have reasonably done so if they had not agreed? If the answer is yes then privilege applies; if the answer is no, privilege does not apply.

Applying this test, the EAT agreed that the discussions prior to December 2018 (including the offer of £68,000) were not protected by the without prejudice rule and so could be referred to in the claim form. The scope of the disagreement at this point was very narrow and seemed resolvable at first and there was no reason to think it would end in litigation. Whilst there was the mention of a settlement agreement, there was no real expectation of being sued at this point; the settlement agreement was considered as a standard commercial step only. The fact that none of the discussions or correspondence were marked ‘without prejudice’ at this point supported this finding.

Comment

As well as confirming the crucial question to be asked, the EAT helpfully confirmed that:

• There does not need to be an express or implied threat of litigation and there’s no need to be very close in time to actual litigation starting
• 'Opening shots’ - i.e. first offer of terms – will not always be ‘without prejudice’. In this case, an opening offer had been made when the possibility of litigation was appreciated as a commercial reality but there was no expectation of the employer being sued. So here the ‘opening shot’ wasn’t covered by the without prejudice rule.
• It doesn’t matter if the discussions have been amicable. This can be a red hearing – what matters is whether there is actual or reasonable contemplation of litigation.
• Whether or not a communication is protected by without prejudice privilege does not depend upon whether the communication contains the words or label ‘without prejudice’. These words can give an insight into the position and can be persuasive, but the words themselves are not essential or determinative.

2. Meaker v Cyxtera Technology UK Ltd

In this case, the EAT held that a letter amounted to an effective letter of termination for the purposes of an unfair dismissal claim, despite the letter being marked ‘without prejudice.’

Facts

Mr Meaker suffered a back injury resulting in an extended period off work. Following conversations with HR regarding the possibility of a settled exit, his employer sent him a letter which he received on 7 February. The letter was headed “without prejudice” and stated that there would be a mutual termination of employment with Mr Meaker’s last day of employment being 7 February. The letter offered an ex-gratia payment, conditional on Mr Meaker signing an enclosed draft settlement agreement. The letter was followed by a payment on 14 February, which Mr Meaker was told reflected his payment in lieu of notice and holiday pay entitlement. On 19 June, Mr Meaker presented a claim of unfair dismissal.

An employment tribunal held a preliminary hearing to consider whether the claim was presented in time. It considered that the ‘without prejudice’ letter was an effective dismissal letter (resulting in the claim being out of time). Mr Meaker appealed.

Decision

The EAT dismissed the appeal. Whilst the letter was marked ‘without prejudice’, the EAT considered that it contained both ‘open’ and ‘without prejudice’ content.  The termination arrangements were construed as open correspondence which were sufficiently clear and unambiguous to dismiss the employee for the purposes of unfair dismissal. The letter gave a clear termination date, set out the payments the employee would receive because of the termination and advised that his P45 would be issued after final payment. It was also clear that the termination of the employee's employment was not contingent on him entering into the settlement agreement.

Comment

Whilst this appeal went in the employer’s favour, many employers rely on ‘without prejudice’ letters as being genuinely off the record. This case is a warning that, if a ‘without prejudice’ letter is not drafted carefully, an employer could inadvertently terminate an employee’s employment, giving rise to a potential claim of unfair dismissal.

As the EAT made clear in the Evanson case (above), labels are not determinative; there must be a genuine dispute in existence at the time the letter is sent for privilege to apply.

This case is also a useful reminder that it is safer for open and without prejudice communications to be made separately; where an employer wishes to terminate an employee’s employment it would be better to keep the termination letter separate from any without prejudice communications.

Read the Scheldebouw judgment here.

Read the Meaker judgment here.

Contributors: Catherine Roylance, Sarah Maddock and Calum Ross

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This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.