Case update (1): When’s it safe to talk ‘without prejudice’?

Summary:  When can employers safely hide settlement discussions behind the ‘without prejudice’ rule?

This issue was helpfully explored by the EAT in Portnykh v Nomura International plc.

Facts:  Mr Portnykh was employed by Nomura, who sought to dismiss him for misconduct. Nomura alleged that Mr Portnykh had approached them with a request that his dismissal be categorised as being for redundancy. Mr Portnykh and Nomura then attempted to negotiate a settlement agreement and sent correspondence on this, marked ‘without prejudice’, to each other. The ‘without prejudice’ rule only applies to settlement negotiations when an actual legal dispute already exists between the parties.

The negotiations failed and, instead, Mr Portnykh was dismissed.  He brought a Tribunal claim for automatic unfair dismissal for making a protected disclosure (i.e. claiming he was a whistle-blower).

As part of its defence, including the fact that there had been no protected disclosure, Nomura wanted the Tribunal to be made aware of the negotiations, and therefore argued that the correspondence exchanged between them, marked ‘without prejudice’, was not actually in accordance with the ‘without prejudice’ rule and should therefore be admissible (i.e. shown to the Tribunal).  This was on the basis that there had been no legal dispute in existence between the parties at the time of the negotiations or, if there was any such legal dispute, that the ‘unambiguous impropriety’ rule applied because Mr Portnykh was trying to categorise his dismissal as something different to that in the ‘without prejudice’ correspondence.

The Tribunal agreed with Nomura. It found that the fact that the parties were in negotiations about a settlement agreement did not mean they were in a legal dispute at the time.

Mr Portnykh successfully appealed to the EAT. The EAT ruled that the ‘without prejudice’ rule did apply to the correspondence, and it was therefore inadmissible at the Tribunal hearing.

The EAT considered that there clearly was a legal dispute in existence at the time of the negotiations, or at least the potential for one.  The employers had announced their intention to dismiss Mr Portnykh for misconduct and discussions about an alternative manner of dismissal followed.  There do not have to be any proceedings in the offing, or for any specific complaint (such as an unfair dismissal claim) to have been raised, for there to be a potential dispute.

The EAT also held that the “unambiguous impropriety” rule should not apply simply because the exclusion of the evidence would disadvantage the employers.

In coming to its decision, the EAT made some interesting observations on the ‘without prejudice’ rule:

• In order to determine whether there is an actual or potential dispute, a Tribunal will need to examine the context in which any correspondence marked ‘without prejudice’ is produced, and not simply focus on the correspondence itself.
• The fact that Nomura and Mr Portnykh were discussing alternatives as to the reason for Mr Portnykh’s dismissal meant that there was either a present dispute or the potential for a future dispute, which meant that the ‘without prejudice’ rule applied.
• The fact that a settlement agreement is being negotiated does not automatically mean that there is an actual or potential dispute between the parties but that will very often be the case.
• The dispute which eventuates need not be precisely the same dispute as is in existence at the time the settlement agreement is offered.
• ‘Unambiguous impropriety’ is a very narrow concept. The fact that Nomura would be disadvantaged by the exclusion of the ‘without prejudice’ correspondence did not mean that the ‘unambiguous impropriety’ exception applied. There would need to have been something more, such as Mr Portnykh actually perjuring himself while giving evidence at the Tribunal and the ‘without prejudice’ correspondence being evidence of that perjury.

Implications:

This is a very helpful case for employers.  It suggests that, in an employment context, the ‘without prejudice’ rule may have a broader application than previous case law had stated.  In particular, the EAT’s decision is most welcome for its statement that negotiations over a compromise/settlement agreement will often fall within the ‘without prejudice’ regime.

The case is still important despite the introduction of ‘protected conversations’ in July 2013 (see our January 2013 Newsletter Latest Government changes) which made it easier for employers to have discussions with employees to end the employment relationship. This is because the protection afforded by ‘protected conversations’ applies only to ordinary unfair dismissal cases, not discrimination claims or automatic unfair dismissals where, for example, whistleblowing is alleged. Employers do, therefore, still need to bear in mind the rules about when ‘without prejudice’ conversations may take place.

Although this case is good news, employers should still be cautious when approaching ‘without prejudice’ conversations. The EAT did not suggest that all such discussions will be protected by the without prejudice rule and it is worth noting that the employer in this case had already declared that it would dismiss the claimant before negotiations were entered into. An ‘out of the blue’ approach to an employee with a settlement agreement offer, where there is nothing to suggest an actual or potential dispute, is still unlikely to attract ‘without prejudice’ protection.