Employment e-Brief: Settlement discussions with employees – what’s changed?

Thursday 7th July 2016

For some time now employers have been successfully using protected pre-termination negotiations with employees to have “grown-up conversations” about early departures. These were introduced by S.111A of the Employment Rights Act 1996 which renders evidence of pre-termination negotiations inadmissible in unfair dismissal claims. However, case law in this area has been virtually non-existent so lawyers have had to use their best judgement to gauge how effective the statutory protection would be.

Only very recently has the Employment Appeal Tribunal ruled on this issue, looking specifically at inadmissibility of settlement negotiations under s.111A Employment Rights Act.

In the case of Faithorn Farrell Timms LLP V Bailey, B was employed as an office secretary by FFT (a firm of surveyors) from March 2009 until February 2015 when she resigned. Before leaving in January 2015, B initiated discussions about a settlement agreement and ‘without prejudice’ correspondence was exchanged between B and FFT, discussing potential settlement terms. At the end of January, B sent a letter to FFT raising a grievance and she referred to the conversations which took place at the beginning of January as ‘open correspondence’. FFT responded to confirm previous discussions were privileged and B said she did not accept this. B went onto bring claims of unfair constructive dismissal and sex discrimination and specifically referred to the earlier conversations regarding a settlement in her claim form; FFT also cited the same material in support of their own case.

The Employment Tribunal held that the documents were not rendered wholly inadmissible by either common law ‘without prejudice’ rules or by s.111A ERA. The Tribunal said s.111A only covers details of any settlement conversations and not just the fact that the conversations took place. FFT appealed, arguing amongst other things that all the correspondence was covered by the ‘without prejudice rule’.

The Employment Appeal Tribunal allowed the appeal. It said a Claimant cannot rely on the existence of the fact that the settlement negotiations took place in support of an unfair dismissal claim. The EAT went onto say that s.111A also applied to conversations regarding settlement which take place within the organisation. So if managers and members of HR have discussions about a settlement these are also classed as privileged under s.111A. Unlike the common law ‘Without Prejudice’ privilege, the court said that s.111A cannot be waived and should be read on its own.

The EAT also considered the scope of s.111A(4), looking at when ‘improper behaviour’ has occurred and if found to have occurred, whether the extent of the privilege can be reduced or removed. The court ruled that this is wider than the common law ‘unambiguous impropriety’ exception and a different phrase had been chosen by parliament to allow a broader approach to the behaviour in issue and gives the Tribunal greater flexibility when considering the behaviour. In other words, we have no precise guidance on what ‘improper behaviour’ might be except that it has a very broad definition, so be careful!

So what do we know now? S.111A applies not only to the content of settlement conversations but also the fact that the conversations have taken place. This privilege cannot be waived by employer or employee. That said, in this case, because FFT failed to complain about the fact that B made reference to the settlement conversations and then went onto rely on the same material themselves, this indicated that FFT had indeed waived privilege.

The above having been said, in the right hands and properly utilised, “protected conversations” as they have become known, are a very useful tool in the HR professional’s briefcase.

If you would like to discuss this e-Brief in further detail, please contact Philip Paget on 0113 227 0212 or at philip.paget@gordonsllp.com