Employment Update: Without Prejudice Negotiations: Employers Beware

Originally published June 2004

Negotiating a quick exit for unwanted staff can sometimes seem an attractive option. Where there are no obvious grounds for dismissal, procedures may stretch into the future with no clear resolution in sight, and in the meantime a disaffected employee ties up lots of management time. The offer of compensation, in exchange for a resignation and a Compromise Agreement, might resolve the situation cleanly and effectively.

The difficulty is that such an approach may itself exacerbate the situation. The employee realises they have no future; in legal terms, their trust and confidence in the employer is destroyed by the knowledge the employer no longer wants them, thus grounding a constructive unfair dismissal claim, the very thing the approach was intended to prevent. In discrimination cases a similar problem arises: an employee complains, an offer to settle on terms including a resignation is made, and thus gives the employee grounds for a victimisation claim: if the original complaint had not been made, they would not have been told they have no future with the company.

Can conducting negotiations on a 'without prejudice' or ‘off the record’ basis prevent these problems arising? In some cases it can - if the without prejudice rule applies, details of the negotiations and any offer to settle will not be admissible in a court or tribunal (to encourage settlement of disputes and avoid litigation). However the without prejudice label will not protect all negotiations as the recent case of BNP Paribas v Mezzotero shows. In that case the employee returned from maternity leave to find that matters had moved on: other members of the department were now doing her work, and management felt it would be unfair to move them. There was really no job for her. When she complained, management suggested she take some leave, and then, on a without prejudice basis, offered a settlement to terminate the employment.

No deal was done and Miss Mezzotero subsequently claimed sex discrimination and victimisation: management had wanted rid of her because she had complained of discrimination. The company claimed their offer was privileged. The Employment Appeal tribunal rejected the claim: the employee could refer to the 'without prejudice' offer to support her victimisation claim. In the EAT's view, without prejudice privilege could never be used as a cloak to conceal serious impropriety, such as discrimination, from a tribunal. Moreover, on the particular facts of this case, there was at the time of the offer no 'dispute' to settle, but at most a grievance. Privilege did not therefore attach.

Practical implications

Where does this leave 'without prejudice' negotiations? Can they still be safely used? If there is a genuine attempt to settle a real dispute, and at least once legal proceedings are in prospect even if not actually commenced, privilege should still attach: otherwise it would never be possible to offer to settle even discrimination cases without the risk of a subsequent victimisation claim. The danger lies in the pre-emptive offer of termination plus compensation. Clearly, simply attaching the label 'without prejudice' will not in itself guarantee protection. In such circumstances, legal advice should now be taken before negotiations begin.

The cost of not consulting

Employers who fail to consult employees over collective redundancies may have a Protective Award made against them of up to 90 days pay for each of the employees affected. Three months pay can be a substantial sum, especially for 100 employees or more.

How then should a Tribunal decide whether to award the full 90 days or some lesser amount? Two approaches are apparent in the cases: firstly that the award is compensatory, in which case if the employer can show that consultation would have made no difference since closure was inevitable, only a small award should be made since the employees have suffered little by the loss of consultation; or secondly a punitive approach, in which case the award should reflect the seriousness of the employer's culpability in failing to consult.

Emphasising the absolute nature of the duty to consult, the Court of Appeal in the recent case of Radin v GMB has preferred the punitive approach. The starting point should be the full 90 days. If the employer can then show mitigating circumstances, for example that the failure to comply with the detailed obligations on providing information was only minor, or perhaps only just outside the time scale, then the award can be reduced accordingly. The loss to the employee is really irrelevant: after all, the award is a collective one, and the employees' particular circumstances are not taken into account; nor are earnings or notice pay received during the period. The decision is a strong one as, on the facts, consultation would have made no difference; closure was inevitable.

A failure to consult just got more expensive. (In the Radin case itself the employer faced a protective award of some £250,000). Employers making 20 or more employees redundant need to take great care in this area - or face a severe sanction.