Case law update: Ending the employment relationship - when are settlement discussions ‘without prejudice’? | EEF

Case law update: Ending the employment relationship - when are settlement discussions ‘without prejudice’?

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When is the right time for an employer to explore the possibility of an agreed termination with an employee? And what is the best way to do this?

For employers wanting to bring an employment relationship to an end, either for disciplinary or performance issues, or maybe because the relationship just isn’t working anymore, these are sometimes difficult questions to answer. Get it wrong and you might find your own words coming back to haunt you in an employment tribunal. Get it right and you can save yourself a lot of management time and heartache, minimise workforce disruption and hopefully afford employees the option of a dignified exit – at the right price!

Such discussions are most likely to succeed if all parties are open and frank. However, in an employment situation this will only be the case if the parties, in particular the employer, can be confident that any attempt to reach an agreement won’t subsequently be used against them in litigation.

There are two useful tools employers (and potentially employees) can seek to avail themselves of in order to initiate/engage safely in ‘off the record’ discussions;

  • Express statutory protection: A new provision was introduced last year into the Employment Relations Act 1996 (‘ERA’). S111A ERA provides that in certain circumstances evidence of pre-termination discussions will be inadmissible in unfair dismissal proceedings before an employment tribunal.
  • The ‘without prejudice’ rule: This common law rule can also provide protection in situations where the parties are ‘in dispute’, and negotiations are a genuine attempt to settle that dispute.

Unfortunately, S111A has a fundamental limitation in that it is only applicable in relation to subsequent unfair dismissal proceedings. For further information on the scope and operation of S111A, see our previous HR Briefing,‘The Compromise Agreement is dead, long live the Settlement Agreement!’ The scope of the ‘without prejudice’ rule is wider, but cannot operate as ’a cloak for perjury, blackmail or other unambiguous impropriety’.

Case law has established that for the purpose of attracting ‘without prejudice’ protection, ‘a dispute’ can be categorised as, “a matter capable of compromise and one in respect of which, if not resolved, the parties could reasonably contemplate litigation”. But, what does this mean in practice? And, what behaviour/actions might amount to ‘unambiguous impropriety’ so as to establish an exception to the without prejudice rule?

Helpful EAT Guidance

A recent EAT case, Portnykh v Nomura, is a welcome development in this area as it confirms that ‘without prejudice’ protection is more broadly available than previous case law seemed to suggest.


Mr Portnykh was employed by Nomura. Nomura sought to dismiss him for misconduct. Nomura alleged that Mr Portnykh then approached them requesting that his dismissal be categorised as redundancy. The parties subsequently attempted to negotiate a settlement agreement. To this end the parties exchanged correspondence marked “without prejudice”. Negotiations subsequently broke down and Mr Portnykh brought a claim of unfair dismissal asserting that he was dismissed for making a protected disclosure, (i.e whistleblowing). Nomura sought to introduce the correspondence between the parties in evidence at tribunal, notwithstanding that it was marked “without prejudice/subject to contract”. Nomura claimed that there had been no pre-existing dispute between the parties, and in any event, in attempting to assert that the reason for his dismissal was something other than that he put forward in ‘without prejudice’ correspondence, Mr Portnykh actions amounted to ‘unambiguous impropriety’ and fell within the exception to the ‘without prejudice’ rule.

Employment Tribunal Findings

The Tribunal found in Noruma’s favour. It asserted that just because the parties had reached the stage of negotiations about a settlement agreement did not mean that they were necessarily ‘in dispute’. Furthermore, that it would be an abuse of the ‘without prejudice rule’ for the tribunal to hear Mr Portnykh’s whistleblowing claim and not be aware that he had previously sought to categorise his dismissal as redundancy. Mr Portnykh appealed to the EAT.

EAT findings

The EAT upheld Mr Portnykh’s appeal. The EAT found that as the parties were discussing alternatives as to the reason for Mr Portnykh’s dismissal, it was clear that there was either a present dispute or the potential for a future legal dispute which meant that the ‘without prejudice’ rule applied.

The EAT also provided further helpful clarification on the scope and operation of the ‘without prejudice’ rule in employment situations:

Parties’ in dispute’

  • In determining whether there is an actual or potential dispute, employment tribunals must examine the circumstances surrounding any purported without prejudice discussion or correspondence, not just focus on isolated incidents or correspondence.
  • The fact that parties are negotiating an exit does not necessarily mean that there is an actual or potential dispute.
  • Notwithstanding that reaching the stage of negotiating a settlement agreement doesn’t automatically mean there is a dispute between the parties, this will in fact very often be the case.
  • There do not need to be legal proceedings in existence for the parties to be in dispute, nor does an employee need to mention that they are minded to bring a particular claim such as discrimination or unfair dismissal for a dispute to exist.

Unambiguous improprity

The EAT also confirmed that the scope of ‘unambiguous impropriety’ is extremely narrow and will only apply in exceptional circumstances. Just because one party would be substantially disadvantaged by the exclusion of ‘without prejudice’ correspondence/evidence, does not trigger the ‘unambiguous impropriety’ exception.

In the case of Mr Portnykh, the EAT stated that there would have had to have be something more for the ‘unambiguous impropriety’ to apply, such as Mr Portnykh actually perjuring himself while giving evidence at tribunal and the ‘without prejudice’ correspondence being evidence of that perjury.

What does this mean for employers?

In Portnykh the ‘without prejudice’ protection worked to the employer’s disadvantage. However, the EAT’s acknowledgement that when off the record discussions reach the stage of negotiating terms for a settlement agreement, they will usually (although not always) fall within the scope of the without prejudice regime, is very welcome. The confirmation that it will be very rare indeed for ‘without prejudice’ protection to be lost by virtue of ‘unambiguous impropriety’ is also good news.

Operation of S111A and the ‘without prejudice’ rules are not mutually exclusive. In fact, given that both have their limitations, if an employer is able to avail themselves of the protection of both during off the record discussions/negotiations, all the better.

How can EEF help?

We recognised that exiting employees from the business is one of the most difficult tasks Line and HR managers have to deal with. Whilst implementing and operating effective policies and procedures, particularly in relation to capability and disciplinary, is critical in this respect, the most effective managers are those that also have the knowledge and skill to spot opportunities to expedite matters safely, and the confidence to act on these.

EEF can assist you in fine tuning your skills in this area. Book a place on one of our ever popular, ‘Ending the Employment Relationship: Off the Record or by the Book’ seminars. For further details and to book a place click here.

EEF has also produced an on-line mini-guide to assist members negotiate the choppy waters of off the record termination discussions. Off the Record conversations about terminating the employment relationship.

Our experienced HR consultants and trained mediators can also work side by side with you to help achieve resolution.


Media Team 020 7654 1576

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