When Can Pre-Termination Settlement Discussions Be Admissible as Evidence at the Employment Tribunal?

When Can Pre-Termination Settlement Discussions Be Admissible as Evidence at the Employment Tribunal?

In this blog, we examine two recent EAT decisions: (1) St Paul’s C of E VA v Lynn Hill (2024, EA-2023-000716-JOJ), a decision concerning the WP principle in which Farore Law successfully acted for the Claimant (Ms Hill); and (2) Gallagher v McKinnons [2024] EAT 174, which concerned the admissibility of a protected conversation. We also discuss how the recent decisions of Hill and Gallagher are of significance to both senior executives and employers.

Background

The Without Prejudice (WP) principle generally protects exploratory settlement discussions, as long as both parties are engaged in an actual or contemplated legal dispute. However, this protection does not extend to “unambiguous impropriety” during those discussions.

If no legal dispute has arisen, the WP principle does not apply. Instead, parties can rely on Protected Conversations, a statutory protection under section 111A(1) of the Employment Rights Act 1996 (ERA). This provision makes pre-termination negotiations inadmissible in ordinary unfair dismissal claims. However, it does not apply to complaints of ‘automatic’ unfair dismissal or discrimination. Like the WP principle, the protection of pre-termination negotiations under section 111A(1) ERA can be lost if the tribunal finds “improper” conduct or behaviour, as set out in section 111A(4) ERA.

In contrast to the stricter ‘unambiguous impropriety’ standard for WP discussions, Protected Conversations cover a broader range of misconduct, including harassment, bullying, intimidation, discrimination, or exertion of undue pressure.

• The ACAS Code offers guidance on what constitutes improper behaviour in the context of Protected Conversations. This includes:Harassment, bullying, or intimidation

• Threats of assault or victimisation

• Putting undue pressure on an employee (e.g., not allowing sufficient time for consideration or threatening dismissal before disciplinary procedures have begun).
  

St Paul’s v Hill: When has a legal dispute arisen?

In the recent unreported Employment Appeal Tribunal (EAT) case of St Paul’s C of E VA v Lynn Hill, we successfully acted for the Claimant in an appeal challenging the admissibility of an email inviting her to WP discussions. The appeal focused on whether a legal dispute existed.

HHJ Shanks, in dismissing the appeal, explained that a legal dispute arises only when both parties contemplate or reasonably contemplate litigation. This contemplation must be mutual – not unilateral.

In this case, HHJ Shanks found that, although there were disagreements between the parties, there was no dispute that could lead to litigation. 

In addition, the email in question was simply an invitation to settle, not a formal offer demonstrating a genuine attempt to settle. Therefore, the email was admissible in evidence.

The Gallagher v McKinnons Case: When might improper conduct lead to inadmissibility?

The recent EAT decision in Gallagher v McKinnons [2024] EAT 174 highlights the broad discretion tribunals have when determining the admissibility of evidence.

The case revolved around a meeting held to discuss the Claimant’s return to work after a two-month illness absence. During the meeting, the Respondent unexpectedly presented an exit package verbally, giving the Claimant only 48 hours to consider it.

When the Claimant later rejected the offer and was dismissed, he sought to use the pre-dismissal discussions as evidence of unfair dismissal. However, the tribunal ruled that both the fact and content of the pre-termination negotiations were inadmissible, as they were protected conversations.

The Claimant appealed, arguing that the tribunal had erred by not finding improper behaviour. Specifically, the Claimant argued that the Respondent had acted improperly by ‘lying’ about the purpose of the meeting, applying undue pressure by only giving him 48 hours to respond, and by suggesting dismissal if the settlement offer was rejected.

The EAT upheld the tribunal’s decision, noting:

1. It was open to the tribunal to conclude that there had been no undue pressure as the Claimant was not definitively told that he would lose his job regardless of the outcome.

2. The EAT expressed the view that the words “improper” meant something more than mere unfairness (as one might consider when looking at unfair dismissal).  Thus, even if the process was not wholly fair to the employee, it was reasonable for the tribunal to conclude that this did not amount to impropriety that would override the default inadmissibility of protected discussions.

3. The tribunal was entitled to conclude that the 48-hour period to consider the verbal offer did not constitute undue pressure as it was implicit in the tribunal’s decision that had the Claimant accepted the verbal offer, negotiations would have continued and at some point, the Claimant would have been presented with written terms of settlement to consider.

What to take away

When looking at both the Hill and Gallagher decisions, employers should take heed to the following:

• Employers generally invite employees to protected conversations in circumstances where there is no actual or contemplated dispute in place (meaning that the WP principle cannot apply). Although protected conversations are generally inadmissible in ordinary unfair dismissal claims, the exception to this is when a Tribunal concludes that there was impropriety. The Gallagher decision illustrates that the mere fact that an employee was given just 48 hours to consider a verbal settlement proposal does not on its own constitute impropriety. Much will depend on the facts of the case.  In order for employers to reduce the risks of a Tribunal later finding that there was some form of impropriety, legal advice should always be obtained before inviting an employer to a protected conversation. For example, employers should: (i) consider producing a “script” to read out during the protected conversation; (ii) not misrepresent to the employee the purpose behind the protected conversation; (iii) urge the employee to seek legal advice; and (iv) allow an extension of time for the employee to consider the terms of an exit package if the employee requests to do so.

• Protected conversations are, however, admissible in automatic unfair dismissal cases (such as whistleblowing) and discrimination claims. In those circumstances, making an offer on a WP basis might provide greater comfort for the employer. However, the Hill decision illustrates that there will be circumstances where an invite to WP discussions will not be made inadmissible under the WP principle because of reasons such as: (i) there being no actual or contemplated litigation at the time of the communication; and (ii) the communication in any event not demonstrating a genuine attempt to settle. 

• As set out above, employers (and HR advisers) should always seek legal advice before attempting WP discussions with the employee. In addition, cases such as Hill illustrate how timing can be crucial when inviting an employee to WP discussions. For example, in Hill the Tribunal held that there was an actual dispute between the parties prior to a capability hearing in mid-May 2021; but that at the time of the WP approach on 26 May 2021, there was no longer an actual or contemplated dispute since the Respondent opted not to dismiss the Claimant in the capability hearing – and chose to instead monitor her health until September 2021.

• Employers should bear in mind that the same protected conversation may be inadmissible in relation to the unfair dismissal aspect of a claimant’s tribunal claim yet be admissible when the tribunal considers the discrimination claim running alongside it – something the EAT noted in the Gallagher case. This is somewhat problematic, and so it is important that there is a legal dispute at the time of the conversation so that the employer can use the WP rule (and not the protected conversation rule) to avoid disclosure of the conversation.