When could a “Without Prejudice” letter still be admissible in an Employment Tribunal?

In Swiss Re Corporate Solutions v Sommer (Swiss) the Employment Appeal Tribunal (EAT) recently held that an ET was wrong to find that a letter drafted by the employer’s lawyers was not covered by the without prejudice rule. In what turned out to be a close call for the employer, the EAT held that in making exaggerated allegations in a without prejudice letter, the employer had “sailed close to the wind” but had not reached the high threshold that would remove the letter’s without prejudice protection. Therefore, the letter was not admissible as evidence in the final hearing.

What is the without prejudice rule?

Many employers and HR professionals will be familiar with letters headed “Without Prejudice” where the intention is to settle an actual or potential ET claim. Its long-established public policy aim is to allow parties to settle a dispute by setting out their factual and/or legal position, without fear that what they say will be put before a court or an ET, and held against them as evidence by the other party. It is in the interests of justice for both parties to be able to discuss matters “off the record”, to see if a settlement can be reached, before spending potentially thousands of pounds on lawyers’ fees and taking up the time of courts and tribunals unnecessarily.

Warning: "Without Prejudice" is not a cover-all

However, there is no “magic” to using the words “Without Prejudice” at the top of a letter or beginning of a conversation. There are exceptions where the rule will not apply and could mean that a letter and/or conversation is open to being put before an ET as evidence. The two main ones are:

• Where there is no genuine existing dispute which the parties are trying to settle. In general, there will be an “existing dispute” where an employee has brought a claim or might reasonably contemplate bringing a claim. But this will come down to the facts: for example, an employee’s grievance is not necessarily enough on its own, because an employer may uphold that grievance resulting in no dispute. The letter or conversation could be disclosed to the ET.
• Where the without prejudice rule acts as a cloak for “perjury, blackmail, or other unambiguous impropriety”. This exception is only to be applied in the “clearest cases of abuse of a privileged occasion.” In a 2004 case, BNP Paribas v Mezzotero, the exception applied because of discriminatory comments made in the course of a without prejudice discussion. They were admissible because they amounted to “unambiguous impropriety”. This does not apply to all discrimination cases: it will depend on the circumstances.

Without Prejudice letter was protected – only just

In Swiss, Mrs Sommer returned from maternity leave on 1 July 2020 and on 9 October 2020 was informed that her job (unlike any of her team) was at risk of redundancy. On 19 October she raised a first grievance about discrimination on various grounds attaching documents, including a male colleague’s CV, copied to her personal email address and blind copied to her husband. In November 2020, she raised a second grievance about equal pay, sending two emails, this time attaching documents showing information about client transactions and openly copying them to her personal email address. Her grievances were not upheld.

In January 2021, she was asked by HR to explain why she sent documents and information confidential to the company and its clients to her personal email address and to her husband (referred to by HR at that time as a “low level data breach”), and to delete them. Mrs Sommer said she sent them to retain evidence for an ET claim but confirmed she had deleted them.

Subsequently, a disciplinary investigation began to establish the facts of the data breach and an investigator was appointed on 20 January 2021. On 22 January, her employer’s solicitors sent Mrs Sommer a without prejudice letter making a number of allegations against her, regarding the sending of confidential information in breach of her employment contract, disclosing personal data, lying to her employer about copying in her husband, and potentially acting without integrity in breach of the Financial Conduct Authority’s (FCA’s) Conduct Rules. The letter suggested these could result in summary dismissal, criminal convictions, fines and/or findings of a breach of the FCA Conduct Rules, which could make it difficult for her to work again in the financial services regulated industry. The letter offered her £37,000 to end her employment.

On 25 January, the disciplinary investigation concluded that only informal action be taken. There had been a breach of Mrs Sommer’s contract and her employer’s conduct rules, but there were also strong mitigating factors and no indication that actual harm had been done. However, Mrs Sommer was not told this until after the acceptance deadline of the without prejudice settlement offer.

As well as considering the timing of all these events, the ET concluded that the without prejudice letter contained allegations of serious misconduct leading to immediate dismissal, prosecution, fines and regulatory action (by the FCA) for which there was “no basis at all” and which “grossly exaggerated the severity of what she had done”. It held that they were threats designed to force Mrs Sommer to accept the settlement offer. Referring to a previous case where the threat of criminal proceedings amounted to blackmail, the ET found that the letter was an abuse of privilege amounting to “unambiguous impropriety”, and that therefore the without prejudice letter could be disclosed at the final hearing.

The EAT disagreed. It determined that the letter was protected by the without prejudice rule, and not admissible as evidence. The EAT found that the ET had properly directed itself on the relevant law, and not taken irrelevant circumstances into account (such as the timing of events). However, the ET’s conclusion that the allegations had “no basis at all” was wrong. The facts did potentially disclose a breach of confidence, breach of contract, a breach of data protection legislation and conduct lacking integrity for the purposes of FCA rules. In relation to the allegations being “grossly exaggerated”, this was not enough to reach the high threshold of “unambiguous impropriety”, because the ET had not found, for example, that the allegations were in fact dishonest. Therefore, despite the letter’s contents, the “unambiguous impropriety” exception to the without prejudice rule did not apply.

Comment

Employers beware: in Swiss, the EAT stated that the letter was not completely free of impropriety, and that the employer or its lawyers had “sailed close to the wind”. There is always a danger of applying improper pressure in a without prejudice letter if it contains threats of criminal or regulatory action, is dishonest or amounts to blackmail. However, the without prejudice rule has a strong public policy aim for settling claims which is difficult to break, and in Swiss the letter did not pass that very high threshold. Employers, HR professionals and their legal advisers should remember the potential for “unambiguous impropriety” in the context of without prejudice letters or conversations. The EAT’s comments show that the employer had a lucky escape. Others will not want to face such scrutiny of letters or conversations which are designed to remain “off the record”.