Hello  and welcome back to our case of the week.

Last time, we examined recent case law regarding protected disclosures and cost awards. If you missed it, don’t worry…you can catch up here.

This week’s case focuses on a “without prejudice” meeting where an employer offered a quick-turnaround settlement agreement, with redundancy as the fallback option. This brings up important questions around fairness, pressure tactics, and the use of “without prejudice” in negotiations.

Background

Employers and employees sometimes use settlement agreements to end employment relationships under agreed terms, including compensation, which helps avoid formal proceedings and their associated costs. Normally, if there’s an ongoing or anticipated legal dispute, any settlement discussions are protected under the “without prejudice” principle, meaning they can’t be used as evidence in court. However, this protection doesn’t apply to instances of “unambiguous impropriety,” such as threats or coercion.

On 1 August 2022, Mr. Gallagher, a branch manager at McKinnon’s Auto and Tyres Ltd, was invited to a meeting by one of the company directors, Ms. McKenzie. The meeting, which Gallagher expected to be about his return to work after a medical leave, instead took an unexpected turn. Ms. McKenzie proposed a £10,000 redundancy package, warning that a formal redundancy process would proceed if he declined. Gallagher felt blindsided and pressured by this unexpected offer. When he didn’t accept within the requested 48-hour period, formal redundancy procedures were set in motion, leading to his dismissal. Gallagher later filed an unfair dismissal claim, referencing statements made in the August 1st meeting as evidence.

Preliminary Tribunal Decision

At the October 2023 preliminary hearing, Employment Judge Wiseman considered whether the August meeting and follow-up texts could be used as evidence in Gallagher’s unfair dismissal claim. Since there was no formal dispute between the parties when the meeting took place, the “without prejudice” principle which protects settlement discussions from being used as evidence in legal claims didn’t apply. Instead, the company argued that section 111A of the Employment Rights Act 1996 (ERA), which restricts the admissibility of pre-termination negotiations, should exclude these discussions. Judge Wiseman ruled that the meeting qualified as pre-termination negotiations and found no improper behaviour by the employer, making the discussions inadmissible.

Appeal to the Employment Appeal Tribunal (EAT)

Mr Gallagher appealed to the Employment Appeal Tribunal (EAT), arguing that undue pressure in the redundancy offer made these discussions admissible under an impropriety exception. Mr Gallagher claimed that being told redundancy would proceed if he didn’t accept the offer was improper. The EAT disagreed, noting that the employer’s calm conduct, clear communication of the financial package, and Mr Gallagher’s time to consult his family suggested the discussions were not unduly coercive.

He argued that the meeting was misleadingly set up as a “return to work” discussion. The EAT found that although this caused Mr Gallagher distress, it did not reach the level of impropriety needed to make the discussions admissible.

Further, Mr Gallagher asserted that the 48-hour deadline to respond was unfairly short. However, the EAT highlighted that the Acas Code’s 10-day recommendation applies to formal written offers. In this case, the 48 hours applied only to an initial verbal offer, so the ET’s decision to accept this timeframe was reasonable.

Finally, Mr Gallagher contended that the combined effect of the redundancy threat, meeting context, and short deadline created undue pressure. However, the EAT upheld the ET’s view that these factors, even collectively, didn’t constitute impropriety.

The EAT upheld the ET’s ruling, dismissing Mr Gallagher’s appeal. The ET will now proceed with the unfair dismissal claim, excluding any references to the pre-termination negotiations in its considerations.

Takeaway Points

Employers should be aware that pre-termination negotiations are generally protected from being used as evidence in unfair dismissal claims under section 111A of the Employment Rights Act (ERA). However, this protection does not extend to automatic unfair dismissal or discrimination claims, where such discussions could still be admissible. If no legal dispute exists, the usual “without prejudice” principle does not apply, and the protection under section 111A becomes key. Employers should also be cautious of any improper conduct during settlement discussions, such as coercion, undue pressure, or misrepresentation, as this can nullify the confidentiality of these discussions and make them admissible in legal proceedings.

To mitigate this risk, employers should ensure transparency about the purpose of the meeting, provide adequate time for the employee to consider the offer (typically 10 days as recommended by the ACAS Code), and avoid tactics that could be viewed as high-pressure. Following these guidelines can help avoid claims of impropriety.