Without prejudice letters: Are they really ‘off the record’?

Are “without prejudice” letters admissible as evidence if they contain grossly exaggerated allegations of misconduct?

This was the question that was considered by the Employment Appeal Tribunal in the case of Swiss Re Corporate Solutions Ltd v Sommer  in relation to a letter proposing settlement that was sent by an employer’s solicitors to an employee, which contained exaggerated allegations of serious misconduct, criminal behaviour, and regulatory breaches.  

The Law

The general rule in litigation is that any communications (whether written or verbal) between parties that are genuinely aimed at settling the dispute, are not admissible in evidence in relation to that dispute.   The reason we have this rule is that it is considered in the public interest to encourage litigants to settle their disputes before they get to court.  The rule enables parties to engage in settlement negotiations without fear that what they say will be used in evidence against them.  

Often parties will address any settlement correspondence “without prejudice” to make it clear that they intend the communication to be covered by this rule and therefore inadmissible in court or tribunal proceedings.   There are, however, exceptions to the rule that settlement communications are inadmissible in evidence.  Where any of these exceptions apply, the communication will become admissible as evidence regardless of whether or not it has been labelled “without prejudice” or referred to as “off the record”.

One of the exceptions to the rule is where the communication is used to conceal perjury, blackmail or other “unambiguous impropriety”.   In such cases, the public interest that exists in maintaining the “without prejudice” rule, will be outweighed by the public interest in disclosing the communication.  

An example of a case where a party to a dispute was not allowed to rely on the “without prejudice” rule was the case of Greenwood v Fitz [1961] 29 DLR 2D 260, where the defendant stated that, if the case went to trial, he would perjure himself and bribe witnesses to do the same and would go abroad rather than pay damages.

The cases where “unambiguous impropriety” has been made out are, however, few and far between.  This is because the courts have set a very high bar as to what conduct can constitute “unambiguous impropriety” and made it clear that this exception to the “without prejudice” rule will only apply in “truly exceptional” cases.

The Facts

Mrs Sommer was employed by Swiss Re Corporate Solutions Ltd (“the Company”) and, not long after returning from maternity leave, was told her role was at risk of redundancy.   She subsequently raised a formal grievance in October 2020 via email alleging discrimination.  With that email, she also attached various Company documents which she said supported her allegations.  She openly copied the email to her personal email address and blind copied (bcc’d) it to her husband.  

A month later, Mrs Sommer raised a second grievance by email, complaining of unequal pay.  Again, she attached Company documents to this email and a subsequent email, to support her grievance, and openly copied these emails to her personal email address. 

In December 2020 she was informed her grievances were not upheld.  A couple of weeks later, in January 2021, Mrs Sommer was told that the emails she had sent to her personal email address and to her husband contained personal data and confidential information about the Company and its clients.   The HR Partner of the Company referred to this as a “low level data breach”.  Mrs Sommer was asked to explain her actions and to delete the emails, which she did.  She explained that she wanted to provide herself with copies of the evidence for any future tribunal claim.  She also admitted that she had sent copies of the documents to her husband and that she had lied previously about doing this.

Mrs Sommer was subsequently told that a disciplinary investigation had commenced in relation to the alleged breach of data protection and confidentiality.  However, before that investigation concluded, she received the “without prejudice” letter that was later to become the subject of the appeal to the Employment Appeal Tribunal.  

The letter was sent by the Company’s solicitors, and made a number of allegations against her, including that she had breached the confidentiality obligations in her contract of employment, had acted without integrity by lying in breach of the Financial Conduct Authority’s (“FCA”) conduct rules and that it was a criminal offence to disclose personal data without consent.   The letter suggested that the allegations 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 regulated sector.  The letter ended by offering a settlement agreement in which she would be paid £37,000 and her employment would be terminated.

A few days later, the investigation into Mrs Sommer’s conduct concluded.  The investigation report stated that, although Mrs Sommer had breached her employment contract and the Company’s code of conduct, there were strong mitigating factors.  The report recommended informal action only.

Mrs Sommer brought various claims in the employment tribunal against the Company and sought to include, as part of the evidence in those proceedings, the “without prejudice” letter that had been sent to her.  She claimed that this letter fell within the “unambiguous impropriety” exception because it contained groundless threats and accusations. 

The matter went before an Employment Judge at a preliminary hearing where the judge decided that the “without prejudice” letter was admissible on the basis that it constituted “unambiguous impropriety”. 

In making her decision, the judge noted that the Company had known for 3 months that Mrs Sommer had copied the emails to herself but done nothing about it, that the breach had been described by the HR partner as low level and the “without prejudice” letter was sent before the investigation had established the facts.   Taking all of this into account, the judge concluded that there was no basis for the allegations of serious misconduct and/or that Company’s solicitors grossly exaggerated the severity of what Mrs Sommers had done in order to put pressure on her to accept the settlement proposal.  The judge said she was satisfied that the making of the threats, in those circumstances, was an abuse of the “without prejudice” rule and the Judge held that they “unambiguously exceeded” what was permissible in the settlement of litigation.

The Company appealed to the Employment Appeal Tribunal.

The Decision

The Employment Appeal Tribunal upheld the Company’s appeal, ruling that the letter was protected under the “without prejudice” rule because the content did not meet the high threshold of “unambiguous impropriety”.   

It was held that the Employment Judge erred by founding her decision that there was “unambiguous impropriety” on the conclusion that there was no basis for the allegations of serious misconduct or that they were grossly exaggerated. There was, the Employment Appeal Tribunal considered, at least some basis, for the allegations of misconduct against Mrs Sommer and the Employment Judge at the preliminary hearing was not in a position to rule that the letter amounted to “unambiguous impropriety” without a hearing of the evidence regarding those allegations (which had not happened at the preliminary hearing). 

The Employment Appeal Tribunal also doubted that exaggeration alone would be sufficient to make out the exception to the “without prejudice” rule unless it was accompanied by evidence of dishonesty or extortion.

Points to note and action to take

• The Employment Appeal Tribunal was critical of the “without prejudice” letter and the employer/their solicitors in the case, saying that they “sailed close to the wind”.   The Tribunal made the point that where threats of criminal and regulatory action are combined with exaggerated allegations of misconduct, the employer runs the risk of applying improper pressure on the employee and, in turn, being found guilty of using “unambiguous impropriety”. 

• It is not an uncommon tactic for an employer to refer to allegations of misconduct in “without prejudice” correspondence and to refer to the potential disciplinary process that may ensue.   There is nothing inherently wrong with doing this, providing that there is an actual basis to those allegations and the intention in raising these issues is to genuinely try and reach a settlement – as opposed to raising them dishonestly or in an attempt at blackmail.   

• When mentioning allegations of misconduct in “without prejudice” communications, it is important that you have a basis for making those allegations and that you describe those allegations concisely and clearly.  It can be tempting to exaggerate their seriousness, however, as this case demonstrates, over-exaggeration is unlikely to assist negotiations and more likely to lead to accusations of “trumped up” charges or improper pressure. 

• Whenever a settlement offer is made during the investigation stage or the disciplinary proceedings, it is important to make it clear to the employee before the offer is made and throughout:

1. That the discussions and communications are intended to be “without prejudice” and therefore inadmissible as evidence in any future claim;
2. That no decision has been made regarding the outcome of the investigation or disciplinary proceedings (as the case may be); and
3. That if the employee chooses not to engage in settlement discussions, or if they do but an agreement cannot be reached, this will have no bearing on any later procedure or subsequent decision taken.   

• We strongly recommend taking advice before initiating or engaging in “without prejudice” negotiations with an employee, particularly when made in the context of disciplinary proceedings, as such communications can often become misconstrued.