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Inadmissibility of settlement offers under section 111a Employment Rights Act 1996

‘How can I resolve my dispute with this employee without ending up in an Employment Tribunal?’ This is a question that often vexes employers.  One worry is that offers and comments made in negotiations will be used against the employer if a claim arises. There are, however, two shields an employer (or employee) can try and hide behind if a claim is made – the ‘without prejudice’ rule and the pre-termination discussions provisions in the Employment Rights Act 1996 (ERA).

The case of Faithorn Farrell Timms LLP v Bailey [2016], held recently in the Employment Appeal Tribunal (EAT) seeks to provide clear guidance on the application of Section 111A ERA in cases of unfair dismissal.

Settlement agreement

The two parties in this case had exchanged various letters with one another in order to seek a settlement agreement for the employee, Ms Bailey, as her employer had informed her that she could no longer be employed on a part-time basis. Agreement could not be reached and Ms Bailey raised a grievance. The grievance was not upheld and Ms Bailey resigned.  She brought claims for constructive unfair dismissal and sex discrimination.

Both parties referred to the settlement negotiation letters in the claim.

The question that the EAT had to consider was whether the discussion of settlement offers in the letters were inadmissible as evidence in the claim for constructive unfair dismissal following section 111A ERA and, if so, whether either party could waive the inadmissibility.

Unfair dismissal

On the first point, the EAT agreed with the Employment Tribunal that the result of section 111A ERA was to render evidence of pre-termination negotiations as inadmissible in claims for unfair dismissal.

However, where the EAT differed with the ET was whether the very fact that settlement offers were discussed could be made known to a tribunal. The ET stated that, “in my view it [S.111A ERA] is restricted to the details of any offers made or discussions held, and not to the simple fact of there having been such offers or discussions.”

However, the EAT took a different approach, taking a stricter reading of S.111A (2) ERA; the EAT concluded on this point that: “What is rendered inadmissible is, thus, evidence of any offer made or discussions held with a view to terminating the employment on agreed terms and, on my reading of the section, that must extend to the fact of the discussions, not simply to their content.” The EAT said this would include internal communication about settlement, such as between a manager and the board of directors; therefore, unless these discussions are rendered admissible through any of the exemptions that may apply, they will also be held as inadmissible.

Finally, the EAT concluded that, unlike the common law rules of without prejudice discussions, inadmissibility of evidence cannot be waived either implicitly or explicitly by either party under Section 111A ERA. Judge Eady QC stated: “Returning then to section 111A, I am unable to see how it can be read so as to permit agreement to the admission of evidence otherwise rendered inadmissible by this provision.”

Points for employers to consider

At first glance, this seems like an odd decision, as there must be occasions (such as this) where the parties might agree that the content of discussions about settlement offers should be made known to the tribunal.

However, the EAT decision means that, unless any exceptions to section 111A ERA apply, the tribunal cannot even be made aware that a conversation about settlement has been held.

Arguably, this will further Parliament’s aim behind section 111A ERA that full and frank discussions can be held between employer and employee to explore termination of employment on mutually agreeable terms without fear of these having an impact on a future tribunal claim.

However, employers should bear in mind that if there is improper behaviour – which is interpreted widely – the discussions will be admissible. The ERA also allows reference to be made to pre-termination negotiations in certain other claims, for instance, discrimination claims.

Employers and employees may therefore wish to ensure that they can also rely on the without prejudice rule when embarking on settlement negations, although this rule does require an existing dispute.

For more information on any of the issues raised in this article, contact Kwadwo Boadu by emailing kboadu@lyonsdavidson.co.uk or phoning 0113 368 8043.

Posted on Dec 13th, 2016 by Lyons Davidson