In this case, the Employment Appeal Tribunal ("EAT") held that the Employment Judge had mistakenly held that a without prejudice ("WP") letter could be admitted into evidence on the basis that it fell under the "unambiguous impropriety" exception to the without prejudice rule.
The WP rule prevents oral or written statements made in a genuine attempt to settle an existing dispute from being used as evidence in a court or tribunal. However, the rule should not be applied where it will operate as a cloak for "perjury, blackmail or other unambiguous impropriety". The unambiguous impropriety exception should only be applied in the clearest cases.
The Respondent was the UK services company of a global insurance group. The Claimant employee was a political risk underwriter. Whilst still employed, she brought a claim of race, sex and pregnancy/maternity discrimination against the Respondent. On the same day, the Respondent sent her a WP letter, making a number of allegations against her and suggesting that these could result in summary dismissal, criminal convictions, fines and/or findings of a breach of the Conduct Rules of the Financial Conduct Authority. It also offered a settlement payment of £37,000, on the condition that her employment would be terminated.
The Claimant rejected the offer and argued at the ET that the WP letter was admissible in the full merits hearing on the basis of "unambiguous impropriety". The Employment Judge held that this was a clear case of privilege being abused by the employer because there was a disparity between the facts of the case, and the way that these facts were presented in the WP letter.
The employer appealed this decision on the grounds that the Employment Judge misunderstood or misapplied the law in relation to the unambiguous impropriety exception to the without prejudice rule; and that the Employment Judge's findings that there was no basis for the assertions made in the WP letter were unsupported by the evidence.
On appeal, the EAT considered the unambiguous impropriety exception, noting that a very high bar that must be met for the exception to apply. It held that although the Employment Judge had correctly applied the law in this area, they had made a finding that was not open to them on the evidence. The threats of criminal or regulatory consequences that were made in the WP letter were of a kind that could be properly made in civil proceedings, and did not (unlike in other cases on the exception) go beyond a warning that they may occur. The potential consequences mentioned in the WP letter were closely bound with the employment dispute taking place at the time, which meant they were not used purely as a threat to apply undue pressure on the Claimant. The EAT agreed with the Respondent that it was not correct for the Employment Judge to find that there was no basis for the assertions; the facts arguably did disclose a basis for them. The EAT also held that whilst it might have been permissible for the Employment Judge to find that the allegations had been exaggerated, exaggeration would not usually meet the very high bar of unambiguous impropriety without findings as to the state of mind of the party accused of impropriety, and there were no findings on this front by the Employment Judge.
When entering into settlement negotiations, it is important to ensure that any threats or allegations made against the other party in those negotiations are based in fact, and are not used purely in order to apply improper pressure on that party to settle proceedings. The EAT in this case held that whilst the WP letter was ultimately privileged and therefore inadmissible, it "sailed close to the wind", highlighting the importance of not applying improper pressure on the other party to a settlement discussion by making unduly aggressive threats of criminal or regulatory action or exaggerating alleged misconduct.