Employer obligations and without prejudice discussions – Pragmatic or Problematic?

Ever heard an employer suggest that they have an ‘off the record chat’ or ‘without prejudice’ discussion with an employee? It’s not uncommon for employers to think by using these phrases, they can say what they like, and will be protected from liability if they shortcut fair process or good faith obligations. However, is this possible? And what does the phrase even mean? The short answer is that employers who try to pre-emptively sort out problems 'off the record' leave themselves highly vulnerable.

What is a without prejudice discussion?

Without prejudice discussions allow parties to be open and frank in confidential communications, including taking a pragmatic approach to resolving any issues without the fear of those discussions being relied on or used as evidence against parties in a dispute, including any concessions made during the discussion in an attempt to propose innovative solutions or offers of compromise.

However, simply labelling something as ‘without prejudice’ does not automatically mean a communication can be protected. In the employment context, there are strict criteria required for protection, which include:

• There must be agreement between the parties that the conversation is to be on a without prejudice basis. This can’t be merely asserted by one party at the time (or subsequently), and agreement on its own does not provide legal protection;
• There must be genuine reasons for the communication to be upheld as without prejudice, such as a significant difference of opinion between the employer and employee, i.e. a dispute, serious problem, or negotiations that could give rise to litigation; 
• The problem must be one that could give rise to litigation, the result of which might be affected by an admission made during negotiations. Accordingly, the objective of the discussion is to reduce litigation, by entering into the communication in an attempt to resolve the problem.[1]

Recent case law - Hansen v Shipco Transport Ltd – presenting a record of settlement

In the Employment Relations Authority’s recent determination in Hansen v Shipco Transport Ltd [2], the Authority determined that Mr Hansen was unjustifiably dismissed when his employer called him to the office, told him “this isn’t really working out” and provided him with a record of settlement which stated that his employment would end that day. For clarity, no performance or disciplinary issues had been or were raised with Mr Hansen.

Employers are required to act in good faith, and to act as a fair and reasonable employer could in all the circumstances. This includes having justifiable grounds for an action or decision, as well as following a fair process. In Hansen v Shipco Transport Ltd, no process was followed, nor was there a reasonable basis for the employer’s decision to dismiss. The consequence was that Mr Hansen’s former employer was ordered to pay him 6 months compensation for lost wages and $25,000 as compensation for hurt and humiliation. However, in determining the quantity of compensation, the Authority took into account that compensation was offered in the record of settlement, which could have delayed the financial impact of the dismissal. 

This is not the first case where an employer has called an employee into a meeting, indicated an employee’s role was untenable, and offered settlement, which has left the employer vulnerable to a personal grievance claim and substantial remedies, regardless of the parties understanding that a discussion had taken place ‘off the record’.[3] 

While on the face of it, an ‘off the record’ approach may appear tempting to an employer who believes they want to ‘cut to the chase’. However, such an approach is likely to breach an employer’s legal obligations. In Hansen, the Authority determined that by not considering alternative options to dismissal, the employer breached its good faith obligations to attempt to maintain a productive employment relationship. For this reason, the employer was also ordered to pay a penalty of $5,000.

Recent case law – Philpott v Allied Press Ltd and Mainland Distribution Ltd - asserting a meeting is without prejudice, with a limited understanding of what that meant, without representation present, without the meeting being disciplinary in nature, but where an employee has raised concerns

In Philpott v Allied Press Ltd [4] Ms Philpott had raised concerns about a change in role, pace of workload, a lack of support and disorganisation in her new role (following a period of over 40 years work history with the employer companies). 

Ms Philpott met with her manager, with the manager asserting that the discussion was “without prejudice”. The employee later stated that because of an impairment, she didn’t hear this stated. They discussed matters relating to Ms Philpott’s employment. Following the meeting Ms Philpott entered into without prejudice correspondence, but they were unable to resolve their differences, and she later resigned claiming she had been constructively dismissed.

The Employment Relations Authority applied the principles outlined by the Court of Appeal in Morgan v Whanganui College Board of Trustees (summarised above), and concluded that:

• There was no agreement that the meeting be conducted on a without prejudice basis, including no evidence of any intention that it was intended to be privileged from the outset. 
• There was an identified dispute that had been initiated by the employee and issues identified by the manager as becoming problematic;
• The problems could give rise to litigation;
• An additional factor was considered; regarding whether the context of the constructive dismissal claim should be assessed. The Authority concluded that while the pre-conditions for privilege to protect the parties’ communication existed before the meeting, the threshold had not been met for Ms Philpott agreeing to the meeting proceeding on a without prejudice basis at the outset, nor was she aware of why it should. The manager had the option of proceeding with an open meeting then at some point when he wished to introduce a suggestion that a negotiated solution was in contemplation, he could have introduced the concept of the discussion continuing on a without prejudice basis. 
• Evidence pertaining to the meeting was not protected by any privilege.

Our advice

It is sensible and pragmatic to consider resolving disputes without resorting to litigation, which can be inherently time-consuming and stressful. Employment relationship problems are no different and there is a high rate of out of court settlement, in part due to the ability to speak on a without prejudice basis.

Done well, without prejudice communications can enable matters to be resolved in a swift, pragmatic and cost-effective way. However, without prejudice communications are not a license to breach substantive or procedural employment obligations, and if used poorly can compromise a party’s position.

Accordingly, we encourage:

• Seeking advice prior to initiating or participating in any without prejudice discussions to discuss an appropriate approach and strategy .
• Having a plan before any discussion takes place. Remember, you can always end the discussion if it is unconstructive.
• Obtain agreement a conversation is ‘without prejudice’ before any comments are made.
• Don’t: initiate an ‘off the record discussion’ with an unrepresented employee during a disciplinary or performance meeting; or, present an employee with a record of settlement in circumstances where no prior disciplinary or performance issues have been raised, nor prior to any consultation on a restructure proposal.
• Remain cautious not to comment or act in a way that could give rise to a claim on its own.
• If in doubt, engage your specialist employment lawyer to communicate on your behalf, and/or use the Ministry of Business, Innovation and Employment mediation services.

If you need advice or assistance, the specialist DTI Lawyers employment law team can be contacted by phone on 07 282 0174 or email [email protected]