Can a without prejudice letter to an employee amount to a dismissal?
Where an employer wants to reach an amicable agreement with an employee to terminate employment, they may consider offering a payment in return for the employee signing a settlement agreement. Discussions or communications regarding a settlement agreement are normally ‘without prejudice’. The aim is that the negotiations and communications are not disclosed in a subsequent Employment Tribunal claim if the settlement agreement is not concluded.
A claim of unfair dismissal must be issued in the Employment Tribunal within three months of the employee’s ‘effective date of termination’. The time limit can in some circumstances be extended by the ACAS early conciliation process. Where a claim is not issued within the correct time limit, the Tribunal may extend time where it is satisfied that it was ‘not reasonably practicable’ for the claim to have been presented in time.
Mr M suffered back injuries and was absent from work for an extended period of time. It was agreed that the limitations on his ability to do his work were likely to be permanent. A conversation took place between Mr M and an HR manager during which it was indicated that the employer was considering terminating Mr M’s employment, and the possibility of a settlement agreement was raised. After a further conversation, Mr M believed that further enquiries would be made about alternative employment. The Tribunal later found that the HR Manager had not made it clear to Mr M that the search for alternative roles was at an end.
The employer sent Mr M a letter headed ‘without prejudice’. It stated that “we have agreed that your employment with the Company will terminate by mutual agreement by reason of capability. Your last day of employment will be 7 February”. The letter stated that Mr M would be paid up to that date and he would receive outstanding holiday pay and payment in lieu of notice. The letter also offered a further ex-gratia payment, which was conditional on him signing a settlement agreement that was enclosed with the letter. Mr M rejected the settlement offer. The employer paid the payment in lieu of notice and holiday pay on 14 February.
Mr M issued a claim for unfair dismissal. He argued that the effective date of termination of his employment was 14 February. If that was correct, his claim was issued within the correct time limit. The employer argued that the effective date of termination was 7 February. If that was correct, Mr M’s claim was out of time.
Was the without prejudice letter a dismissal letter?
The Tribunal found that there was no mutual agreement to terminate. However, the letter was sufficiently clear and unambiguous that Mr M’s employment would be terminated on 7 February and the letter was a dismissal letter. The Tribunal also found that the effective date of termination for the purposes of issuing a claim of unfair dismissal was 7 February. As a result, the claim was out of time. The Tribunal found that Mr M had not shown that it was not reasonably practicable to present the claim in time. The time limit was not therefore extended, and the claim was dismissed. Mr M appealed to the Employment Appeal Tribunal (EAT).
The EAT found that the Tribunal had been entitled to find that the letter was a dismissal letter, despite the fact that it referred to a mutual agreement, which had not been reached; and that it was headed ‘without prejudice’.
To amount to a dismissal, the communication must, as a minimum, clearly communicate that the writer is terminating the employment, with effect on an identified date, or one which is unambiguously ascertainable. The letter stated that Mr M’s last day of employment would be 7 February and set out the payments that he was entitled to receive. The Tribunal was entitled to find that this clearly communicated a termination of employment on 7 February, which was not dependent on anything else happening. The Tribunal had read the letter as falling into two distinct parts, the part dealing with termination and the payments to which Mr M was entitled; and the part that made a proposal for a further payment, to which Mr M was not entitled and which would only be made if he agreed the settlement agreement.
The EAT also found that the effective date of termination for the purposes of the unfair dismissal claim was 7 February. Mr M’s claim was therefore out of time. Mr M had not shown that it was not reasonably practicable to present his claim in time.
It is often the case that without prejudice communications include discussion and negotiation about employment ending if settlement is agreed. In those cases, if agreement is not reached, the communications may not amount to a dismissal. However, in the event of a claim, whether a communication amounts to a dismissal is for the Tribunal to decide. The Tribunal will consider all of the factual circumstances and context known to the parties at the time to decide whether there has been a dismissal and, if so, on what date.
In this case, the Tribunal found that the sections of the letter relating to the settlement agreement and those relating to termination were ‘clearly demarcated’ and that the wording of the letter made it clear that the acceptance of, or negotiations on, a settlement agreement were a separate matter to the termination of his employment.
The EAT noted however that although it is not impossible for a single letter to contain both content that is open and content that is without prejudice, it ‘may be safer’ to avoid possible confusion to put open and without prejudice communications in separate documents.
27 February 2023
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