Settlement Agreements and the Date of Termination

Where there is an existing employment dispute, the communications that take place in order to reach a settlement agreement are normally subject to 'without prejudice' privilege under common law – i.e. they are inadmissible as evidence before the court or Employment Tribunal (ET) – provided they constitute a genuine attempt to resolve the dispute and there is no fraud, undue influence or other 'unambiguous impropriety'.

Following changes introduced by the Enterprise and Regulatory Reform Act 2013, new provisions (Section 111A) were inserted into the Employment Rights Act 1996 making pre-termination negotiations inadmissible as evidence in ordinary unfair dismissal cases so that offers to end the employment relationship on agreed terms can be made on a confidential basis. However, the protection does not apply where there is some 'improper behaviour' in relation to the settlement agreement discussions or the offer, unless the ET decides that it would be just to exclude the evidence.

In a recent unfair dismissal case (Basra v BJSS Limited), the Employment Appeal Tribunal (EAT) found that where the effective date of termination (EDT) is disputed, it is necessary for the ET to make a finding on that issue before it can determine what evidence of pre-termination negotiations should be excluded. In doing so, the ET must consider all the evidence relevant to that issue, which might include communications about the termination.

Mr Basra was employed by BJSS as a technical architect from 30 September 2013. In early 2016, his employer began to have some concerns about his performance following complaints from clients. On 1 March, he was invited to attend a disciplinary hearing but was also sent a letter, marked 'without prejudice subject to contract', pointing out the possible effect on his career if the hearing resulted in him being issued with a formal warning or dismissed and offering a financial settlement should he wish instead to leave the business on agreed terms. Mr Basra replied by email on 3 March disputing BJSS's version of events but accepting the offer 'subject to contract and without prejudice' and stating 'today will be the last day at BJSS'. Mr Basra was then signed off work with severe stress insomnia and the settlement agreement remained unsigned. BJSS wrote to him on 15 March saying that it was he who had offered his resignation and his employment had ended by mutual agreement on 3 March. Mr Basra claimed that he had not resigned and expected to return to work when fit. He then claimed that he had been unfairly dismissed by BJSS on 15 March.

The ET took account of Mr Basra's email of 3 March but, following the decision of the EAT in Faithorn Farrell Timms LLP v Bailey that, unlike without prejudice discussions, the provisions of Section 111A do not allow privilege to be waived, even with the consent of both parties, it did not have regard to BJSS's offer letter that preceded it. In the ET's view, he had resigned and there was no dismissal.

The EAT allowed Mr Basra's appeal, however. There was a clear dispute as to whether the EDT of his employment was 3 March or 15 March and the ET had erred in disregarding the pre-termination communications that took place prior to the first of those dates as this was clearly evidence that was relevant to the issue at hand.

The case was remitted to the same ET for reconsideration.