Law firms were this week warned that 'without prejudice' negotiations with staff they wish to dismiss may no longer offer them protection in the event of a case going to an employment tribunal.

In two cases recently - Billington v Michael Hunter & Sons, and BNP Paribas v Mezzotero - the Employment Appeal Tribunal (EAT) ruled that employees were allowed to submit evidence from such discussions.


Both cases featured slightly unusual circumstances. In Billington, the EAT decided that during the meeting the employer had given the employee an ultimatum for which it did not have good reason. This violated the implied duty of mutual trust and confidence, which permitted the employee to resign and claim compensation on the grounds of constructive dismissal arising from the meeting.


In the BNP case, the meeting was held to discuss a grievance alleging sex discrimination made by the employee. The EAT held that the 'without prejudice' rule only applies to discussions that are genuinely aimed at settling an existing dispute - and in this case, the fact of raising a grievance did not necessarily mean the parties were in dispute.


The EAT noted there was also an exception to the rule in cases of 'impropriety'.


Natasha Childs, an employment assistant at City firm Trowers & Hamlins, said employers can no longer rely on using the label 'without prejudice' to protect themselves against disgruntled staff with whom they are negotiating a settlement package. She noted that 'it is quite a common practice in law firms to have these quiet chats'.


Ms Childs explained: 'Employers must always think very carefully about what they say to staff in any meetings regarding a final settlement package. Certainly, any loose words may come back to haunt them.'


Career Brief columnist Gareth Brahams, a partner at City law firm Lewis Silkin, said the decisions make it much harder to use 'a tool that is pretty effective' in settling disputes.


He said: 'In practice, the making of an early settlement offer is very often the best thing all round. The employer will want the certainty of the release from claims and the employee, the cash. Yet now, employers may feel inhibited from doing anything more than the minimum before a claim is commenced, for fear of being seen in a tribunal as effectively admitting their liability by putting forward what is, in reality, a pragmatic package.'

Ms Childs recommended that firms should also have a reason for the dismissal and follow the appropriate procedures concurrently with any discussions so that employment can be lawfully terminated if agreement is not reached.