21 Nov 2013

"Without prejudice" not enough to keep employee's files confidential

by Shae McCartney, Hedy Cray

There's a very real risk that without prejudice offers may be seen as a constructive dismissal or a predetermination of the outcome of an investigation.

The Fair Work Commission has ordered an applicant to hand over "without prejudice" files, sending a warning to anyone thinking of drafting these documents without legal assistance (Hammerton v Knox Grammar School [2013] FWC 9024).

Did she jump or was she pushed?

Ms Hammerton was in dispute with her employer, Knox Grammar School. Her union was representing her in negotiations to settle the dispute. She resigned during those negotiations, although she maintained that she was forced to resign. This, she said, amounted to constructive dismissal, and this dismissal was harsh, unjust or unreasonable. She then lodged an application in the Fair Work Commission.

As part of the initial skirmishing, Knox Grammar sought discovery of the union's file on Ms Hammerton's dealings with the school, which included the documents created during and for the negotiation process.

The Fair Work Commission orders the documents be turned over

Deputy President Sam acknowledged the value of keeping documents associated with settlement negotiations confidential:

"For my own part, I am a little uncomfortable in ordering the production of documents which deal with ‘without prejudice’ settlement negotiations in the context of substantive unfair dismissal proceedings. If such a course was to become widespread, it could well act as a disincentive to parties to willingly and frankly engage in ‘without prejudice’ negotiations and unduly restrict propositions by parties to settle matters knowing that they may be later used against them. Given the policy emphasis in the Act on the settlement of claims for unfair dismissal, such a course should not be widely encouraged. I also consider there to be some force to the Union’s argument that communications between its officers and the Union’s members would ordinarily be strictly confidential. To allow access to an employer involved in a dispute over the same subject matter, should be eschewed."

Nonetheless, he ordered the documents to be turned over to the employer, because Ms Hammerton raised the issue of the settlement negotiations, and these documents related to those negotiations. The issue between Ms Hammerton and the school was whether she had genuinely resigned or been forced out. The documents which related to that time period and the interactions between the two therefore could corroborate one party’s version of the true position.

Additionally, the Union was no longer involved in the case, and the order would not be oppressive or could not be complied with.

Lessons for employers

Although in this case it was the employer who gained access to the employee's files, there is nothing stopping Ms Hammerton from making a similar application to see the school's files relating to the negotiations.

While the Commissioner said that it was the particular circumstances that warranted the release of documents in this case, the facts are similar to most negotiations involving a separation from employment. There's a very real risk that without prejudice offers may be seen as a constructive dismissal or a predetermination of the outcome of an investigation.

As a result this should make employers carefully consider their drafting practices. In particular:

  • putting "without prejudice" onto a document is not a magical formula to protect documents from being disclosed. Courts can and do look behind without prejudice negotiations;
  • consider the "newspaper" litmus test – every communication should be consistent with and reflect the company's stated position and be prepared for it to be printed;
  • often without prejudice communications focus on the offer but do not adequately reflect the reasons the offer is being made, offers should reflect and restate the Company's position so they are defensible on their face;
  • a deed should not be provided without a clear letter of offer setting out the context and purpose of the offer;
  • negotiations often involve internal emails and proposals regarding authority to make an offer and the pros and cons of any proposed settlement. The use of email often results in informal language without significant thought as to the way in which they may be misinterpreted by a third party. Unless such communications are to (or from) your lawyer and privileged they can be disclosable and if not tightly controlled can create a harmful paper trail;
  • consider what paper trail you are creating and whether you need privileged legal advice in relation to it;
  • without prejudice offers can be made lawfully but care must be taken to ensure that they are not a pre-determination of legal issues or a constructive dismissal. There is a significant difference between supporting an employee who has indicated that they no longer wish to be employed to separate from their employment with dignity and respect, and offering an ultimatum to "resign or be sacked" or a failure to complete a dispute or disciplinary process;
  • while the law encourages settlements as a way to head off litigation, parties cannot assume that every settlement offer will prevent litigation. You should carefully consider your strategy and tactics when entering into these types of negotiations, with an eye to how your actions may be subsequently viewed if settlement cannot be reached. Don't take short cuts on your process to attempt to reach a resolution, if those steps can be used against you.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.