WSG Article: Case Law - Employment in the Financial Sector

Case Law - Employment in the Financial Sector

November, 2022 - Shoosmiths LLP

Employers will be familiar with the desire to settle a Tribunal claim before it reaches a final hearing, in fact the Tribunal itself actively encourages mediation and settlement. Swiss Re Corporate Solutions Ltd v Sommer EAT is an excellent example of why it is important to be careful in all without prejudice communication so that if a settlement is not reached, the without prejudice communication does not end up disclosed as part of the Tribunal proceedings.

The Respondent in this claim is an international insurance company that provides commercial insurance products and risk transfer solutions. The Claimant was an underwriter in the Respondent’s London office. Upon returning from maternity leave, the Claimant was informed that her role (unlike many others in her team) was at risk of redundancy. In response to this announcement, the Claimant submitted a grievance alleging discrimination.

The Claimant attached various documents in support of her grievance, including the CV of a comparator, to an email which was copied to her personal email address and her husband’s email address. In doing so, she had transferred the Respondent’s confidential information and the personal data of a colleague outside of the company which was in breach of the Respondent’s code of conduct and data protection policies.

The Respondent appointed an investigator to conduct a disciplinary investigation. The investigator concluded that, in sending the email, the Claimant had breached her employment contract and the Respondent’s code of conduct however there were strong mitigating factors in that the Claimant was trying to support her grievance. Therefore, the investigator only recommended informal action.

Amongst the backdrop of the grievance and surrounding issues, the Claimant had issued proceedings against the Respondent alleging discrimination and equal pay, amongst other things. In response, the Respondent’s representatives sent the Claimant without prejudice correspondence (the “WP Letter”) including a settlement offer of £37,000. The WP Letter made a number of allegations against the Claimant including suggestions that the Claimant’s behaviour could amount to summary dismissal for gross misconduct, criminal convictions and regulatory consequences (including difficulty working in a regulated role in the future).

The Claimant rejected the offer in the WP Letter and proceeded with her claims.

Before the full merits hearing could take place, the parties had to agree whether the WP Letter was admissible evidence. The Claimant’s position was that the WP Letter was admissible as evidence on the basis that it constituted “unambiguous impropriety”. This was upheld by the Tribunal. The Respondent disagreed and appealed the decision to the EAT.

The crux of the case

This case boiled down to an application of the without prejudice rule. If communications are made in a genuine attempt to settle an existing dispute, they will not be admissible as evidence. The aim of this rule is to encourage parties to reach a settlement.

The exceptions to this rule are when without prejudice correspondence is evidence of perjury, blackmail or unambiguous impropriety. In those cases, the correspondence will be admissible.

The Tribunal held that there was “no basis at all” for the assertions in the WP Letter on the basis that the allegations in the letter were unsupported by or inconsistent with the evidence. It decided that the letter was unambiguous impropriety. The EAT therefore had to consider whether the Tribunal had correctly applied the without prejudice rule in respect of the WP Letter.

Key findings

The EAT agreed that the allegations in the WP Letter were overstated and that the letter had “sailed close to the wind” however the facts did show that there was arguably a breach of confidence, breach of contract, breach of data protection legislation and conduct lacking integrity. In other words, the Respondent had not acted dishonestly in sending this letter because the allegations against the Claimant were founded (albeit exaggerated).

The EAT allowed the appeal and concluded that the WP Letter was inadmissible as evidence. The full merits hearing therefore went ahead without the WP Letter.

Comments

The key takeaway point is that without prejudice correspondence should always be carefully crafted so that any threats or allegations, including those with potential regulatory or reporting sanctions, are based on fact and are not included simply to pressure one party into settlement.

Most insurance firms are regulated by either the FCA or PRA, or both. Although the Claimant was a relatively junior underwriter (Assistant Vice President level) she was expected to comply with the FCA’s Conduct Rules. The WP Letter alleged that the Claimant’s behaviour amounted to a breach of Conduct Rule 1 (to act with integrity) which would have regulatory consequences, including the inability to work in the sector again.

Whilst there is no rule prohibiting parties who are negotiating from making allegations of criminal or regulatory sanctions, there is a danger of applying improper pressure by doing so. The Tribunal held that there was no basis for the threats and the allegations in the letter whereas the EAT held that the Claimant’s conduct did arguably appear to be conduct lacking integrity.

As well as issues around without prejudice correspondence, this claim also deals with disciplinary investigations. The Respondent appointed an investigator to look into its concerns around the Claimant’s potential breaches however Respondent’s representatives sent the WP Letter before the investigation had even concluded. The reason this is so key is because the investigator did not recommend any formal action so had the Respondent waited until the conclusion of the process, they may have taken a different approach to the letter.