Without Prejudice: An Invisibility Cloak for a Mature World

by Field Law
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Field Law

[co-author: Chloe Mathioudakis, Student at Law]

Almost immediately following the unfortunate reality of a termination of employment, another unfortunate reality almost always arrives: a “without prejudice” demand letter. Indeed, that demand letter is perhaps the second “without prejudice” correspondence involved in a termination, the first being (or, more correctly, attached to) the letter of termination itself. But what exactly does the phrase “without prejudice” mean? Why is it part of termination or demand letters? Is using these magic words actually beneficial? And if so, does the failure to explicitly state them render them powerless? 

There is unfortunately widespread confusion about without prejudice correspondence despite the concept behind the designation being based on sound policy and the realities of dispute resolution in a mature world. This confusion has resulted in both gross overuse of the term (one co-writer of this article recently received an email which read, “Without Prejudice: please call me”) but also a failure of its inclusion on genuine efforts to make a settlement offer, the basis for the without prejudice designation.

The law in Alberta, recently reiterated in a 2016 decision, McGovern-Burke v Martineau, is that the content of "without prejudice" negotiations cannot be adduced as evidence during trial or examined for discovery, that "parties should be encouraged to settle their disputes without litigation [but that] to expose admissions made during negotiations for settlement would undermine this policy." Earlier Alberta case law, still valid, provides the 3 conditions that must exist for a party to be able to take advantage of the "without privilege" nature of communications:

  1. A litigious dispute must be in existence or within contemplation;
  2. The communication must be made with the express or implied intention that it would not be disclosed to the Court in the event negotiations failed; and
  3. The purpose of the communication must be to attempt to effect a settlement.
This summer, the Ontario Supreme Court clarified the law on without prejudice offers in the employment context in Ramos v. Hewlett-Packard (Canada) Co. In the action for damages for wrongful dismissal, breach of contract and loss of employee benefits, the court considered whether a letter written to Ms. Ramos by ESIT (formerly known as Hewlett-Packard,) should be struck from her former employer’s statement of defence based on her contention that the letter was a privileged document. The letter had notified her that within one calendar week she would be transferred into a workforce reduction program, and that by some six months later her employment would be terminated, on a without cause basis. The statement of defence referred not only to the separation package itself, but also her rejection of what the employer referred to as a “reasonable” offer contained in it. In her attempt to have the reference struck from the statement of defence, Ms. Ramos conceded the letter did not explicitly include the phrase “without prejudice.” Justice Bell determined that the offer was indeed made without prejudice and should not be pleaded.

In doing so, the Court noted that the absence of the phrase “without prejudice” did not necessarily exclude the document from privilege. The Court also noted that Ms. Ramos understood the offer was intended to “buy peace” in exchange for her waiver of her employer’s liability.

The Court thoroughly considered the context and content of the letter, including:
  1. There was an element of compromise in the offer: The offer was for an “enhanced severance package” which was contingent on the execution of a Final Release & Indemnity Agreement; otherwise, Ms. Ramos would receive the minimum amount of severance provided for by law;
  2. The offer was written and made in an effort to avoid litigation: The employer reserved a right to rely on the strict terms of Ms. Ramos’ employment agreement;
  3. The Final Release & Indemnity Agreement was integral to the offer: It provided for the release and discharge of ESIT from all actions and causes of action which Ms. Ramos had or “may hereinafter have;” it contained covenants by Ms. Ramos not to file a complaint for termination or severance pay, overtime or
    vacation pay; and it contained a no admission of liability clause; and
  4. Both the letter and the Final Release & Indemnity Agreement provided that they were to be kept confidential. 

The Court further stated that as the separation package offer was made without prejudice, it was irrelevant to the issue of whether Ms. Ramos received reasonable notice of termination, which would be left to a trial judge to determine.

Advice


Ramos should not discourage employers from preparing without prejudice documents or participating in without prejudice communication with employees. Rather, Ramos teaches employers that it is good practice to document all reasonable offers to settle, and keep in mind that whether or not a document or communication has been made without prejudice is determined by its context and content and not by a “without prejudice” banner. Further, it is important that employers clearly identify their intent during all phases of a negotiation.

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