Settlement Privilege...or Not

It's often said that lawyers slap "Without Prejudice" on the top of just about any correspondence, where it isn't usually necessary.

It's true, technically, but not a bad practice generally.  What "Without Prejudice" means is that any offers in the letter are not binding if the terms of the offer are not accepted.  So if I'm suing you for $250, and I offer to settle for $200 on a "without prejudice" basis, and we still end up going to trial, you can't say, "Wait a second, I thought you were only going after $200 now."  In fact, you can't even show that offer to the Court before the decision is made on the merits - it's a privileged document, subject to what we call "settlement privilege".  The legal system wants settlements.  Settlements are cost-effective for the parties and for the system, and so we don't want parties to have to worry about what they're saying in settlement discussions, concerned that it will be thrown back against them in Court.  We want full and frank conversations toward settlements, so we protect settlement discussions from disclosure.

Usually.

The funny thing about the words "Without Prejudice" is that settlement discussions are presumptively privileged, so the addition of the phrase does nothing.  Documents to which the privilege doesn't properly apply will not be privileged despite the use of the words.  Still, we use them to make the point clearer.  Sometimes, even when the whole letter is marked "without prejudice", I'll still highlight that a particular concession is being offered on a strictly "without prejudice" basis, so that there can be absolutely no confusion on the point - I'm not necessarily agreeing with you about this, but let's put that disagreement aside for now.

And sometimes, even documents which would normally be privileged can still be relevant.  This was a dispute in a recent Galea v. Wal-Mart Canada Corp. decision.  Ms. Galea is suing Wal-Mart for wrongful dismissal, and her pleadings essentially argued the following:  Before Ms. Galea's employment was terminated, there were a series of discussions, including letters marked "without prejudice", in which the employer gave her ultimatums, that she could accept a different position, or could accept a particular severance package.  Ms. Galea is claiming bad faith damages, based in part upon these discussions.

Wal-Mart brought a motion to strike these portions of her pleadings, because of settlement privilege.  The Court does not fully decide the dimensions of privilege, and appears to leave that for the trial judge, finding that the pleadings can be amended to omit the details of the settlement offers which would be privileged.

Bad faith is often a point where settlement privilege can come into controversy.  It is not unusual for bad faith to be alleged regarding matters relating to offers to settle, and one can easily imagine cases in which this is accurate.  I once had an employee consult me on a release her employer was asking her to sign, offering to pay her an amount which I determined was exactly the statutory minimum.  The release was asked to be returned no later than the day before the employer was legally obligated to pay the stat minimum.  I can't believe that's a coincidence - that could potentially have created a bad faith argument.  On the other hand, in cases where an offer is a reasonable approximation of the employee's entitlements, it is hard to imagine a successful bad faith argument being made based on an offer to settle.

One thing that I see quite frequently, which is absurd almost to the point of humour, is a "without prejudice" termination letter.  Basically, the employer calls in the employee to the termination meeting, advises them that they're being terminated, and hands them the termination letter which is marked "without prejudice" because it contains a proposal to satisfy the employee's entitlements.

It's the termination letter(!).  You can't fire somebody on a "without prejudice" basis, so it could be difficult to keep that letter out of evidence.  No, far better practice is to provide a termination letter telling the employee what is happening, regardless of all else - they're fired, they're getting their stat minimums, etc. - and then provide a supplementary document, marked "without prejudice", containing the proposal for a full and final resolution of all matters outstanding.

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This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.