Employment Matters

The unexpected costs of trying to buy a resignation
Brandon Brown uses a case law example to examine the issue of “without prejudice” when offering an exit package to an employee.
A common scenario that crosses our desks is where an employer has asked an employee to move on in exchange for a sum of money, often called an “exit package”.
This can arise in all sorts of situations where the employment relationship has broken down for one reason or another. Employers may think this is a way to resolve differences for the benefit of both parties. However, taking that approach is not an easy way out.
Asking an employee to resign can create significant risks for an employer. If the deal is not concluded you may be left with the employee claiming that they have been constructively dismissed. The Employment Relations Authority and Employment Court have recognised that constructive dismissal may occur in three different circumstances:
(a) An employer gives an employee a choice between resigning or being dismissed; or
(b) An employer has followed a course of conduct with the deliberate and dominant purpose of coercing an employee to resign; or
(c) A breach of duty by the employer causes an employee to resign.
Suggesting that an employee may resign in exchange for a sum of money could come under any of the above categories of constructive dismissal, making it a risky option for employers.    
Furthermore, there is a common misconception that when an employer first says to an employee they wish to talk on an off-the-record ‘without prejudice’ basis before offering an ‘exit package’,that the employer’s offer cannot be used against them in the future. However, more than mere agreement is required to rely on without prejudice protection.

Case law example
The Employment Court case of Bayliss Sharr & Hansen v McDonald examined the issue of “without prejudice” when offering an exit package to an employee.
The employer had performance concerns with Ms McDonald and invited her to a disciplinary meeting. Soon after the meeting began, the employer’s representative asked to speak privately with McDonald’s representative on an “off-the-record” basis.
During the subsequent “without prejudice” discussions the employer’s representative proposed to pay a sum of money to McDonald in exchange for her resignation. The representatives then negotiated what the terms of the agreement might be.
Following the negotiation McDonald did not return to work and the disciplinary meeting did not proceed any further. However, both the employer and McDonald had different understandings of the terms of the “negotiated exit”. There was no finding that a binding agreement had been made between the parties. McDonald claimed she had a personal grievance for constructive dismissal. The employer claimed that the Court would not find there was a constructive dismissal, as to do so it would need to rely on “without prejudice” communications between the parties.  
The public policy principle that provides for “without prejudice” communications to be privileged is that parties may speak frankly in a genuine effort to resolve a dispute, without the fear of such communications being used against them at a later stage. This results in the resolution of disputes and avoids litigation.
However, the Court held that “without prejudice” cannot apply when there is no existing dispute that the parties are attempting to resolve; for a dispute to exist “there must be a significant difference between the expressed views of the parties about a matter concerning them both.”
The Court considered there was nothing to suggest there was an actual dispute between McDonald and the employer at the time, and concluded that “without prejudice” protection did not apply and McDonald had been constructively dismissed. The employer was required to pay McDonald compensation for hurt and humiliation and lost wages.  

Lessons
The Court’s decision suggests that in order to rely upon communications being “without prejudice” there must be a dispute that the “off-the-record” discussions are attempting to resolve. An employer is unlikely to be able to rely on “without prejudice” protection unless the employee has raised a dispute about the substance of the employer’s actions, or the process that the employer has followed. Generally this would take the form of a personal grievance claim.
In order for discussions to have “without prejudice” protection:
1. The communications must be expressed to be on a “without prejudice” basis;
2. There must be an active dispute between the parties;
3. The communications must be for the purpose of resolving that dispute.
An employer will have more protection for his/her discussions when undertaking mediation with the Ministry of Business, Innovation and Employment. Discussions that take place during such mediations have statutory protection against being used in Authority or Court proceedings.
Employers need to be conscious of the risks of suggesting that an employee should resign, and they should obtain specific legal advice if they are considering having “without prejudice” discussions.  

Brandon Brown is a solicitor at EMALegal, Employers and Manufacturers Association. www.ema.co.nz