“Without Prejudice” Offers in Wrongful Dismissals, The Law Times (October 2, 2017 at p 7)

“Without Prejudice” Offers in Wrongful Dismissals, The Law Times (October 2, 2017 at p 7)

By Nikolay Y. Chsherbinin

Communications towards settlement are generally privileged. A privilege is necessary to encourage full and frank discussion with a view to coming to a resolution of the matter. Where an offer to settle is made without prejudice, the fact of its existence should not generally be pleaded. There are, inevitably, exceptions. In Ramos v. Hewlett-Packard, 2017 ONSC 4413, the court had to determine whether an offer to settle, that the employer pleaded in its statement of defence was made with or without prejudice. It concluded that the offer was made without prejudice and struck all references to it from the pleading, because it was irrelevant to the matters at issue in the litigation.

In Ramos, Hewlett-Packard provided Maria Thereza Ramos with a letter, which advised her that as of August 1, 2016 she would be transitioned into the company’s workforce reduction program and her employment would be terminated on a without cause basis on September 23, 2016. The letter also included a severance package, which Ramos did not accept and sued HP for a wrongful dismissal.

In its statement of defence, HP pleaded the particulars of the offer, its dollar amount and Ramos’ rejection of it. Ramos moved to strike out these references on the basis that HP’s offer was made “without prejudice.” In response, HP asserted that it was a “with prejudice” offer to Ms. Ramos’ legal entitlements, because the letter was not labelled “without prejudice.”

The use of the phrase “without prejudice” is commonly understood to mean that if there is no settlement, the party making the offer is free to assert all its rights, unaffected by anything stated or done in the negotiations. However, the absence of the phrase as part of correspondence does not mean that there is no intention of confidentiality. In Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, the Supreme Court of Canada reminded that what matters instead of that phrase is the intent of the parties to settle the matter. The intention may be implicit in the circumstances or could be inferred in the absence of anything to suggest otherwise, and accordingly, the words “without prejudice” would be superfluous.

The rule excluding evidence of overtures to settlement is a rule of evidence, not a rule of pleading. The distinction between facts and evidence is clear: material facts in a pleading are the relevant facts that a party intends to prove at trial; evidence is the means by which a party actually proves those facts. However, in the employment law context some facts are material, because they prove other facts or because they are material to conclusion about an employer’s motive and intention. For example, an employee is entitled to plead that his or her mental distress was exacerbated by a settlement offer.

The wrongful dismissal jurisprudence contemplates three exceptions to the general rule prohibiting references to “without prejudice” settlement offers:

1. Just Cause exception: Where an employer has pleaded that an employee was dismissed for cause, the employee would be permitted to plead (in reply) that prior to the commencement of litigation, the employer offered an additional payment in lieu of notice, thereby waiving the cause upon which it relied to justify the dismissal

2. Mental Distress exception: It arises in the context of a claim for mental distress. However, whether a settlement offer will be relevant – because it might be evidence tending towards the exacerbation of the employee’s mental distress –will depend on the facts of the case

3. Punitive Damages exception: Where the employee has advanced a claim for punitive damages, the employer could be permitted to plead a settlement offer as a response to the employee’s allegation that it had shown callous disregard for the employee’s rights and feelings in terminating his employment, and in discussing his entitlement to compensation.

In Ramos, the court found that the pleadings did not raise any of the above exceptions. Specifically, Ramos did not claim for moral or punitive damages and HP did not assert just cause. Arguably, the court could have ended its inquiry there. However, it went on to examine the contents of the letter and the final release. The court found that because both documents, inter alia, required Ramos to keep their terms confidential, the offer was made with an implied intention that it would not be disclosed to a court. Consequently, the court struck out references to the settlement offer from HP’s statement of defence.

Ramos serves as a timely reminder that offers to settle that often populate termination letters are considered to be an integral part of the process of negotiating a compromise, as they open the door to the actual negotiation. Such letters do not have to contain the words “without prejudice” or an actual settlement offer in order to invoke the privilege. Communications in pursuit of early settlements give rise to a presumption of inadmissibility, which may be displaced through one of the above-referenced exceptions or the existence of a compelling public interest in disclosure.

Ramos also reaffirms that unjustified disclosure of the offer to settle in order to establish that the employer offered the employee a reasonable severance package would be struck from the statement defence, as being irrelevant to the matters at issue in litigation. What constitutes reasonable notice is an issue for the trial judge to determine, not the employer.

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