What does the phrase "without prejudice" on a letter mean?

The basic meaning of "without prejudice" is "without loss of any rights". Where there is a dispute between two parties, for example an allegation of discrimination, and there are negotiations taking place with a view to settlement of the dispute, a letter from one party making a settlement offer to the other party should be clearly marked "without prejudice". This means the settlement offer should not be construed by the recipient of the letter as a waiver of the other party's rights. More importantly, marking a letter "without prejudice" means that it cannot later be admitted in evidence before a court or employment tribunal without the consent of both parties concerned, should settlement negotiations subsequently break down and the dispute come before the court or tribunal. This is because, as part of the settlement negotiations, "without prejudice" correspondence may typically contain admissions or other interpretations that could otherwise later be used against the author of the letter, or their client if the author is a solicitor.

It is important to bear in mind that not all correspondence between an employer and employee in dispute should be marked "without prejudice". For this label to attach to a letter, there should be some form of offer of settlement from one party to the other contained within it. For example, a formal letter from an ex-employee setting out their allegations against the employer will not be true "without prejudice" correspondence, unless the letter goes on to state that the employee is willing to settle the claims on terms set out in the letter. Where a letter is incorrectly marked "without prejudice", the parties may agree that it can be admitted in evidence. Alternatively, the court or tribunal has the discretion to decide that the correspondence (or part of it) is not really without prejudice and should therefore be admitted.

From 29 July 2013, an additional layer of protection applies to pre-termination negotiations. Under s.111A of the Employment Rights Act 1996, pre-termination negotiations held between an employer and an employee with a view to ending the employment on agreed terms cannot be used as evidence in unfair dismissal claims (except automatically unfair dismissal claims). Section 111A goes further than the without prejudice principle as there is no need for a pre-existing dispute between the parties. The confidentiality of pre-termination negotiations applies only to unfair dismissal claims. Therefore, employers should continue to make use of the "without prejudice" principle when negotiating with an employee to settle an employment dispute, to prevent the negotiations being admissible in other types of claim, for example a discrimination claim or a claim for breach of contract.