In Woodward v Santander UK Plc (formerly Abbey National Plc) UKEAT/0250/09 it was held that the exceptions to the without prejudice rule must be construed narrowly and parties should not be discouraged from settling disputes through fear that communications made in the course of genuine settlement negotiations could later be used to their prejudice in subsequent proceedings.

Mrs Woodward was dismissed by Santander UK Plc (the Company). She brought claims of unfair dismissal and sex discrimination but the proceedings were settled. The terms of the settlement agreement did not require the Company to provide a reference. Mrs Woodward found it difficult to find alternative employment and believed that the Company was hindering her job applications. She consequently sought to bring fresh claims against the Company for victimisation, detrimental treatment and, in relation to an application to the Company for employment, sex discrimination. Mrs Woodward argued that the Tribunal should consider the prior settlement negotiations and in particular the Company's refusal to give a reference as part of the settlement.

The Employment Appeal Tribunal held that Mrs Woodward should not be allowed to adduce evidence of what had been discussed during settlement negotiations. The negotiations had been genuinely conducted in order to settle prospective litigation and therefore, unless the evidence fell within an exception to the without prejudice rule, it was inadmissible. The key exception to the rule is when it is used to disguise blackmail or other ‘unambiguous impropriety'. The EAT held that there was no basis for deciding that the Company's refusal to provide a reference fell within the unambiguous impropriety exception and, importantly, that parties should not be discouraged from settling disputes through fear that something said in the course of negotiations might be used to their prejudice in subsequent proceedings.

The EAT's decision has also clarified the position following obiter comments in BNP Paribas v Mezzotero [2004] IRLR 508 and Brunel University & another v Vaseghi & Webster [2007] 482. Following these cases it was thought that discrimination could constitute an exception to the without prejudice rule in its own right. However, the EAT has shown that discrimination cases should be viewed in the same way as any other type of case, that is, there must be unambiguous impropriety. Furthermore, the threshold is high for a party seeking to establish that this has been satisfied.

Whilst employers should still take care when entering into without prejudice discussions, this case is encouraging as it shows that a Tribunal will only allow disclosure of such discussions if there is clear and unambiguous evidence of impropriety. A simple refusal to give a reference during the course of settlement negotiations is highly unlikely to constitute impropriety.