Without Prejudice and Subject to Contract: What They Mean

If you’ve been offered a settlement agreement, you will probably have seen the words ‘without prejudice’ and ‘subject to contract’ at the top of the letter or email setting out your employers offer. This guide explains why lawyers use these terms and what they mean. Neither phrase is there to intimidate you — they’re standard legal labels with a specific purpose. This guide explains what each one actually means, when the protection behind them can fail, and what that means for you as an employee.

In short ‘Without prejudice’ stops genuine settlement discussions being shown to a tribunal or court if talks break down.‘Subject to contract’ means nothing is legally binding until a formal written agreement is signed by everyone. Both labels only work if the conditions behind them are actually met — the label itself doesn’t guarantee protection.

What does ‘without prejudice’ mean?

‘Without prejudice’ is a rule of evidence, not a formality. It exists so that two parties can enter into negotiations with a view to reaching a genuine settlement without either side’s concessions being held against them later. If your employer offers £15,000 to resolve a grievance ‘without prejudice’ and talks then break down, neither of you can point to that offer at an employment tribunal as proof the other side thought they were in the wrong.

For the protection to apply, three things generally need to be true:

1. There is an existing dispute — or one both sides could reasonably see leading to litigation if it isn’t resolved. The Court of Appeal confirmed in Framlington Group Ltd v Barnetson [2007] EWCA Civ 502 that this doesn’t require a claim to have actually started, only that litigation was reasonably in contemplation.
2. The communication is a genuine attempt to settle that dispute — not simply a discussion about varying your contract terms going forward.
3. It doesn’t cross into what the courts call ‘unambiguous impropriety’ — see below.

When ‘without prejudice’ doesn’t apply – even if the letter says it does

Labelling something ‘without prejudice’ doesn’t automatically make it so. This matters because employees sometimes assume the heading alone settles the question — it doesn’t.

Raising a grievance isn’t necessarily by itself, a ‘dispute’

In BNP Paribas v Mezzotero [2004] IRLR 508, an employee raised a grievance about her treatment on returning from maternity leave. Her employer called her to a meeting, announced it was ‘without prejudice’, and then told her there was no longer a role for her. The Employment Appeal Tribunal held that simply raising a grievance does not, by itself, mean the parties are already in a dispute — grievance procedures are a normal internal mechanism that may resolve matters without any dispute arising. Because there was no genuine dispute at that point, the Employment Appeal Tribunal decided the ‘without prejudice’ label didn’t protect the meeting, and the employee was allowed to rely on it as evidence of discrimination.

However, in Barnetson v Framlington Group Ltd and anor 2007 ICR 1439, CA, the Court of Appeal decided, a dispute occurs when the nature of the exchanges is such that the parties have contemplated, or could reasonably be expected to have contemplated, litigation, if they did not agree. On the facts of the case, On the facts of the case, a dispute had arisen when the employee was informed by the employer that it intended to terminate his contract early, even though formal notice was not given until nearly two months later. In effect, the dispute manifested when the threat of termination was made. It did not matter that litigation had not been threatened by the employee, as litigation at that point must have been in both parties contemplation.

The practical lesson: if a meeting that starts out as a grievance or performance discussion is abruptly declared ‘without prejudice’ and used to push you towards leaving, that label may not hold up as being without prejudice. But if it is apparent from the grievance or wider communications that legal claims might reasonably be contemplated if they did not agree about the matters raised, the without prejudice rule is engaged. In edge cases, whether there is existing dispute to engage the without prejudice rule is a highly fact sensitive question, or put another way, the dividing line may not always be clear cut. This is exactly the kind of situation where getting specialist advice early — before you respond — may make a real difference.

Expert comment: Being pragmatic, there is a danger that arguments during negotiations about whether the without prejudice rule applies can become a unhelpful distraction from the main purpose of settlement discussions, namely to seek to reach a settlement. It can also take up time and costs which may be better deployed the settlement agreement discussions.

The ‘unambiguous impropriety’ exception

Courts will also lift the protection afforded by the without prejudice rule where it would otherwise shield serious wrongdoing. In Unilever plc v Procter & Gamble Co [2000] 1 WLR 2436, at 2444, Robert Walker LJ set out the established exceptions to the rule, including where without prejudice protection would act as a cloak for perjury, blackmail, or other ‘unambiguous impropriety’. The courts apply this narrowly — ordinary hard bargaining, or a robust assessment of your case’s weaknesses, will not qualify. It is reserved for the clearest cases of abuse.

What does ‘subject to contract’ mean?

‘Subject to contract’ does a different job. It isn’t about whether something can be shown to a tribunal — it’s about whether you’re actually bound yet. The phrase makes clear that no agreement, even one you’ve verbally accepted, is legally binding until a formal written contract is signed by both sides.

In a settlement agreement context, this means that if you say ‘yes, I’ll accept £15,000’ in a phone call or email, you and your employer are still not locked in if it has been made clear the offer or acceptance is subject to contract. Either of you can walk away, or seek to change the terms, until the settlement agreement itself is signed and binding.

Why the label doesn’t leave you exposed

If ‘subject to contract’ makes you worry you have less protection than you’d like, it’s worth knowing that a settlement agreement compromising statutory employment claims (for the most part) has to meet several specific statutory conditions before it can bind you and prevent you from bringing statutory employment claims — regardless of how the correspondence is headed. Most importantly, you must have received independent advice on the terms and effect of the agreement from a relevant independent adviser, usually a solicitor. Our main settlement agreement guide sets out these conditions, and what ‘advice-only’ sign-off actually means, in full.

How this differs from a ‘protected conversation’

You may also see settlement discussions described as a ‘protected conversation’ under section 111A of the Employment Rights Act 1996. It serves a similar purpose to the without prejudice rule — encouraging frank settlement discussions — but works differently: it doesn’t require an existing dispute, but only protects against a claim for ordinary unfair dismissal. And it only applies to pre-termination negotiations, not post-termination settlement discussions. For the full picture, including when this protection can be lost and how it interacts with the without prejudice rule, see our complete guide to protected conversations and section 111A.

Without prejudice vs subject to contract, at a glance

	Without prejudice	Subject to contract
What it protects	Keeps genuine settlement communications out of a tribunal or court	Stops you being bound before a formal agreement is signed
Requires a dispute?	Yes — actual or reasonably contemplated litigation	No — can apply to any negotiation
Can it fail, i.e. the evidence becomes admissible?	Yes — no genuine dispute, or unambiguous impropriety	Yes — if a party’s conduct shows a binding deal was intended
Typical heading used	‘Without prejudice’	‘Without prejudice and subject to contract’

What to do if you receive a letter headed this way

• Don’t read too much into the heading on its own. It’s standard drafting used on the vast majority of settlement approaches, not a sign of how strong or weak your position is.
• It may be sensible to avoid confirming acceptance — verbally or in writing — until you’ve taken legal advice.
• Keep a copy of the letter or email, or a note of the conversation labelled without prejudice, in case the discussions later becomes relevant or admissible in a tribunal claim.
• Get specialist advice early, particularly if the ‘without prejudice’ conversation appears to have started before any real dispute existed — as the case law above shows, that timing can matter a great deal.

Frequently asked questions

Received a letter marked ‘without prejudice and subject to contract’? Speak to a specialist settlement agreement solicitor at a fixed fee, usually covered by your employer. See our Costs Promise

Sources referenced

• Framlington Group Ltd v Barnetson [2007] EWCA Civ 502 – BAILII
• BNP Paribas v Mezzotero [2004] IRLR 508 (EAT)
• Unilever plc v Procter & Gamble Co [2000] 1 WLR 2436 (CA)
• Acas Code of Practice on Settlement Agreements
• Employment Rights Act 1996, s.203 – legislation.gov.uk