Beware Saying too Much When Engaging in Pre-Suit Settlement Negotiations

Most lawsuits between employers and employees do not start out as lawsuits. They start out as conversations between the aggrieved employee’s lawyer and the company’s counsel. This order of events makes sense for both sides. If the parties can negotiate a deal pre-suit, everyone can save the time, expense, and aggravation of a protracted lawsuit. Additionally, a negotiated deal provides both sides certainty; once a lawsuit is filed, all bets are off and everyone’s fate rests in the unpredictable hands of a judge or jury.

When negotiating, Evidence Rule 408 (which bars the use of offers to compromise) provides everyone some peace of mind that the settlement offers will not end up in front of the jury at trial. This fact is important, because a company does not want a jury learning that an offer of settlement had been made. A jury might perceive such an offer as an admission of liability, or a floor below which its verdict cannot fall.

What happens, however, when, in the course of pre-suit negotiations, counsel makes statements that go beyond an offer of settlement, and discuss the merits of the underlying case? Bourhill v. Sprint Nextel Corp. (D.N.J. 1/23/13) [pdf] is a cautionary tale for employers’ counsel responding to pre-suit settlement demands.

After Sprint terminated Bourhill, he retained an attorney to pursue a disability discrimination claim on his behalf. Before filing suit, Bourhill’s attorney wrote the following to Sprint, to gauge the hope of a negotiated resolution:

While we have advised Mr. Bourhill that we are prepared to take his claims forward to litigation, he has advised us that he would prefer at this time to resolve this situation informally, by means of a [sic] adequate compensatory settlement. Please contact me, or have your attorney contact me, to discuss whether you desire to resolve this matter amicably, privately, and without resort to litigation. If I do not hear from you by February 22, 2010, we will proceed to take action to enforce Mr. Bourhill’s rights.

Sprint’s in-house counsel responded with a letter of his own, captioned, “Confidential/For Settlement Purposes Only”.

I spoke to your assistant last week regarding your client’s allegations that Sprint violated the New Jersey Law Against Discrimination. As I advised her, my investigation does not support your allegations. Mr. Bourhill’s employment was terminated when, after being out of work for eight months, he went on long-term disability, a termination which was mandated by the Plan documents. Our records show his long-term disability benefits were approved through May 31, 2010. Even if Mr. Bourhill was able to return to work without restrictions in December 2009, Sprint does not grant employees one-year leaves of absences and, in this case, would have been prohibited from doing so by the Plan documents requiring termination of employment. While Mr. Bourhill remained free to re-apply for available positions at Sprint once he was cleared for work, our records show he failed to do so.

I also further noted that although your letter of February 3 inquires as to Sprint’s interest in an amicable resolution, the letter does not request any specific relief. I asked your assistant if your client was attempting perhaps to use this letter as leverage to avoid repaying Sprint the overpayments he received in the amount of $7,564.57. She did not know but indicated you would get back to me. As I have not heard from you to date, I am following up via letter. In short, it is difficult to consider an amicable resolution without knowing the relief sought by your client. If you would like to get back to me with a specific proposal that also addresses the overpayments received by your client, I remain available. Thank you.

In the ensuing litigation, Bourhill’s attorney attempted to use Sprint’s counsel’s letter to defeat Sprint’s motion for summary judgment. Sprint objected, arguing that the letter was an inadmissible offer to compromise, barred by Evidence Rule 408. The trial court agreed with Sprint, but only as to the second paragraph of its letter, which discussed the money. The court allowed Bourhill to use the letter’s opening paragraph, which discussed the merits of the termination. The court believed that it could divorce the two paragraphs from each other if the first paragraph was not logically connected to the second. Because the first paragraph discussed the merits of the case, and the second monetary compensation, the court redacted the second paragraph under Evidence Rule 408, and considered the redacted letter as part of the record on Sprint’s motion for summary judgment.

This case teaches employers’ counsel a valuable lesson. We can fall into a trap of Rule 408 myopathy–that if we caption something “Rule 408 Confidential and Inadmissible Settlement Negotiations,” courts will consider it as such and bar its use. As Bourhill makes clear, courts can divorce substantive statements from settlement negotiations, and only bar the latter.

What is the lesson here? As a management lawyer, keep written settlement communications short and to the point–the offer itself. If you have to discuss the merits of the case with the employee’s lawyer, either do so over the phone or only put in writing what you live with a judge or jury considering.

Written by Jon Hyman, a partner in the Labor & Employment group of Kohrman Jackson & Krantz. For more information, contact Jon at (216) 736-7226 or jth@kjk.com.