An employer was not negligent where it had provided a reference containing negative opinions formed following an internal investigation into conduct without considering the fairness of that investigation.
Mr Hincks was an independent financial advisor engaged by Co-operative Independent Financial Solutions (CIFS). He complained about a reference given about him by Sense Network Limited, the company for which CIFS acted as appointed representative in relation to certain FCA regulated activities and which acted as CIFS’s compliance department. The reference was given by Mr Netting; Sense’s compliance director.
The reference referred to a suspension for non-compliance with internal procedures which led to clients being compensated, a rehabilitation programme he had undergone and a transaction Mr Hincks had conducted in breach of an applicable pre-approval process as well as the conclusion of the internal investigation that he had "knowingly and deliberately circumvented" that pre-approval process.
Mr Hincks claimed that elements of the reference were not true and accurate, that overall it gave a misleading impression and that the opinions expressed in the reference were based on an internal investigation which he characterised as having been no more than “an inadequate sham”. He brought a claim of negligent misstatement for the loss of earnings which resulted from the unfavourable reference.
Mr Hincks argued that, where negative opinions are founded on an investigation and the conclusions of an investigation, the writer of the reference should be satisfied that the investigation was reasonably conducted and procedurally fair, consistent with the standard to be expected of a reasonable employer.
The High Court dismissed Mr Hincks’s claim. It said that there were “formidable difficulties” with the argument that a reasonable reference writer should revisit the procedural failures of earlier investigations including the time that might have passed, the fact staff might have left, issues relating to the recovery of relevant documents and the difficulty of taking a retrospective review.
The judge felt that the effect of the duty argued by Mr Hincks’ lawyer would be to stultify the business of reference writing: the production of references would be time consuming and expensive, and there would be delay.
The High Court held that the standard of care to be exercised by a reasonable reference writer should be expressed in broad terms. The nature of the duty of care in each case will depend on the surrounding facts. However, the judge identified certain common features of the duty, which are:
- To conduct an objective and rigorous appraisal of facts and opinion, particularly negative opinion, emerging from earlier investigations or otherwise;
- To take reasonable care to be satisfied that the facts set out in the reference are accurate and true and that, where an opinion is expressed, there is a proper and legitimate basis for the opinion;
- Where an opinion is derived from an earlier investigation, to take reasonable care in considering and reviewing the underlying material so that the reference writer is able to understand the basis for the opinion and be satisfied that there is a proper and legitimate basis for the opinion;
- To take reasonable care to ensure that the reference is fair, in the sense of not being misleading either by reason of what is not included or by implication, nuance or innuendo.
The judge noted that if there are obvious errors on the material available to the reference writer, reasonable care would dictate that these errors are checked. If the reference writer has become aware of information which casts a doubt on the reliability or integrity of the facts or opinions in the underlying material, reasonable care would involve further inquiry. However, except where there is a “red flag” prompting further inquiry, there is no duty to examine the procedural fairness of the underlying investigation.
What does this mean for employers?
Employers who do not have a regulatory obligation to provide full references tend to take the sensible approach of providing factual references, limited to dates of employment and job titles, with a disclaimer.
Had the High Court agreed with Mr Hincks, employers who are required to give full references (for example, by the FCA) would have had a major head-ache. The decision is therefore a welcome one. However, the common features of the duty identified by the court show that employers must exercise a great deal of care when giving references, particularly where giving negative opinions.