Lance Manion, in-house attorney, was early to the office as usual. After several sips of coffee, a glazed doughnut and a skim over the morning e-mails, Manion turned to his pile of mail. In it was a letter from an employment consultant asking for information about a former employee, Sue Furst. Two years earlier, Furst had settled a lawsuit against the company (her second such suit). In the settlement agreement, the company agreed to respond to reference requests according to its policy – that is, provide dates of employment, last position held and final salary. The company further agreed that no one would indicate that Furst was terminated or fired.

Manion finished his doughnut, took another sip of coffee and called the consultant back. After some preliminary small talk, Manion explained that responding to reference requests for Furst is a sticky wicket because she had twice sued the company and Manion wanted to be careful. He didn’t want to respond without first receiving Furst’s written authorization.

In her third lawsuit against the company, Furst claimed that Manion’s comments to the consultant about her litigation history violated the settlement agreement. The company defended the suit, arguing that this was not a “reference” because the inquiry did not come from a prospective employer. Alternatively, Manion’s comments did not breach the settlement agreement because that agreement only established specifically what must be provided (name, rank and salary) on the one hand and what could not be provided (indication of termination or firing) on the other. Manion was free to include additional information as long as it did not indicate termination or firing. The trial court agreed and dismissed Furst’s claim.

The appellate court reversed, however. First, restricting the term “reference” to include only inquiries from prospective employers was, according to the court, too narrow a reading of the agreement. According to the court, the information Manion shared with the consultant was indeed a reference. Second, the contract was ambiguous about whether Manion could say more and a jury would get to decide whether – at the time of settlement – the parties reasonably “intended” the reference provision to permit such “additional” disclosures.

Takeaways: Neutral reference provisions are often a necessary evil in employment settlement agreements. It is important to draft these provisions carefully and notify those who need to know about the provision and its terms. In addition, consider further guarding against breach by requiring the plaintiff to direct all employment inquiries to one person – preferably a high-level position. That person can be instructed to refrain from offering subjective or extraneous commentary on any such inquiry. Indeed a jury would be hard pressed to find that a permissible reference includes Furst’s litigation history against her previous employer.

[The names here are fictional but the circumstances highly reflective of Matthews v. Wisconsin Energy Corp., Inc., Case Nos. 07-1780, 07-2824 (7th Cir. July 7, 2008).]