Employers that provide references for former employees may be sued for negligent misstatement if the reference is found to be inaccurate.
The duty of care which employers owe to employees when preparing references is to:
- exercise reasonable skill and care; and
- provide a reference that is true, accurate and fair.
Employers should take reasonable care to ensure that references are not misleading due to omitted information or the inclusion of facts which, although accurate when viewed discretely, either through nuance or innuendo generate a misleading picture when considered overall.
In Hincks v Sense Network the High Court dismissed Mr Hincks's claim that his former employer had been negligent when providing a reference. The case was unusual, given how comprehensive the reference was.
The reference referred to Mr Hincks's suspension and stated that the employer had offered clients compensation for losses incurred on transactions which Mr Hincks had been involved in. Further, it mentioned that Mr Hincks had been placed on a rehabilitation programme and had knowingly and deliberately circumvented the pre-approval process when making financial transactions on behalf of clients.
The High Court dismissed the claim and held that on careful and rigorous review of the material involved in an internal investigation, the reference's statements – including the negative opinion expressed – were more than amply supported.
However, the court set out the following common features of the duty of care which employers must consider when providing a reference:
- Employers must conduct an objective and rigorous appraisal of facts and opinion, particularly negative opinion, whether or not those facts and opinions emerged from earlier investigations.
- Employers must take reasonable care to be satisfied that the facts set out in the reference are accurate and true and ensure that opinions have a proper and legitimate basis.
- Where an opinion derives from an earlier investigation, employers must take reasonable care in considering and reviewing the underlying material so that the reference writer can understand the basis for the opinion and be satisfied that it has a proper and legitimate basis.
For obvious reasons, many employers limit references to a brief factual reference that includes the dates of employment and the positions held. This approach mitigates the risk of a reference omitting something material. Employers that provide such references should explain that it is their policy to provide a reference only in this format.
However, where more than brief facts are included, a referee must justify and support the reference's comments and show either that they are true or are honestly believed to be true.
Employers should be particularly careful when providing references under regulatory requirements and should ensure that adequate documentation is retained to support any opinions expressed therein.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.