One of the more confusing issues that employers deal with is what to do in the face a request for a reference letter by a departing employee. While dealing with a reference letter for a stellar employee is easy, the task becomes more difficult when determining what to do with a request for a reference letter from an employee whom the employer was glad to see go or whom the employer was forced to dismiss.

A. When should a reference letter be provided?

The basic starting point in Canada is that there is no specific, independent contractual duty to provide a letter of reference to a departing employee. However, there are two reasons why an employer should think carefully before refusing to provide a letter of reference to a departing employee.

First, a reference letter generally assists a departing employee in finding new employment. As a result, on a practical level it is usually in the best interest of both the employer and the employee for the employer to provide a reference letter.

Second, in Canada the courts impose a duty of good faith and fair dealing in their treatment of departing employees. As part of this duty, employers are expected to be candid, reasonable and honest in dealing with departing employees. Where an employer breaches this duty, the employer may be held liable for damages to the employee that arise as a result of the breach. One of the obligations that has been identified as part of the duty of good faith and fair dealing is for the employer not to refuse to provide a letter of reference to a departing employee where there is no legitimate reason for refusing the request. For example, employers have been found to have breached their duties of good faith where the refusal to provide a letter of reference was done in order to purposefully make it harder for an employee to find new employment, to pressure the employee into settling a wrongful dismissal claim or, to punish the employee. As a result, an employer must have a legitimate reason for refusing to provide a letter of reference. Where there are no specific performance issues and the employee was not terminated for cause, the safest course is to provide a letter of reference.

As a consequence, the better practice is to refuse to provide a letter of reference only in cases where the employee has been discharged for serious misconduct that the employer is confident it can demonstrate on an objective basis to a third party.

B. What should the reference letter say?

Reference letters can cover the range from a glowing endorsement, to a neutral confirmation of employment to a warning to prospective employers regarding a highly unsuitable employee. In order to know how to approach the reference letter, it is important to know something of potential liabilities.

For the most part the liability that arises out of authoring a reference letter is governed by the law of tort with liability focusing on two primary groups of potential claimants – the former employee and the new employer.

a) Liability Toward the Departing Employee

With respect to the former employee, claims will generally arise as a result of a negative reference letter that interferes with the former employee’s ability to find work or maintain employment. In order for liability to attach, the employee will have to show that the letter materially effected his or her ability to find work and that the negative reference was either untruthful or misleading in some way. Common examples of such liability includes:

  • Liability in defamation for statements made about the employee in a reference letter that are untrue and are damaging to the employee’s reputation;
  • Liability under the principles of interference with contractual relations or inducement of breach of contract where a reference provided by the former employer causes the employee’s current employer to terminate the employee. A common example of this would be where a former employer decides to unfairly "blackball" a former employee in a particular industry.
  • Liability in the form of an increased notice period or independent damages in the case of wrongfully dismissed employees where the employee is unable to find alternative employment as quickly as he or she may have otherwise found alternative employment due to a misleading or untruthful reference.
  • Liability imposed as a result of a breach of the duty of good faith as a result of the employer providing a misleading or untruthful reference.  

b) Liability Toward a Prospective Employer

In contrast to the liabilities that may arise with respect to former employees, the liability that may arise with respect to prospective employers is usually based on reference letters that are unnecessarily positive.

In general terms such liability arises out of the principles of negligent misrepresentation. That is, where a prospective employer reasonably relies on a positive reference of an employee from a former employer in making a hiring decision and that positive reference turns out to have been negligently made, the prospective employer may claim damages arising out the influence that the former employer’s reference had on its decision to hire the employee.

An example of such a situation might be where an employer who has terminated an employee for theft, negligently provides a positive reference as to the trustworthiness of the employee to a prospective employer in relation to a position where the employee will be handling large sums of cash in an unsupervised position. Should the employee subsequent steal from his or her new employer. The previous employer may be held liable for the loss.

c) Avoiding Problems

To avoid problems, there are a number of guidelines to follow.

1) Make sure the information in your reference letters is accurate. Most if not all liability arises out of reference letters that are either misleading or untrue.

2) Avoid subjective opinions and stick to objective facts.

3) Do not use reference letters to "punish" a former employee or make it more difficult for the former employee to find alternate employment.

4) Use caution in drafting negative reference letters. Negative reference letters should be reserved for the clearest of cases involving employee misconduct that is objectively verifiable and well documented. When in doubt, the employer should err on the side of caution and either refuse to provide a reference or in more marginal cases provide a neutral reference that merely provides confirmation of past employment without any comment on the employee’s suitability.