U.K. decision rules employers liable for negligent references

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What are the consequences when an employer, honestly and in good faith, supplies a letter of reference for a former employee, and that letter contains erroneous negative information about the employee’s job performance or character? Until recently, the trend in Canadian courts has been to shy away from finding employers liable for negligently compiled references, despite the significant harm such references can cause an employee.

But that stance may change in the wake of Spring v. Guardian Assurance, a decision of the British House of Lords, released on July 7, 1994. This ruling marks a major extension of employer liability, and a corresponding increase in the legal protection of employee interests.

The case involved A.P. Spring, a sales director with Guardian Assurance, an insurance firm, who was dismissed following a corporate reorganization. Spring then sought employment with Scottish Amicable, another insurance firm. Under the rules of the insurance industry’s regulatory body, an insurance company could not appoint anyone to act as a company representative without obtaining a reference about that person’s character and experience. Accordingly, Scottish Amicable requested a reference from Guardian.

Guardian’s letter stated that Spring was “a man of little or no integrity and could not be regarded as honest”; he “consistently kept the best leads to himself with little regard for the sales team that he supposedly was to manage”; and he left the company “owing some L 12,000 in funding which to date has not been repaid”. Not surprisingly, Spring was denied a position with Scottish Amicable. Two subsequent attempts to secure employment as a company representative were also unsuccessful.

Spring brought an action against Guardian. At trial, the judge found that information contained in the letter referred to a matter in which Spring had acted incompetently, but not dishonestly. The judge further found that Spring’s employers at Guardian had not acted out of malice in compiling the reference, but had neglected to take reasonable care in determining whether the allegations against him were true. The judge therefore ruled in favour of Spring on the issue of negligence. The Court of Appeal overturned this result, and Spring appealed to the House of Lords.

EMPLOYERS OWE A DUTY OF CARE TO EMPLOYEES

In ruling in favour of Spring, a majority of the court held that it was appropriate to find that an employer providing a reference to an employee owed the latter a duty of care in preparing the reference. The court based this conclusion on the fact that the relationship between the parties was one in which the employer had, in effect, assumed a responsibility towards the employee, and the latter had relied on the employer to carry out that responsibility with due care and skill:
“The employer is possessed of special knowledge, derived from his experience of the employee’s character, skill and diligence in the performance of his duties while working for the employer… The provision of such references is a service regularly provided by employers to their employees; indeed, references are part of the currency of the modern employment market. Furthermore, when such a reference is provided by an employer, it is plain that the employee relies upon him to exercise due skill and care in the preparation of the reference before making it available to the third party.”
Moreover, according to the court, damage stemming from a negligent reference is foreseeable. Indeed, as the court observed, the “entire future prosperity and happiness of someone who is the subject of a damaging reference which is given carelessly but in perfectly good faith may be irretrievably blighted”.

EMPLOYEE INTERESTS OVERRIDE FREEDOM OF SPEECH

Guardian had argued, and the dissenting judge accepted, that to rule that Spring could sue on these grounds would undermine the law of defamation, with its defence of qualified privilege. This, they claimed, would greatly increase defamation litigation in the courts, and have a chilling effect on freedom of speech.

A majority of the court, however, rejected this contention, holding that in the balance of competing principles, an employee’s right to pursue his or her vocation should prevail:

“A development of the law which does no more than protect an employee from being deprived of employment as a result of a negligent reference would fully justify any limited intrusion on freedom of speech.”
The court acknowledged that its ruling might deter some employers from giving full and frank references, but affirmed that public policy required that such references not be the product of careless investigation:
“[Employers] are not being asked to warrant absolutely the accuracy of the facts or the incontrovertible validity of the opinions expressed but to take reasonable care in compiling or giving the reference and in verifying the information on which it is based.”
However, the court stated, employers who fail to achieve this standard will have to compensate former employees who suffer damage as a result.

IN OUR VIEW

The majority of the court in this case stated that it was not requiring that employers guarantee the accuracy of their references, but only that they take reasonable care in compiling them.

Although this decision has not yet been followed by Canadian courts, employers here may well be found to have a duty of care toward former employees when giving references, and should therefore ensure that any references provided are factual and fully documented. (On a related issue, see “Employment references: Care, not silence, required” on our Publications page.)

For more information on this subject, please contact André Champagne at (613) 563-7660, Extension 229.