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The Actuary The magazine of the Institute & Faculty of Actuaries

References the legal pitfalls

Employers are often asked to supply a reference in respect of a former employee to a new employer. The consequences of not providing a reference, or providing an inaccurate reference, may be grave for a former employee’s future job prospects. Employers must be aware of the legal risks involved in refusing to provide a reference or in providing an inaccurate or misleading reference.
An employer owes a duty of care to an employee when preparing a reference, to ensure that it is true and accurate. This principle was first established in the UK by the House of Lords in the case of Spring v Guardian Assurance (1994).
In Spring, the employee was an insurance company sales director whose former employer provided a reference stating: ‘he is a man of little or no integrity and could not be regarded as honest.’ The English High Court in the first instance accepted that this statement constituted the ‘kiss of death’ to the employee’s career in insurance. The House of Lords held that, in the event a reference is clearly inaccurate and the employee suffers loss as a consequence, a former employer may be liable for that loss. Despite this ground-breaking pronouncement, the claim against the former employer was dismissed on the basis that the employer had included a blanket disclaimer of liability. However, the consequence of Spring is that an employee could sue his former employer for a negligent reference which, if successful, could include a claim for damages for foreseeable losses, such as the loss of a particular job opportunity, or the impact on the employee’s future career prospects.
The principle in Spring was further extended in another UK case by the Court of Appeal in Bartholomew v Hackney (1999),which held that not only must a reference be accurate, but it must also be fair. The Court of Appeal held that, while a number of discrete statements may be factually correct, they might, when read as a whole, convey an unfair impression.

Fair and reasonable
The requirement that a reference must not only be true, but also be fair, was again illustrated in the UK case of TSB Bank v Harris (2000). Ms Harris, who worked as an investment adviser for TSB, was given a final written warning for an alleged act of forgery. She had corrected an entry on a form and initialled it herself with the customer’s initials, to save time. While she was still employed, Ms Harris applied for a new job with Prudential. During her interview, her explanation on the alleged forgery was apparently accepted. On request, TSB provided Prudential with a reference. The reference provided no assessment of Ms Harris’s ability but comprised factual statements, detailing the fact that 17 complaints had been made against her, four of which had been upheld. As a consequence, Prudential declined to employ her. Ms Harris, on being told of these complaints, was shocked, as she had not been previously aware of them and had not been given an opportunity to comment on them. As a consequence, she resigned from her employment with TSB and claimed that she had been constructively dismissed. The Employment Tribunal and the Employment Appeals Tribunal upheld her complaint, on the basis that TSB was in breach of an implied term of trust and confidence owed to an employee by an employer to ensure any reference given is fair and reasonable. The tribunal held that simply to be accurate in what is said may not necessarily lead to a fair and reasonable reference.

Full and comprehensive?
Further attempts to extend the law relating to references have recently been rejected by the High Court in the UK, in the case of Kidd v Axa Equity and Law (2000). In this case, it was argued that the giver of a reference had an obligation to the subject to provide a full and comprehensive reference. However, the High Court rejected that there existed a duty of care, whether in tort or in contract, to provide a full and comprehensive reference, although it accepted, in line with the previous authorities, that the giver of the reference owed a duty of care to provide a reasonable and fair reference. This decision is at least of some comfort to employers in establishing that they do not have to provide a detailed assessment of the former employee, for fear of missing something that could be challenged as a breach of duty.
It is also arguable that an employer, in providing a reference, owes a duty of care to a new employer. This is because it is reasonable to anticipate that a new employer will rely on the reference to decide whether to employ a particular employee. If, therefore, the reference is inaccurate or misleading and the new employer suffers a loss as a result of employing that employee, the new employer may be able to sue the former employer for negligence and recover any foreseeable loss suffered, which could include the cost of recruiting and training a replacement employee.

Case for defamation?
It is also worth noting that defamatory references, if disclosed to a prospective employer, may not generally be grounds for a defamation action, even if the information in the reference is untrue. This is because both parties have a common interest in communicating and receiving information, and any comments made are therefore protected by what is known as qualified privilege. The protection of qualified privilege will be lost if the allegedly defamatory material is clearly not relevant to the reference, or if it can be shown that the employer was motivated by malice or had reckless disregard for the truth of the contents of the reference when preparing it.

Legal obligations
Another development in the law relating to references is that until very recently it was thought that an employer was under no legal compulsion to provide an employee with a reference. However, following a referral to the European Court of Justice, it now appears that employers may also be liable in damages, in a discrimination claim, for failing to provide a reference to an employee who has left.
Mrs Coote was the manager of a bowling centre and had brought a claim of sexual discrimination against Granada Hospitality Limited in 1993, alleging that she had been sacked for getting pregnant. This claim was settled. However, after she had her child she tried to get another job, but Granada refused to supply her with a reference. Mrs Coote lodged a second claim for discrimination, alleging that the refusal to provide a reference was because she had brought her first claim for discrimination.
One of the main issues in this case was whether a person who is no longer an employee could still bring a claim for sexual discrimination under the UK Sex Discrimination Act 1975 (the UK Act), because the wording of the Act requires that, for the purposes of pursuing a claim for discrimination, a person must be ‘employed’. The matter was referred to the European Court of Justice, which held that Article 6 of the Equal Treatment Directive required member states to provide judicial protection for workers who were refused references as a result of a complaint against their former employer for discrimination.
The case was remitted to the Employment Appeals Tribunal, which held that the UK Act should be interpreted in the context of the Equal Treatment Directive, and determined that it was immaterial whether, at the time of the discriminatory behaviour, the person was an employee or an ex-employee. The case was then remitted to an Employment Tribunal, which found in Mrs Coote’s favour and an out-of-court settlement of £195,000, mostly for loss of earnings, was agreed by her former employer.

Employers’ duties
In summary, employers should be careful when refusing to provide a reference to a former employee, where there exists or existed a discrimination claim, such as in the Coote case, or where the refusal could be construed as resulting from one of the discriminatory grounds set out in the 1998 Act . There is no need to provide a full and comprehensive account of the employee’s employment, however it is simply not enough for an employer to provide on the face of it, an accurate reference. The obligation on the employer is that the reference, when read as a whole, must be reasonable and fair in all the circumstances.