Bad references can be bad news for employers

Inaccurate and negligent references or refusing to give one at all can lead to bad-faith damages

There used to be no obligation on the part of employers to give reference letters. If they did, there was little chance they could be successfully sued for any negative statements. Reference letters were governed simply by defamation and human rights laws. However, things have changed and employers need to be careful when considering giving references.

Previously, an action against a former employer because of a bad reference could only succeed if the employee could prove two things: False statements were made about the employee and the statements were motivated by malice.

This was the law for more than 200 years because the courts held it to be in the public interest that, in giving references, employers should be encouraged to express their honest opinions about a former employee. This protection, called qualified privilege, was only lost if the reference-giver was motivated to say something untrue by actual malice toward the employee. Otherwise, the defence of qualified privilege would be found to be “a complete answer to the claim” made by the disgruntled former employee as in Phutela v. University of Alberta.

While the law remains the same with regard to defamation claims, it may now be possible for former employees to sue reference providers using an action for negligence. The British House of Lords ruled in an important 1994 decision, Spring v. Guardian Insurance PLC, that:

•if a reference is provided, an employer owes a duty of care to a former employee to exercise due care and skill in its preparation;
•this is so even if there is no obligation to provide the letter; and
•if negative statements are negligently made about the employee, and they cause foreseeable economic harm, the reference provider can be liable for the damages suffered as a consequence.

The case also opened up the possibility the recipient of the reference letter, the prospective employer, may have a right of action against the reference provider, again based on negligence.

This case has not been applied in Canada in the employment context. But in the United States, such claims are not uncommon. There, claims may be based on negligence, defamation or intentional infliction of harm. It may be only a matter of time before such cases pop up in Canada.

Discrimination claims

It is difficult to claim discrimination for failure to provide a reference, where there is no obligation to do so and discrimination rarely is found in reference letters. However, Ontario has amended its Human Rights Code to allow discrimination claims to be pursued as part of a lawsuit involving other types of claims. Therefore, discrimination claims will likely appear in a significant proportion of wrongful dismissal actions. A poor reference letter, or a refusal to provide one, may well form one of the allegations upon which a former employee relies as evidence of alleged discrimination.

Employee access to references

In the case of Staka v. Humber River Regional Hospital, the Ontario Court of Appeal ruled a job applicant could bring a legal action to force a prospective employer to disclose the content of references provided to that employer. This right exists even where the applicant has no other legal claim against the prospective employer. Such an “action for discovery” might be allowed, in the discretion of the court, where the applicant has a bona fide potential claim against the reference-providers.

In Staka, a doctor did not gain access to the references, for reasons related to the Public Hospitals Act, under which there is a procedure for determining a doctor’s right to a hospital staff position. This case suggests, however, that in more typical employment cases, applicants might succeed in obtaining an order requiring a prospective employer to disclose the contents of references received.

The risk of refusing a letter of reference

In Wallace v. United Grain Growers Ltd., the Supreme Court of Canada gave a non-exhaustive list of types of bad-faith or unfair dealings in the manner of dismissal that would attract a longer notice period. The court specifically included the refusal to provide a letter of reference after termination. Not surprisingly, this has spawned a series of cases where the refusal to provide a letter of reference is alleged to be a basis for an increased notice period in a wrongful dismissal action.

An example of how expensive this can become was provided in Jessen v. CHC Helicopters International Inc., where a full-time flight co-ordinator was terminated after two and a half years and was awarded 48 months’ Wallace damages by a jury. Failing to provide a promised letter of reference was one of the grounds put forward. The Court of Appeal reduced the Wallace damages to nine months, but that is still an expensive award for a short-service employee.

Employers are particularly vulnerable to additional damages when a letter of reference is withheld as a negotiating tool or bargaining chip in exchange for acceptance of a severance package.

What’s an employer to do?

Some employers have resorted to just giving bare-bones information about dates of employment and job capacities. This is an acceptable standard policy, but employers should apply it consistently. Employers who don’t may open themselves to discrimination allegations or bad-faith claims by those who are denied more favourable treatment.

The risks are not so great that more expansive reference letters cannot be given but employers must be careful. Here are a few guidelines:

•ensure all facts stated in a reference letter are correct;
•if negative statements are to be made, have a second manager (perhaps someone in human resources) sign off on it, to help ensure accuracy and fairness;
•if reference letters are given in confidence, state explicitly that they are privileged and confidential;
•consistently apply one policy regarding reference letters to all employees and former employees;
•consider centralizing the writing or at least the retention of reference letters in the human resources department; and
•don’t refuse to provide a letter of reference on a selective basis, even if a lawsuit is pending — if necessary, provide it on a “without prejudice” basis.

For more information see:

Phutela v. University of Alberta, 1996 CarswellAlta 933 (Alta. C.A.).
Spring v. Guardian Insurance plc, 1994 CarswellFor 1 (U.K. H.L.).
Staka v. Humber River Regional Hospital, 2000 CarswellOnt 4114 (Ont. C.A.).
Wallace v. United Grain Growers Ltd., 1997 CarswellMan 455 (S.C.C.).
Jessen v. CHC Helicopters International Inc., 2005 CarswellNS 384 (N.S. S.C.).

Brian P. Smeenk is a partner in the Labour and Employment Group at McCarthy Tétrault LLP in Toronto. He can be reached at (416) 601-7636 or [email protected].

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