Providing an employment reference is a potential minefield for employers, with competing risks of liabilities to the employee and new employer. Navigating it can be tricky, so here’s a handy guide to help you avoid the risks.

Options when you are asked for a reference

As an employer, you have a number of options if asked to provide a reference.  You can either:

  • Refuse to give a reference. While on the face of it this might remove some risks, it could result in a claim for breach of contract and/or give rise to a discrimination claim. In addition, in some sectors, notably the financial sector, statutory rules mean that employers are obliged to give references and provide certain information.
  • Provide a fact only reference (such as the position held by the employee, salary and other benefits, commencement and termination dates). To avoid the new employer reading anything into the fact that you have not provided full details, it is helpful to state that it is your policy to only give factual references. And if this is your policy, it is important to ensure you comply consistently, since singling out certain employees for this type of reference, whilst providing more detailed information for others, could again lead to claims of breach of contract and/or discrimination.
  • Provide a full reference which contains all the bare facts, with commentary on performance and reliability and/or responses to specific questions from the prospective employer. As long as the reference is true, accurate and fair and the employer has acted reasonably in expressing any opinions the risks of any liability arising is low.

We’ve set out some more detail about the possible liabilities arising in these options below.

Potential liability to the employee

Duty to take reasonable care

When providing a reference, the employer is under a duty to take reasonable care in preparing the reference, ensuring that it is true, accurate and fair. It’s also important to ensure it’s not misleading. However, there is no obligation for the reference to be comprehensive, nor for any particular detail to be provided.

The duty to take reasonable care is also owed to former employees and continues long after the original employment has ended. If you are ever asked to give a reference about a former employee, irrespective of when they were employed, it’s worth taking the time to ensure that the reference remains true, accurate and fair.

Discrimination

One of the big risks for an employer in giving a reference is to ensure that there can be no taint of discrimination. For this reason, it is sensible to apply any reference policy universally to everybody.  For example, if you have a policy of providing factual references only, it’s wise to make sure you do not deviate from this for some employees. The risk here is that it could give rise to a claim that the difference in treatment is due to a protected characteristic, or the result of victimisation.  If you refuse to give a reference, this also needs to be for a non-discriminatory reason.

It’s worth noting that ex-employees can claim discrimination if they receive no reference or a bad reference, sometimes years after the termination of their employment.

Also, when dealing with issues such as performance and attendance, it’s worth being aware of the risk of potential claims of discrimination on the grounds of disability. Simple checks of the background always make sense before sending a reference in these cases.

Contractual

An obligation in the contract of employment, or, more commonly, in a settlement agreement, to provide a reference, can also give rise to problems. Failing to abide by the agreed terms could lead to breach of contract or constructive unfair dismissal claims.  It’s wise, therefore, to check for any express contractual obligations before providing a reference.

Even without an express contractual obligation, there may be a ‘custom and practice’ obligation to provide a reference. Failing to give one, or giving a bad reference, could also be a breach of the implied term of trust and confidence. Again, acting consistently and fairly is the best approach.

Negligence

If the employer provides incorrect information in a reference, it could lead to a claim for “negligent misstatement”. Before deciding liability, a court would consider whether a reasonably prudent employer would have expressed those opinions. It’s not necessary for the information to be entirely true but, in coming to, and expressing those opinions, the employer must have acted reasonably. If the information is incorrect and the employer was not reasonable, the way is open for the employee to claim damages.

Before expressing any opinions it is worth considering why these opinions have been formed, and whether they are reasonable. Written evidence (such as annual appraisals) will help minimise risk.

Defamation

Generally, it’s not possible to sue for defamation for the contents of a reference, provided it was made in good faith and without malice. It doesn’t matter if the information is actually correct, as long as the employer genuinely believes it, since they will be able to rely on the defence of “qualified privilege”. This defence may be available if the employer has ensured that the reference was marked as “strictly private and confidential – for the addressee only” and the reference has been distributed no further than the intended recipient.

If wrong information is given deliberately, the employer is likely to be on the hook and can be liable for malicious falsehood. As with defamation, the presence of malice will be the key point when considering liability for any claim. Provided the employer can show it acted in good faith, the claim is unlikely to succeed.

Liability to new employer

With so many risks attached to the giving of references, it’s tempting to avoid negativity in a reference. However, the competing obligations to the prospective new employer make this equally dangerous.

It’s important to ensure that the reference is not misleading. For example, if drafted in glowing terms omitting a negative, such as a disciplinary warning, a reference would be misleading to a prospective employer. In such a case, or where the information given is not true, accurate and fair, a new employer may have a claim of negligent misstatement if it takes a reference at face value and subsequently suffers loss as a result of the recruitment of an unsuitable candidate.

The risk of a claim by the new employer is reduced if the reference contains a disclaimer stating that no liability is accepted for the information provided. The downside to this is that employees often feel that this will undermine an otherwise good reference. This is to some extent true, but disclaimers are common practice and likely to be seen as such by the recipient, rather than an indication that the reference is not accurate.

Even if the reference does contain such a disclaimer, it is good practice to ensure that the reference is not misleading or inaccurate in any event. Public sector employers should also bear in mind that their public duties to act with honesty and integrity cannot be circumvented by using a disclaimer in a reference.

Unsurprisingly, a disclaimer will be no defence if a referee knowingly includes false information and knows that the recipient will rely on it. Such a referee could be liable to the recipient for deceit or even fraud.

And don’t forget the Data Protection Act…

As if matters weren’t complex enough, employers also need to ensure that they comply with their duties under the Data Protection Act 1998. This may, at times, conflict with the other duties we’ve outlined. It may be a balancing act, particularly where sensitive personal data is involved, in weighing up the obligations under the DPA, and the risk of breaching obligations to the new employer.

By way of example, employers are often asked about sickness absence and, in many cases, it should be possible to provide this information without revealing any sensitive personal data. However, if an employer is asked to provide information regarding the reasons for the absence, the safest course of action would be to seek consent from the employee before disclosing this information.

In some cases, employees may be able to prevent employers disclosing sensitive personal data under section 10 of the DPA by writing to the employer claiming that the disclosure will (or is likely to) cause substantial unwarranted damage or distress.

Dealing with tricky situations

Employees who leave under a cloud

Despite popular belief to the contrary, an employer can, and often should, refer to disciplinary proceedings. This may be the case even if they have not been not fully completed. If they have not been formally investigated, it is possible to safely refer to misconduct or poor performance allegations, as long as the referee makes clear that there was no formal investigation.

Make sure that the reference reflects the real reason for leaving. If an employee brings an unfair dismissal claim in due course and the reference does not reflect the fair reason for the dismissal, it will be harder for the employer to defend the subsequent claim.

What if I am asked to provide comments on suitability for the new job?

If you are asked to provide comments or opinions on the employee’s suitability for a new job, then tread carefully. Make sure that anything you say is stated to be your opinion, and if you do not have sufficient information to enable to you provide an opinion, then say so.

Settlement Agreements

Settlement agreements often include provisions for an agreed form of reference for a prospective employer. Sometimes this causes a problem when the new employer requests more information than was agreed. Since deviation might put you in breach of the agreement, but may also jeopardise the employee’s new role, you may decide to discuss this with the employee and agree how you are going to respond. If you can’t agree, stick to the original wording and decline to give any further information.  It’s worth making it clear to the employee that this may lead to a negative inference being drawn and, as such, it is in their interests to agree on additional wording with you.

Safeguarding issues

For those employers with statutory safeguarding duties, it is important to note that the duty to disclose safeguarding concerns will be paramount and can override other duties, including the duty of care to the employee.

Even if a reference is agreed in a settlement agreement, the employer will usually be able to deviate from that reference to comply with the safeguarding duties, for example, to cooperate with the police or other safeguarding bodies. However, it is always sensible to ensure that the reference clause in a compromise agreement does not waive safeguarding duties. If possible, the clause should make clear that the employer is not prevented from disclosing full details of any disciplinary history to the police, or other relevant safeguarding body, as required by law.

Informal references

Finally, beware the informal reference. Employers are often caught out by giving “off the record” references, usually over the telephone. The potential liabilities are the same as for a written reference if it’s misleading or inaccurate.

Managers are also well-advised to be careful not to make promises about references in informal situations. Employers can be held liable for breach of contract where a manager has made a promise in a social situation, but has failed to comply with that promise.

Clear policies and practices, as well as training for any managers who are responsible for writing references, will help ensure that your employees know who is allowed to give references and what they should include.

Please get in touch if you would like to discuss any issues.