Cox v Sun Alliance Life Limited [2001] IRLR 448
TSB Bank pic v Harris [2000] IRLR 157
Bartholomew v London Borough of Hackney [1999] IRLR 246
Kidd v Axa Equity and Law Assurance Society pic [2000] IRLR 301
Spring v Guardian Assurance pic [1994] IRLR 460
Whether references are provided following the termination of employment, and the contents of the references provided is a common employment problem referred to lawyers and trade union advisers. In this feature we look at the law concerning references and the remedies available to a dissatisfied employee.
The legal starting point is that an employer has no obligation to provide an employee with a reference at all. If an employer does provide a reference, a duty of care is owed to the person (usually a potential employer) to whom the reference is provided. So, for example, an accountant is sacked for having his hands in the till and his employer provides a reference to another employer extolling the accountant's honesty and integrity and on that basis new employer employs him. If the accountant then runs off with the second firm's money that firm can sue the first firm for negligent mis-statement. The first employer owed a duty to the second employer not to mislead.
The Court of Appeal considered the issue in Bartholomew v London Borough of Hackney. Bartholomew had been suspended on allegations of financial irregularities.
He brought a claim of race discrimination. The case was settled and Mr Bartholomew was allowed to take voluntary severance and the disciplinary proceedings were terminated. He applied for another job and the Council gave a reference to the potential new employer saying that Mr B had taken voluntary severance whilst suspended for alleged gross misconduct. Unsurprisingly the job offer was withdrawn and Mr Bartholomew sued the Council for negligence. He lost: the Court said the reference must be in substance, true, accurate and fair and must not give a misleading impression but it does not always have to be full and comprehensive. The statements made by the Council were held to be true and taken as a whole, were not inaccurate or misleading. But to fail to mention the disciplinary proceedings might have breached the Council's duty of care to the potential employer.
More recently this case was followed in Kidd v Axa Equity and Law Assurance Society pIc when the judge held that while a reference (when provided) must not mislead there is no further obligation on an employer to make the reference full and comprehensive.
It was only six years ago that it was established that a duty of care is also owed to the subject of the reference as well as the person it is given to. In Spring v Guardian Assurance pIc the House of Lords decided that an employer who provides a reference concerning a former employee to a prospective employer owes a duty of care to the employee regarding the preparation of a reference and may be liable to him in damages for any economic loss suffered as a result of a negligent mis-statement.
But what is the position of an employee who is still employed when a negligent reference is given? In TSB Bank pIc v Hams, Ms Harris had received a final warning in relation to her conduct and started looking for other work. The bank gave a reference to a prospective employer which mentioned 19 customer complaints about her, although she had only been made aware of two of them. She failed to get the new job and when she found out the reason, resigned and claimed unfair (constructive) dismissal. She succeeded in her claim which was brought on the basis of a breach by the employer of the implied term of trust and confidence; even though the reference was accurate. It is a breach of trust and confidence to disclose complaints to others which the employee has not had the opportunity to answer.
What does this mean practically for an employee leaving employment and wanting a good reference? The most recent case is Cox v Sun Alliance Life Limited. Mr Cox was in discussions about a termination package following an unsuccessful promotion. A settlement was discussed, but before it was finalised the employers received information about his activities which resulted in a special audit investigation. Mr Cox was aware of the nature of the allegations but not the detail. No evidence was found of fraud.
A settlement was then reached and the COT3 recorded the terms of settlement including an agreed reference. The agreed reference was that any question about the reason for the resignation would be answered by saying that he resigned and that any request for further information would be replied to with an agreed summary of his career. The summary was favourable although bland and made no reference to the dispute which led to his negotiated departure.
But Mr Cox's new job was terminated after the new employer received a reference from Sun Alliance which suggested that he had been suspended pending investigations into allegations of dishonesty and would have been dismissed but he was allowed to resign. Mr Cox brought claims both for breach of the termination agreement but also in negligence. The case went to the Court of Appeal.
The Court of Appeal agreed that the employers were negligent in providing a reference to subsequent employers which relied upon allegations of dishonest conduct which they had not properly investigated. They said that for an employer to discharge the duty of care to provide an accurate and fair reference will usually involve making reasonable inquiry into the factual basis of the statements in the reference. They suggested that a similar approach to that set out of British Home Stores Ltd v Burchell be appropriate. To comply with their duty of care an employer should confine unfavourable statements about the employee to those matters they had reasonably investigated and had reasonable grounds for believing were true. They also commented that an employer is not obliged to continue with an investigation after the employee has resigned and if an investigation is discontinued unfavourable comments should be kept to matters that were investigated before resignation.
Sun Alliance had failed to take reasonable care to be accurate or fair in the provision of a reference it suggested they had carried out an investigation and they would have been entitled to dismiss when the charges of dishonesty had not even been put to the employee. The Court of Appeal commented that Where a settlement or COT3 make provision for the supply of a reference, the parties should ensure that as far as possible the "exact wording of a fair and accurate reference is fully discussed, clearly agreed and carefully recorded in writing at the same time as the other terms." Frequently employment is terminated on agreed terms including an agreement to provide a good reference. As is clear from the decision in Cox it is not enough to agree a good reference, the reference needs to be included as a term of a contract. The finding of the County Court was that there had been no breach of contract in this case and this was not appealed in the Court of Appeal.
As a result of the decision in Cox, employers' lawyers are advising their clients how to limit the risk of liability for references. This would include refusing to give a reference altogether. Or limiting any reference to purely factual matters including dates of employment and job titles. Another suggestion is to include a disclaimer in a reference "This reference is given on the basis that the employer accepts no liability which may arise from the use of or reliance upon the information contained in it". But employees will not generally know about any such disclaimer and should be told. Also any exclusion of liability may be subject to reasonableness in accordance with the Unfair Contract Terms Act 1977. None of these proposals assist employees who need decent references to get new employment. Perhaps it is too much to hope for that employers just take care in providing references and do not use them as some way of continuing a vendetta against previous employees.