When an employer chooses to (or has to) provide a reference what is the duty of care to be exercised? The recent case of Hincks v Sense Network Ltd in the High Court considered this issue.
H was an Independent Financial Adviser (IFA) working for an umbrella company Sense Networks Ltd (Sense). Following an investigatory meeting, it was found that H had sold an investment to a client in breach of a requirement to obtain pre-approval and that he had acted maliciously. Sense terminated Mr Hincks’ authority to work as an IFA.
H sought a reference from Sense. The reference which it provided was critical of his conduct. It stated that he had ‘knowingly and deliberately’ circumvented the pre-approval process.
H issued a claim against Sense for negligent misstatement. He argued that elements of the reference were untrue and inaccurate and that it gave a misleading impression. He said that the opinions included in the reference were based on the findings of a sham internal investigation conducted in bad faith. In his view, Sense had a duty to satisfy itself that the investigation in question was both procedurally and substantively fair, before expressing negative opinions about him.
The High Court dismissed the claim, finding that the reference was neither inaccurate nor misleading. It commented that there were ‘formidable difficulties’ with the contention that a reasonable referee should inquire into the procedural fairness of earlier investigations. This would impose a very considerable burden on the referee and may not always be possible, for example, if a reference was requested many months or years after the investigation took place.
In terms of the standard of care to be exercised by a referee, the Court commented that this should be expressed in broad terms and be fact specific. However, the common features of the duty include:
- to conduct an objective and rigorous appraisal of facts and opinion, particularly negative opinion, whether those facts and opinions emerge from earlier investigations or otherwise;
- to take reasonable care:
- to be satisfied that the facts set out in the reference are accurate and true and that, where an opinion is expressed, there is a proper and legitimate basis for the opinion;
- (where an opinion is derived from an earlier investigation) in considering and reviewing the underlying material so that the referee is able to understand the basis for the opinion and be satisfied that there is a proper and legitimate basis for the opinion; and
- ensure that the reference is fair, in the sense of not being misleading either by reason of what is not included or by implication, nuance or innuendo.
The Court noted that there would obviously be occasions when the duty would go beyond that set out above, but unless there was a “red flag” prompting further inquiry, there was no duty to examine the procedural fairness of the underlying investigation.
In practice, many employers choose to limit references to dates of employment and role only in order to mitigate the risk of the reference being challenged. However, for those employers who are minded to give a detailed reference or are required to give one for regulatory purposes, then this case provides useful guidance on the extent of their duty of care and the type of information that they should retain so that they can justify or support any comments made in the reference.