One of the more confusing issues that employers deal with is what to do in the face a request for a reference letter by a departing employee. While dealing with a reference letter for a stellar employee is easy, the task becomes more difficult when determining what to do with a request for a reference letter from an employee whom the employer was glad to see go or whom the employer was forced to dismiss.

A.  When should a reference letter be provided?

There are two reasons why an employer should think carefully before refusing to provide a letter of reference to a departing employee.

First, a reference letter generally assists a departing employee in finding new employment. As a result, on a practical level it is usually in the best interest of both the employer and the employee for the employer to provide a reference letter.

Second, in Canada the courts impose a duty of good faith and fair dealing in their treatment of departing employees. As part of this duty, employers are expected to be candid, reasonable and honest in dealing with departing employees. Where an employer breaches this duty, the employer may be held liable for damages to the employee that arise as a result of the breach.

One of the obligations that has been identified as part of the duty of good faith and fair dealing is for the employer to provide a letter of reference to a departing employee where there is no legitimate reason for refusing the request. For example, employers have been found to have breached their duties of good faith where the refusal to provide a letter of reference was calculated to purposefully make it harder for an employee to find new employment, to pressure the employee into settling a wrongful dismissal claim or to punish the employee. As a result, an employer must have a legitimate reason for refusing to provide a letter of reference. Where there are no specific performance issues and the employee was not terminated for cause, the safest course is to provide a letter of reference.

As a consequence, the better practice is to only refuse to provide a letter of reference in cases where the employer has a legitimate reason for the refusal, such as where the employee’s performance during employment was unsatisfactory.

B.  What should the reference letter say?

Reference letters can cover the range from a glowing endorsement, to a neutral confirmation of employment to a warning to prospective employers regarding a highly unsuitable employee. In order to know how to approach the reference letter, it is important to know something of potential liabilities.

For the most part the liability that arises out of authoring a reference letter is governed by the law of tort with liability focusing on two primary groups of potential claimants – the former employee and the new employer.

a) Liability Toward the Departing Employee

With respect to the former employee, claims will generally arise as a result of a negative reference letter that damages the former employee’s reputation or interferes with the former employee’s ability to find work and maintain employment. In order for liability to attach, the former employee will have to show that the letter materially affected his or her ability to find work and that the negative reference was either untruthful or misleading in some way. Common examples of such liability include:

• Liability in defamation for statements made about the employee in a reference letter that are untrue and are damaging to the employee’s reputation;
• Liability under the principles of interference with contractual relations or inducement of breach of contract where an untrue reference provided by the former employer causes the employee’s current employer to terminate the former employee’s employment. A common example of this would be where a former employer decides to unfairly “blackball” a former employee in a particular industry;
• Liability in the form of increased exposure to damages in the case of a wrongfully dismissed employee where the employee is unable to find alternative employment as quickly as he or she may have otherwise found alternative employment due to a misleading or untruthful reference; and
• Liability imposed as a result of a breach of the duty of good faith as a result of the employer providing a misleading or untruthful reference.

b) Liability Toward a Prospective Employer

In contrast to the liabilities that may arise with respect to former employees, the liability that may arise with respect to prospective employers is usually based on reference letters that are unjustifiably positive.

In general terms such liability arises out of the principles of negligent misrepresentation. Liability for negligent misrepresentation can arise where a prospective employer reasonably relies on a misleading positive reference from a former employer in making a hiring decision that goes very badly.

An example of such a situation might be where a former employer who has terminated an employee for theft proceeds to negligently provide a positive reference for the employee to a prospective employer for a position where the employee will be handling large sums of cash in an unsupervised position. Should the employee subsequently steal from his or her new employer, the former employer may be held at least partially liable for the loss.

c) Avoiding Problems

To avoid problems, there are a number of guidelines to follow.

1. Make sure the information in your reference letters is accurate. Most if not all liability arises out of reference letters that are either misleading or untrue.
2. Avoid subjective opinions and stick to objective facts.
3. Do not use reference letters to “punish” a former employee or make it more difficult for the former employee to find alternate employment.
4. Use caution in drafting negative reference letters. Negative reference letters should be reserved for the clearest of cases involving employee misconduct that is objectively verifiable and well documented. When in doubt, the employer should err on the side of caution and either refuse to provide a reference or in more marginal cases provide a neutral reference that merely provides confirmation of past employment without any comment on the employee’s suitability.

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