The Tricky Issue of References

You may have noticed, and in fact may do so yourself, that many Employers are providing only dates of employment and job titles for existing and former staff references.

The reason for this is because of an increasing concern about liability to both the employee, whom the reference is about, and the new employer. There is a feeling of being potentially damned if you do reveal information, and damned if you don’t.

In a recent case, although not strictly an employment case the issue of references was discussed.

The Facts

In this case the Playboy Club London Ltd made a claim to the High Court that the Banca Nazionale Del Lavoro SPA, an Italian bank, was negligent in a reference provided for one of the Playboy Club Casino customers.

The Playboy Club had asked the Bank for a reference before providing a cheque-cashing facility to the customer.

The Bank provided a reference which stated that the customer was “trustworthy up to the extent of £1.6 million in any one week”. The Playboy Club relied on this reference and the customer presented cheques for cashing in exchange for casino chips. The cheques were later found to have been forgeries and being unable to recover the money from the customer they attempted to recover the lost money from the Bank.

Unsurprisingly the reference was not accurate and appeared to have been sent by a bank employee without actual authority to do so.

The Decision

The court considered two tests for the Banks liability:

1. Was the negligent misstatement made with the employer’s actual or apparent authority? or
2. Was it done in the course of the employee’s employment?

The High Court decided that the bank was liable for the employee’s actions whichever test applied.

They found that the employee’s job title would not necessarily indicate she did not have the required authority; and giving a reference was so closely connected with what she was authorised to do, that her conduct could be regarded as done in the course of her employment.

The result was that the Bank were liable for Playboy Club’s losses because of the actions of their employee.  They had to pay the amount which the customer had drawn from the forged cheques less 15% for contributory conduct of the Club.

The reason for the 15% deduction was that the Court decided that the flaws in the cheques presented by the customer would have been revealed if the Playboy Club had examined them more carefully, and they had therefore contributed to their own loss, which the Court assessed as being 15% of their loss.

Points to note

There are two things to take from this case for Employers;

1. You will likely be held responsible for the acts of your employees in providing references.

It is therefore advisable to ensure that all staff are aware that they are not permitted to complete or provide references on behalf of your business, and appoint one or two people as responsible for dealing with any reference requests.

2. If you provide information to a new potential employer which is misleading or incorrect and they rely on this you could be responsible for their loss as a result.

For example, you find that an employee has been stealing from petty cash and then you provide a glowing reference for the employee stating that they are honest and reliable. If they go on to steal from their new employer you could be liable to pay for the new employer’s losses.

I strongly recommend that you have a clear policy in place about references and that any references provided are in a standard format and include a waiver of liability.

If you want more information about how to deal with this issue in your business please do not hesitate to contact me by email alison@realemploymentlawadvice.co.uk.

If you are interested in reading the full judgement you can do so here