May 28, 2003by Israel Foulon LLP
The pitfalls, and benefits, of providing references
The assistance a reference letter can provide to a departing employee could reduce an employer’s exposure in a wrongful dismissal action. By assisting the terminated employee in finding a new position, the employer is assisting him in mitigating his losses, thereby minimizing any reasonable notice damages the employer may be on the hook for.
There are really two situations to consider when determining whether or not a letter of reference should be given to a departing employee:
The first instance is where the departing employee resigns or is terminated without cause and there have not been substantial concerns regarding the employee’s performance. In these circumstances, an employer’s motivation should be to help the employee find replacement employment and there really is no reason not to provide a positive letter of reference.
Providing a reference letter will reduce an employer’s potential liability to this employee since any replacement income earned will offset any potential damages for pay in lieu of reasonable notice. In these cases consider the following:
- Offer a reference letter as part of the termination package. This will help employees locate a new job more quickly.
- Inquiries from potential new employers should be directed to a particular individual within the organization. This will ensure references are handled consistently and the most up-to-date information is provided.
- The human resources department should use a standard form reference letter. Personal information should be added for each employee, such as salary, position, dates of employment and duties. Again, this will ensure the consistency within the organization.
The second situation to consider is where an employee is terminated for cause and no severance package is offered. In these cases, employers will want to handle references very carefully to avoid two types of further actions.
The first possible action is a claim brought by the employee for wrongful dismissal. The second possible action is a claim by the employee’s new employer for damages arising from a negligent misstatement or misrepresentation made to the new employer by the old employer in a letter of reference.
If just cause for termination has been alleged and litigation is pending, it is often preferable not to give an employee a reference letter. The risk of providing a reference is that an organization could end up contradicting itself. This happens quite often in a large organization where the employee’s direct supervisor provides the employee with a glowing reference letter and the human resources department is preparing a defence of just cause for a wrongful dismissal lawsuit.
Obviously the employee will then be in a position to use the reference letter to contradict the employer’s claim that it had just cause to dismiss the employee. To avoid this, implement a corporate policy that requires all references to be prepared by one individual or department and that all direct supervisors are kept aware of legal action involving their former reports.
But what if the court ultimately finds there was no just cause for termination and the employee was entitled to reasonable notice of termination?
While there are conflicting cases about an employer’s obligation to give a reference, if the employee can establish he was unable to locate replacement employment as a direct result of an employer’s refusal to provide a positive written or oral reference, the reasonable notice period may be increased by the court. The safest way out of this difficult problem may be to provide the employee with a letter which simply confirms dates employed, position held and salary earned but makes no comments on the merits of the employee.
At the end of the day, however, a court may find such a letter is really of no value to an employee in finding a new position.
The most common problem arises when an employee is terminated for performance problems. In these cases, an employer may not have just cause for termination but could at the same time not honestly recommend the employee to another employer. In these circumstances an employer may be better off in providing a letter simply confirming employment as described above. Where the former employer can honestly provide positive statements about the terminated employee, the employer is not likely exposing itself to a later action for misrepresentation brought by the employee’s new employer.
But any endorsement of the employee in the reference letter should be somewhat tempered. Where the former employer overstates or misstates the abilities of the employee in the letter of reference, and the new employer relies on that misrepresentation, the former employer may have exposure to the new employer for the false representation.
There are few clear answers to these questions because the courts have yet to consistently consider many of these concepts. A lawyer should be consulted whenever a situation arises where it seems unclear whether a letter of reference should be provided to a departing employee.
Peter Israel and Chris Foulon are partners in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. They can be reached at 416-640-1550 or firstname.lastname@example.org or email@example.com. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today.