Issuing a reference to a former employee is seen as doing them a favour. But Warwick Ryan and Nathan Day of Swaab Attorneys say there are some hidden problems for employers that could lead to legal action - from the employee.
Honesty in employee references is crucial.
It is vital for employers who provide a reference about a former employee to ensure that the reference is an honest, accurate and fair reflection of the employee’s performance.
Employee references as the gateway to employment
A reference can often be the difference between an employee getting hired or being forced to look elsewhere. It is critical that any reference given by a former employer for a competent employee accurately reflects that competence.
Be truthful and conscientious or risk a negligence claim
Employers who do not ensure that the references they provide are accurate risk facing costly negligence claims from disgruntled employees.
Even though there have not been any decisions of this type in Australia, such claims have been successful in England. It is entirely possible that these UK precedents could be applied to future cases in this country.
Successful negligence claims for false references in the UK
In England, it has been accepted since the mid-1990s that an employer owes a duty of care to an employee to take reasonable care in preparing a reference (See Spring v Guardian Assurance  2 AC 296). Any breach of this duty entitles the employee to compensation in negligence. This can mean that the employer needs to pay for the economic loss the employee has suffered by not being selected for a job or by being sacked from a current job.
The existence of this duty has recently been affirmed and extended in McKie v Swindon College  EWHC 469. This case concerned a former employer making blatantly false and damaging statements about a former employee to his new employer, resulting in the new employer terminating the employee.
Although the court acknowledged that these statements were not given in a reference, it found that a former employer may be liable for damages in negligence to an employee as a result of any communications with a future or current employer about the employee.
Legal position of Australian employers less certain
The position of an employer who provides a false reference in Australia is not so clear, as there has not yet been a decision in a case of this type in this country.
It is possible that the Australian judiciary will reject the existence of this duty of care because of a technical principle which limits the extension of negligence to novel situations. This principle aims to preserve a unified, coherent legal system by not extending a duty of care to an area which is already subject to another legal duty. It can be argued that a duty of care should not be extended to an employer providing a reference because an employee can already seek redress from the law of defamation.
Defence of qualified privilege
From an employee's perspective, making a claim under defamation law is not ideal because employers have the benefit of relying on the defence of qualified privilege, which allows an employer to avoid liability if the reference was reasonable in the circumstances and not motivated by malice. This means that Australian employees are generally left without a remedy if their former employer provides a false reference to a potential employer.
However, this position may change if the Australian judiciary follows England's lead in recognising the duty of care imposed on a former employer to take reasonable care in providing a reference to a potential or current employer.
Employers advised to err on the side of caution
In view of this uncertainty, the way to minimise the risk of former employees taking legal action is to ensure that any view contained in a reference is honestly held and not driven by malice. Employers should ensure that they take reasonable care when providing a reference about a former employee to another employer.
Warwick Ryan and Nathan Day work at Swaab Attorneys.