Thursday, 28 September 2017

Can employers give bad references?

Authors: Donovan Cheah (Partner) and Adryenne Lim (Legal Executive) (Donovan & Ho)
Academic qualifications and work experience are just one part of the deal in the hiring process. The other part involves interpersonal skills, personality traits and work ethics, all of which are qualities that employers have no way of knowing other than through the recommendations of other people and/or based on the employer’s own assessment during interviews with prospective employees. In this regard, references bear considerable weight in the hiring decisions of employers: a bad reference may in some instances cause someone a job opportunity.

Given that the potential damage that may flow from a bad reference that was prepared out of bad faith or without due care, these questions are worth considering:

          • To what extent can an employer provide a bad reference?
          • Can an employer be held liable for damages due to a bad reference given?


In August 2017, the Singapore Court of Appeal in Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd recently ordered an employer to pay SGD $4 million (about RM12.5 million) in damages for a reference that was negligently prepared. This decision is important because it lays down the standard of care that can be expected from employers, and provides some measure of restraint on their conduct as they may be more inclined now to prepare employees’ references with care.

In the case above, the “employee” was a former agent of AXA Life Insurance Singapore (“AXA”) (For convenience, we will continue to refer to the agent as an “employee” in this context). The employee resigned and applied to two other insurance companies. On the employee’s request, AXA provided references to those prospective employers about the employee’s exercise of due diligence in accordance with industrial practice and regulations.

However, the employee alleged that AXA was negligent in preparing the references which resulted in him being refused employment. Among other things, the references stated that the employee’s group of advisers “showed a very poor 13-month persistency rate” (ie, that many of his clients did not continue with their policies) and that they were “very concerned as to whether the clients have been provided with proper advice”.

The Singapore Court of Appeal found that although some of the information in AXA’s reference was factually correct, a large part of the reference was incomplete, misleading and unfair. For example, the Court found that although the figures cited for the 13-month persistency rate was accurate, the evidence revealed that a 19-month measure would have been a more accurate reflection of the quality of an agent’s sales. This was because during the employee’s time with AXA, the method of calculation adopted for assessing his performance was the 19-month measure.

The Court went on to find that the reference as a whole would have given the mistaken impression that the employee was not competent, which was not consistent with evidence that he was a top performer and that AXA had earlier persuaded him not to resign.

Important findings by the Singapore Court of Appeal include:
          • Employers owe a duty of care to their employees (both former and present) in the preparation of references.
          • When preparing reference letters, employers should only state facts which are true and accurate.
          • However, a reference letter that is factually true could still be inaccurate, where the facts given are incomplete or which have the effect of conveying a misleading impression.
          • While employers are not expected to give full disclosure in every case, they must consider whether withholding material or relevant information would render the reference letter incomplete, inaccurate or unfair.
          • Employers must exercise reasonable care in the preparation of the reference. When assessing reasonable care, regard will be had to the gravity of any adverse suggestion or inference contained in the reference.

Commentary
The decision of the Singapore Court of Appeal is not binding on the Malaysian courts. However, it is a persuasive authority and Malaysian courts may consider this judgment if they are deciding on a similar claim. As such, employers should take note of the findings and exercise appropriate care when preparing reference letters.

The Singapore decision does not mean that employers can never give bad references or say anything bad about former employees. Employers are not obliged to praise former employees, and neither are they obliged to keep quiet. This decision just means that employers should take reasonable care that if their reference letter as a whole is not incomplete, inaccurate or unfair.

One more thing to remember is that the Singapore case revolved around a claim that the employer was negligent in preparing the reference letter. While there was also a claim against the employer for defamation, this part of the claim was dismissed by the High Court and was not appealed against. In a claim for defamation due to a bad reference letter, it may still be possible for employers to rely on the defence of “qualified privilege”. Qualified privilege is where the person who makes the statement has an interest or a duty (legal, social or moral) to make it, and where the person to whom it is made has a corresponding interest or duty to receive it.

That being said, in the absence of any express legal duty to say something, employers may want to think about whether it is worthwhile going out of their way to give a bad reference. The old adage of “if you have nothing nice to say, don’t say anything at all” may ring true in the employment context, and employers may be better off getting a clean break and washing their hands of an errant ex-employee so that both parties can move on.

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