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Reference Requests and ‘opinion’ – key considerations

The High Court in the recent case of Hincks v Sense Network Limited provides guidance on what duty of care employers owe to their former employees when providing references, which are more than just a factual reference and provide an ‘opinion’.

Many employers will only provide a former employee with a very basic factual reference, limited to information such as their start and end date of employment, their position held etc. This is to avoid claims for negligent misstatement, a claim that an employee, and a new employer relying on the reference, may be entitled to bring if they feel that the reference is inaccurate.

In industries which are regulated, for example, the financial services industry as in this case, it is not enough for a former employer to provide a factual reference as the regulatory bodies require more than that. This case provides guidance on the extent of the duty of care owed by employers where a reference requires more than just facts.

The facts

The Claimant was a compliance director for Sense Network (The Co-operative’s Independent Financial Solutions compliance department). As he was authorised by the Financial Conduct Authority, a regulatory reference was required. In March 2017, guidance on regulatory references came into effect but the facts of this case took place before that new guidance. At the time of this case, the prevailing guidance provided was that a referee must provide complete and accurate information on a person’s fitness and propriety.

During the Claimant’s employment with Sense Network several conduct issues arose. There were concerns about the advice that he was providing to clients and as a result he was required to obtain peer approval for all advice and sales that he was conducting. After this precaution had been implemented, the Claimant failed to obtain approval before concluding  a transaction and he was suspended for non-compliance.

Whilst the Claimant was suspended, he was asked to undertake remedial work for the clients adversely affected by his work. For some clients it was deemed that no remedy was possible and they should be paid compensation. In 2014, the Claimant was reintroduced to work. He again sold an investment to a client without obtaining approval. This lead to an investigation meeting and eventually the termination of the Claimant’s authority to act as an IFA, which lead to the termination of his engagement with Sense Network.

The Claimant subsequently requested a reference from Sense Network. The reference provided referred to the above facts as above, namely the Claimant’s suspension, the clients being compensated and the termination of his authorisation, and expressed an opinion that the investigation concluded that, in spite of the explanations offered by Mr Hincks, it was reasonable to conclude that he had knowingly and deliberately circumvented the agreed processes.. The Claimant brought a claim for negligent mis-statement. He argued that where negative opinions are founded on an investigation, it was incumbent that the referee be satisfied that the investigation was reasonably conducted and procedurally fair.

The decision

The High Court dismissed the Claimant’s argument for two reasons:

  1. An assessment of an earlier investigation may not even be possible. The High Court noted that requests for references could be made several years after an employee leaves. To carry out an assessment of an earlier investigation, a referee would have to try to ascertain certain facts such as what the employee was told before the investigation. It was noted that because of the passage of time, the referee may not have access to this information.
  2. Even if an enquiry were possible, this would put a considerable burden on the referee.

Upon forming its opinion the High Court also placed reliance on the Court of Appeal’s judgment in Jackson v Liverpool City Council, where it was noted that fairness is not about providing a procedural mechanism to challenge adverse opinion but it relates to innuendos that might be drawn from assertions. It was noted that where opinion is derived from earlier investigation, the referee should take reasonable care in considering and reviewing the underlying material so that they are able to understand the basis of the opinion.

The High Court noted that unless there was a “red flag” prompting further enquiry there was no duty on the referee to examine the procedural fairness of the underlying investigation.

What can we learn?

In most cases, employers can just keep references to a bare minimum, for example, the start and end date of employment, and job title. However, in cases where the employer is required to go further the principles established in this case should be borne in mind as to the extent of the duty of care owed. Whilst the referee does not have to go as far as checking that any investigation was reasonably conducted and procedurally fair, they do have to ensure that they understand the basis for it. This case is also a reminder for employers who may be required to give this type of reference, to ensure that they retain all relevant documents on an employee’s personnel file, so that if a reference is requested years on they have the documents to justify any reference given.

Please do not hesitate to contact the team should you have any questions about this blog or other related issues. 

 

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