The case of Playboy Club London Ltd v Banca Nazionale del Lavoro SPA is a reminder to all employers about dangers of being careless or negligent with references. Although this case concerned a Bank giving a reference on behalf of one of its customers, the decision would still apply to employers giving references on behalf of ex-employees. The High Court held that the bank was liable for making a negligent statement in the reference, even though it was given by an employee of the bank who did not have the authority to do so - employers need to be aware of this!
Legal Position
When an employer provides a reference on behalf of an ex-employee to his/her new employer, it owes a duty of care to the new employer and must ensure that it does not make negligent statements. If any statement in the reference is inaccurate or misleading, and it was reasonable for the new employer to rely upon it, the employer giving the reference could be liable for negligence and any losses incurred by the new employer as a result of that statement.
Facts
The casino approached the bank for a reference about the creditworthiness of a new customer who had applied for a cheque-cashing facility with the casino. The customer was a client of the bank. The request for a reference was addressed the Bank's Manager, but another employee, who did not have authority to do so, responded on behalf of the bank provided a reference to the effect that the customer "had an account with them and was trustworthy to the extent of £1.6m in any one week". In reliance upon this, the casino allowed the credit facility and the customer drew down on the facility with cheques totalling £1.25m. The cheques did not clear and it was discovered that they were false, by which time the customer had left and returned to Lebanon. The casino's attempts to recover its losses from the customer were unsuccessful. It sued the bank for providing a negligent reference.
Decision
The High Court held that the bank had given the reference, that it owed a duty of care to the casino in doing so, it breached that duty of care and it was reasonable for the casino to have relied upon the reference when it decided to open the credit facility. The casino was held to be negligent in part due to its own failure to make enquiries of the customer. It was also held that it was reasonable for the casino to rely on the reference even though it was not provided by the Manager of the bank. The reference was sent on company letter head and suggested that it came from someone in an executive capacity. The bank did not protect its position by including a waiver of claims in the reference.
Comments and practical steps
Clearly employers need to take great care in giving references, particularly when the statements comment on the character or trustworthiness of an ex-employee. This case highlights an even greater danger which is commonplace in the work environment: where a senior employee gives a reference without consulting HR. In such cases, provided that it was reasonable for the new employer to rely upon the reference, the ex-employer may well be held to be liable for the actions of the employee.
This case highlights the need for HR/Legal to develop a very clear policy around giving references and make sure that all employees, in particular senior employees, are aware of it and the potential disciplinary consequences of a breach of the policy. Practical steps include:
- Decide on the policy for
references - some employers choose to have a standard form
of reference, which are often limited to the title and dates of
employment. This is becoming quite common, although it is the least
desirable form of reference for employees, particularly those who
have worked for a long time with one employer. Other approaches
include providing more fact based information provided it is
correct and not contentious. Most employers do not comment on an
employee's character for obvious reasons. Other points to
consider are:
- Who has authority to give a reference
- What is the policy on giving oral references
- What is the policy on a request to complete a questionnaire
- Are any sector specific regulatory rules about giving references
- Putting in place a system to ensure that the reference is cross checked on the accuracy of the information (normally through HR)
- Develop a clear written policy or set of guidelines – this is the best approach to take. Such a policy would not usually be in the handbook, but rather part of the Managers' Guidelines or a self-standing policy with HR. All applicable employees should be made aware of the policy. Alternative approaches include (1) a policy that only HR can provide a reference and/or (2) employees can give personal references provided they state that it is being given in this capacity and they do not use the employer's letterhead..
- Points to note about the
Reference:
- Use a precedent format which helps to control what is included and not included;
- Avoid providing an opinion and keep the reference fact based as much as possible;
- Avoid references to the employee's character unless there is a good reason to do so;
- Avoid information on the employee's performance if he/she is not aware of it;
- Stick to dates of employment; title and perhaps some of the duties performed;
- State that the reference is being provided in accordance with company policy and should not be taken as being adverse or positive in respect of the employee;
- Include a waiver of any claims or liability in respect of the reference.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
