Employment law references guide

Employers are often asked to provide references for an employee. We find that employers know there can be risks but do not know what they should and should not mention.

We set out an employment law references guide for employers.

• Employers providing an employment reference
• Employment references for regulated industries
• Employers requesting an employment reference
• Data protection and employment references

Employment references guide – providing a reference

An employee, who is not satisfied with the reference, perhaps because it is unfair or inaccurate, can challenge the reference. Employees may even bring a claim against their former employer.

No general duty to provide an employment reference

There is also no legal obligation on an employer to provide a reference for an employee or ex-employee and when asked to, it can refuse to provide one. The only exception is staff engaged in a business regulated by the FCA or PRA as discussed below.

When should a reference be given?

There are exceptions when a reference ought to be provided:

Where it is the norm

Where an employer provides references for some employees, it should be consistent in its approach. Employers could face allegations of discrimination, victimisation, breach contract or breach of trust and confidence if there are inconsistencies.

Employee has a contractual right

An employer should also provide a reference, where the employment contract or settlement agreement expressly states that a reference will be provided. Failing to do so would be a breach of contract and the employer would be liable for damages.

Employment reference guide – clear policy

There is no requirement to publish a policy on reference to employees. Generally speaking employment contracts should not commit to giving a reference. However, an internal set of guidelines is  helpful for maintaining consistency.

Who should provide a reference?

References can either be given in a personal capacity or on behalf of the employer as a corporate reference. Employers are legally responsible for the content of a corporate reference. However, an employee providing a corporate reference without actual authority can still leave the employer liable.

A personal reference is given by an employee such as a line manager, in their personal capacity. There is always a risk that this is taken to be a corporate reference. To limit the risk, personal references should not be written on company headed paper and should not include the job title of the person giving the reference.

Balancing the duty owed to employees and to recipient employers

The employer only owes a prospective employer a duty to provide a reference that is not unfair or misleading. Practical advice is to remain silent in cases of contention.

We outline some of the areas where employers struggle to balance the duty owed.

Dealing with half truths

Employers should be wary of including broad brush statements about an employee. Leaving out the detail can give the receiving employer the wrong impression. Employers should only include factual information that is full and accurate and leave out any assumptions.

Employees could potentially claim constructive dismissal, if still employed when seeking a reference and the employer fails to take all reasonable care when preparing the reference.

Speculation on future performance

Employers should avoid speculating on an employee’s future performance with a new employer. Statements such as:

• we believe Y will be a great asset to any business ;or
• Y will be great for the role

should be avoided.

Gut feelings should not influence the reference

Employers often know when an employee is up to no good but lack the evidence to prove it. Including unsubstantiated statements of an employee’s wrongdoing is risky and can lead to claims of defamation, malicious falsehood and negligent misstatement. However, the risks should be considered in light of the duty owed to the receiving employer. There is a fine line and we help employers determine where this is.

Performance, attendance and sickness absences

The risk is that these issues may be due to the employee suffering a disability and comments may be viewed as discriminatory. Claims for discrimination are uncapped and can be substantial.

No obligation to answer detailed reference questions

Employers seeking a reference can ask very detailed questions. There is however no obligation on an employer to answer these questions. Many employers choose to limit their references to simple factual details.

References and settlement agreements

Employers often wish to terminate an employee’s employment. This frequently happens where there are conduct or performance issues that the employer can not prove or put right. References and indeed good references are an effective tactic to use to encourage an employee to enter negotiations on an exit. The employer and employer usually enter into a settlement agreement which includes an agreed reference.

Simple factual references

To protect themselves from claims, many employers just provide simple, factual references. Information often includes:

• Confirmation that the employee worked there;
• Start and end dates of the employment; and
• The employee’s job title.

Employment references – the use of disclaimers

Employers can include a disclaimer of liability to both the employee and recipient employer in respect of any negligent misstatement included in a reference.

Employment references for regulated industries

An exception to the no obligation to provide a reference rule lies in the financial services sector where authorised employees carry out controlled functions. Businesses operating financial services such as crowd funding platforms, fintech business, financial advisors, hedge funds and mortgage and insurance intermediaries are within the limits.

Employees performing a controlled function

Employers regulated by the FCA and PRA are required to provide references for existing and former employees who perform controlled functions. Controlled functions include being a director of a regulated firm or overseeing the firm’s systems and controls. Employees carrying out controlled functions tend to exert significant influence over the employer’s regulatory conduct.

 Assessing honesty and integrity

Where the employee performs a controlled function, the former employer is obliged to provide, as soon as reasonably practicable, all relevant information of which it is aware. References should give information in relation to:

• The requirement under the fit and proper test for approved persons (honesty, integrity and reputation, competence and capability and financial soundness);
• Outstanding liabilities of that employee;
• Outstanding or upheld complaints against that employee; and
• Whether the employee has ever been dismissed or asked to resign from a previous job.

Risks for employers supplying the reference

Failing to send a reference in a timely manner can result in enforcement action against the employer by the FCA or PRA.

Employees and recipient employers can bring claims against the employer providing the reference where the reference is not prepared with due care and skill. The employer should take care to ensure that it is a frank and honest view of the employee. This should be done only after taking reasonable care as to the factual content, and as to the opinions expressed. Information that forms the basis of the reference should be verified.

Employment references guide – Requesting an employment reference

Although there is no legal obligation on an employer to request a reference, it is prudent to seek at least one reference from a former employer so as to verify work experience claims made by a potential new employee.

Conditional offers of employment

Where a reference is requested employers should make any offer of employment conditional upon the receipt of a satisfactory reference. Failing to do this will mean it will not be possible to withdraw the offer without breaching the contract, if the reference turns out to be unsatisfactory. If the job offer is conditional upon receipt of a satisfactory reference then there is no contract between the employer and potential new employee until the satisfactory reference is received.

Unsatisfactory references after the employee has started work

The job offer or contract of employment should state that the employment may be terminated where a reference is not satisfactory or gives cause for concern. An employer failing to do this will have to give notice to terminate and be liable for the notice pay under the contract.

Data protection and employment references

Providing a reference will generally involve the processing of personal data and therefore falls within the scope of the Data Protection Act. The employer providing the reference, is the data controller in this instance, and must process the personal data in compliance with the data protection principles.

Employers must have particular regard to the Data Protection Act when providing information in a reference about an employee’s sick record or reasons for periods of absence, because information about health for example is sensitive personal data.

Employees can prevent an employer from disclosing sensitive information in a reference by making the appropriate request. Where the employer refuses the request a court will usually decide.

Data protection laws are complex and employers often seek advice.