13 June 2018
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Can employers be liable to ex-employees – danger of giving inaccurate references
It is common for a prospective employer to ask for a reference from a potential employee’s former employer. Whether to provide this reference, and what to say in this reference, is generally up to the discretion of the former employer. However, should the former employer decide to provide employment references, it must ensure that the reference is true and accurate, failing which it may be liable to pay millions of dollars to the ex-employee. This is precisely what happened in the recent Singapore Court of Appeal case of Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd  SGCA 47 ('Ramesh').
The Court of Appeal in that case held that AXA Life Insurance Singapore Pte Ltd ('AXA') had breached its duty of care in providing inaccurate information to the prospective employer. This mistake made AXA liable for over S$4 million. Therefore, it is very critical for an employer to be aware of the duties imposed on it under Singapore law, should it decide to provide employment references.
Additionally, while it is generally up to the employer to decide whether it wishes to furnish an employment reference, in certain industries, such as the financial advisory and insurance industry, it can be obligatory for an employer to provide an employment reference. Such was the case in Ramesh which involved a suit against AXA by its former senior financial services director, whose job scope included acting as AXA’s agent for the purposes of soliciting and advising on life insurance applications and other products. For employers in these types of industries, it is all the more pertinent to be mindful of the duties that they are subject to when providing employment references.
The implications of Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd
In Ramesh, the Court of Appeal held that AXA was negligent as it had provided an 'unfair or misleading' employment reference to Ramesh’s prospective employer. A key point to note in this case is that the facts contained in the reference provided by AXA were true. However, despite the statements being true, the reference was inaccurate because of the information that was left out. In other words, the Court decided that former employers should not be allowed to highlight only certain information in the employment reference in order to unfairly skew the image of the ex-employee presented to the prospective employer.
What does this mean for employers going forward?
Pursuant to the decision in Ramesh, employers, when providing employment references, are under a duty to provide references that are not only true, but also accurate. In the Court of Appeal’s own words, this means that 'the reference, as a whole, must not be unfair or misleading'.
Fortunately, a few guiding points may be gleaned from the decision in Ramesh to help employers craft the employment references provided:
1. As far as possible, employers should ensure that references provide a fair and unbiased picture of the ex-employee. The Court of Appeal stressed that 'accuracy depends not only on what is said, but also on what is not said'. While employers are not expected to disclose everything they know about an ex-employee, they are 'expected to disclose whatever is relevant and relates to information that has already been disclosed, where withholding such information would render the disclosed information incomplete inaccurate or unfair.'
2. Any assessment criteria referred to in the employment reference should be reflective of the assessment criteria used to evaluate the employee during his/her employment. For example, in Ramesh, the Court held that AXA’s use of the 13-month measure to calculate the persistency ratio (a ratio that shows the quality of an adviser’s sales) of regular premium insurance policies was 'misleading and unfair' because the employee was assessed using the 19-month measure during the period of his employment. The difference in assessment criteria was relevant because the Court found that the reported persistency ratio can 'differ greatly', depending on which measure is employed.
3. Where the prospective employer makes attempts to seek further information on the employment reference, the former employer should carefully consider whether to provide such further information. This is because a former employer has a duty to provide further information or clarification to the prospective employer, where withholding such information would render the disclosed information “incomplete, inaccurate or unfair”.
4. An employer should be mindful of the words used in describing the ex-employee in any employment reference. This is because the stronger the words used, and the greater the gravity of any adverse remark contained in a reference, the more closely the employer’s acts will be scrutinised to ensure that reasonable care was taken to ascertain the truth and accuracy of the facts used to support that remark, and the fairness and reasonableness of any expressed opinion based on those facts.
At this point, an employer may be tempted to simply include in its employment contracts a term which excludes any potential liability it may face for negligence in relation to the provision of employment references. However, such a term would have to pass the reasonableness test set out in section 3 of the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) ('UCTA'), and one of the factors in determining reasonableness, as listed in the UCTA, is the 'strength of the bargaining positions of the parties relative to each other'.
In this regard, the Court of Appeal in Ramesh had set out three factors which, in its opinion, justified the requirement of an employer to give a true and accurate reference:
1. The potential harm that may be caused to the employee by a negligently prepared
2. The 'inevitable inclination' that an employer may have to damage the prospects of an employee who might be about to, or has already joined a competitor; and
3. The 'inability of an employee to safeguard his own position adequately'.
In light of the Court’s observations in Ramesh, there is a risk that an exclusion clause in an employment contract to exclude liability for negligence in relation to employment references provided may be struck down by the Courts for failing the reasonableness test under section 3 of the UCTA. As such, it remains important for employers to be aware of the requirements imposed on them when issuing employment references.
It also bears noting that while it is settled law in Singapore that an employer owes an ex-employee a duty of care, it has yet to be considered by the Courts as to whether the employer also owes a duty of care to a prospective employer to provide a true and accurate reference regarding the exemployee.
How liable would an employer be if the glowing reference it provided of an exemployee turns out to be an over-sell?
Under Singapore law, it is accepted that where A can be taken to have voluntarily assumed responsibility in relation to advice provided by A, A would owe a duty of care to B in relation to the provision of that advice. Thus, the key to the question appears to be whether the employer can be said to have “voluntarily assumed responsibility” in relation to the information provided in the employment reference.
In the meantime, while we await a case to come before the Courts for a definitive decision on this issue, a prudent way for employers to protect their interests when providing references is to include a clause in the reference to expressly disclaim any assumption of responsibility in relation to the content therein. This would allow employers to minimise the risk of being held liable for negligence vis-à-vis the recipients of the employment references provided.