Security professionals are generally familiar with the law of negligence and actions that may arise from a breach of the duty of care. These cases typically involve injury where a plaintiff seeks compensation for physical damage and/or nervous shock. However, what occurs when there has been pure economic loss based upon advice, such as an employment reference for a former employee?
An economic or monetary loss may arise because a statement including an opinion, whether reckless or negligent, from another has been significantly relied upon. These types of cases involving former employees are common in the US and UK, albeit there has been some recent activity in Australia.
To prove a negligent misstatement one must show reliance; a connection between the statement and a person’s area of expertise such as former employer or supervisor; and economic loss. Any reliance on advice will potentially depend on the following factors:
- the nature of the relationship between the parties, such as whether one has assumed the responsibility of providing advice to the other;
- whether there was any reliance or dependency on the advice given by the other;
- whether the party giving the advice made any representation (actual or implied) as to the quality or reliability of the advice;
- whether the party giving the advice should have expected the other party to rely on it; and
- the circumstances under which the advice was given, such as in the course of business.
It should be noted that advice given in a social setting is treated very differently by the courts to that given in the course of business. Therefore, advice given about a former employee must be carefully and accurately provided.
Security leaders are often approached for advice about former employees as part of reference or background checking for future employment. Care must be taken and preventative measures adopted to protect individuals and organisations providing advice if the organisation allows staff to participate in reference or background checks. These preventative measures must include consideration of the following:
- Any reference supplied must be in writing and dated. This means there can be no doubt about the advice provided and the organisation’s position.
- Does the former employee consent for a reference to be provided?
- Are there any potential statements that might be considered defamatory, thus resulting in an adverse opinion?
- If there was a disciplinary issue during the term of employment, has the former employee been able to refute or respond appropriately?
- Consider if the reference provides a reasonable and fair description of the former employee’s work and conduct.
- Has the organisation’s human resources department checked and authorised the reference? and
- Consider when providing any reference whether the organisation would employ that former employee again. This is probably the best test of whether any advice should be provided.
To minimise the risk of a future claim, the reference should contain a statement indicating the reference is given in confidence and good faith. It should also contain a disclaimer indicating no responsibility or liability can be accepted for any errors, omissions or inaccuracies in the information or for any loss or damage that may result from any reliance placed upon the reference.
It should be noted that employers do not have a duty to provide an employment reference on behalf of a former employee unless there is a contractual term to that effect. If an organisation or an individual within the organisation offers or provides a reference about a former employee, they adopt a duty of care to both the former employee and to the prospective employer. Many organisations avoid providing references based upon risks associated with negligent misstatements, in particular where there may have been internal disciplinary issues that resulted in the cessation of employment by the former employee. It would appear the current trend is not to provide anything more than a certificate of service that indicates position and duration of employment.
Dr Tony Zalewski is a director of Global Public Safety and a forensic security specialist with qualifications in law, criminology and the social sciences. He provides advice and training to governments and the private sector in Australia and abroad on matters relating to operational risk, security and safety. He is also an expert with practical experience in some of Australia’s leading civil actions involving security and safety.