A References Guide For Employment Law

26 Nov 2021

Often, employers are asked to give references for employees. We know that employers are aware of the potential risks however they remain unsure of what should and shouldn’t be mentioned in those references. Here, we give you a clear employers references guide that adheres to employment law. 

Giving A Reference

Any employee who isn’t happy with a reference given to them by their employers, perhaps due it being inaccurate or unfair, is permitted to challenge that reference. It’s even possible for employees to bring a legal claim against the employer.

No Legal Requirement To Give A Reference

There are no legal obligations that require employers to give an ex-employee or employee a reference so, therefore, they are entitled to refuse to give one when asked. There is an exception to this rule, which applies to staff who are engaged in a PRA or FCA-regulated business. 

When Should References Be Given?

Some exceptions exist around when references need to be given:

Where it’s standard practice – when an employer gives a reference for some of their employees, the approach should be consistent overall as an employer could face an allegation of victimisation, breach of confidence and trust, breach of contract or discrimination if inconsistencies exist. 

When employees have contractual rights – employers must give a reference if the employee’s settlement agreement or employment contract states expressly that references will be given. A failure to comply would be breach of contract so the employer could be held liable for any damages. 

A Clear Policy

No requirement exists to make employers publish their policy regarding employee references but, in general, an employment contract should never commit to supplying a reference. Nevertheless, a set of internal guidelines would be helpful to maintain consistency.

Who Can Give A Reference?

References can be either given on the employer’s behalf as corporate references or in the employer’s personal capacity. An employer is held responsible legally for a corporate reference’s content. However, employees giving corporate references with no actual authority may still leave employers liable.

Personal references in a personal capacity are given by employees like line managers but a risk always exists that this can be taken as a corporate reference. In order to limit this risk, a personal reference should never be written on the company’s headed paper. It should also include no job title for the person who is supplying the reference.

Balancing Duties Owed To The Recipient Employer And The Employee

Employers only owe the prospective employer the duty of providing a reference which is neither misleading or unfair. The best advice is staying silent in contentious cases. 

Here are some areas in which employers find it difficult to balance their duties:

  • Dealing with a half truth – an employer must be very wary of adding any broad statements about employees. By leaving details out, receiving employers can get an incorrect impression. An employer should include only factual details which are accurate and full, leaving out assumptions. An employee could have a potential claim for constructive dismissal if they are still employed while seeking the reference and their employer doesn’t take reasonable care during the preparation of the reference. 
  • Speculating on the employee’s performance in the future – employers must avoid any speculation on this subject. Statements like “we think X will be an excellent asset to your business” or “X will suit this role perfectly” should always be avoided. 
  • Gut feelings – usually, employers know if an employee isn’t performing as they should however they often lack sufficient evidence of proof. If an unsubstantiated statement of wrongdoing by an employee is included in a reference this is risky since it could lead to a defamation, negligent misstatement and malicious falsehood claim. Nevertheless, those risks must be weighed up against the employer’s duty that the owe to the employee’s receiving employer. We are able to help employers to determine the best course of action in such cases. 
  • Performance, sickness absences and attendance – there is a risk that issues of this kind could be due to a disability that the employee suffers from. Comments, therefore, could be seen as being discriminatory. Discrimination claims are uncapped so can be quite substantial.

No Requirement To Answer Any Detailed Questions

An employer seeking a reference may ask questions that are very detailed, but there are no obligations on employers to respond to those questions. Most employers decide to limit references to just factual information.

Settlement Agreements And References

Often, employers want to terminate the employment of an employee. This often occurs if performance or conduct issues 

References and settlement agreements exist that cannot be proven by the employer or corrected. Good references could be a good tactic to persuade employees to enter exit negotiations. Usually, the employer and employee will enter a settlement agreement that includes a reference that has been agreed upon.

Simple Facts

In order to guard against claims, a lot of employers will provide only a simply and factual reference including information such as:

  • A confirmation of the employee’s employment with the company
  • The dates the employee started and ended work.
  • The job title of the employee.

Using Disclaimers

An employer may include a liability disclaimer to both recipient employers and employees with regard to any potentially negligent misstatement that is included in the reference.

References For A Regulated Industry 

Exceptions exist when it comes to the rule of there being no legal requirement to give a reference. These apply in financial services industries where an authorised employee carries out a controlled function. A business that operates a financial service like a fintech business, crowdfunding platform, hedge fund, financial advisor, and insurance and mortgage intermediaries are all within these limits.

An Employee That Performs Controlled Functions 

An employer that is PRA or FCA regulated is required to give a reference for all former and existing employees performing controlled functions. These functions include overseeing the controls and systems of the firm or being a regulated firm’s director. An employee who carries out a controlled function will usually exert considerable influence over regulatory conduct of the employer.

Assessing Integrity And Honesty

If employees perform controlled functions, former employers are required to give, as quickly as practicable, all of the relevant information that it is aware of. References must supply details regarding:

  • The fit and proper test requirement for all approved persons (integrity, honesty, reputation, financial soundness, capability and competence).
  • The employee’s outstanding liabilities.
  • Upheld or outstanding complaints against the employee.
  • If the employee has been asked for their resignation from their prior job or has been dismissed.

The Risk For An Employer Giving A Reference

If an employer fails to send the reference quickly enough, enforcement action by the PRA or FCA may be taken against them.

Recipient employers and employees can also bring a claim against an employer who is giving a reference if the reference hasn’t been prepared with skill and care. Employers must be careful to ensure the reference is an honest and frank overview of the employee and the reference should only be sent once reasonable care has been taken to ensure that both the expressed opinions and factual content is appropriate. Information forming the reference’s basis must be verified.

Requesting A Reference 

While employers are under no legal requirement to request references, it’s wise to get a minimum of one former employer’s reference for a prospective new employee to verify their claims of work experience.

Conditional Employment Offers

If employers are requesting references, any employment offer should be made condition upon receipt of references that are satisfactory. If this is not done, it’s impossible to withdraw an employment offer without breach of contract should the reference turn out not to be satisfactory. If a job offer remains condition upon the receipt of satisfactory references no contract exists between the prospective new employee and employer until receipt of that satisfactory reference.

An Unsatisfactory Reference After An Employee Has Commenced Work

A contract of employment or job offer should clearly state that employment could be terminated if references aren’t satisfactory or raise causes of concern. If an employer doesn’t do this, they’ll need to give notice of termination and will have liability for notice pay in the contract terms.

Employment References And Data Protection

Generally, giving a reference involves processing personal data so it falls in the Data Protection Act’s scope. Employers providing a reference are the data controllers in such instances and they must ensure that personal data is being processed in line with the principles of data protection. 

An employer must have a particular regard when supplying reference information about the employee’s reasons for absence or sick record to the Data Protection Act since information regarding health is one example of personal sensitive data.

An employee can stop employers from disclosing any sensitive information within their references by making an appropriate request. If the request is refused by the employer the courts will typically decide. 

Since the laws surrounding data protection are very complex, employers regularly seek advice on such matters.