23 August, 2016
Court of Appeal sets out guidelines on the standard of care that should be exercised when providing references for employees
In Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd [2016] SGCA 47, the Court of Appeal considered for the first time the standard of care that must be exercised in the preparation of a reference for a current or former employee and/or representative.
The Appellant was an agent of the Respondent. The Appellant argued that the Respondent, his former principal, was negligent as it had breached the duty of care which it owed him in the preparation of a reference that had been requested by a prospective employer. He contended that as a result of this, he had not been employed by that prospective employer.
The Court of Appeal agreed that employers owe a duty of care to their employees in the preparation of references. While the Appellant was an agent of the Respondent, the Court of Appeal found that the same duty arises in this case as it does in an employment relationship. It further held that the Respondent had breached its duty of care to the Appellant and that this had caused
the Appellant not to be employed by the prospective employer.
The Court held that an employer who writes a reference for an employee is obliged to exercise due care to ensure that the facts contained in the reference are true, and that any opinions expressed in the reference are based on, and supported by, facts which are true. Further, in preparing the reference, due care must be exercised to ensure that the facts stated in the reference are accurate, which depends not only on what is said, but also what is not said. The Court of Appeal held that an assertion consisting of facts that are true may not be accurate if it conveys a misleading impression because it fails to present the full picture.
For completeness, the Court of Appeal did not deal with the issue of loss/damage, as these matters would be dealt with at the assessment of damages stage. At that stage, the loss and damage sustained by the Appellant arising from the Respondents’ negligence would be determined.
Our Comments / Analysis
It is common to receive requests from prospective employers for references of departing or departed employees. While many companies still provide only a statement confirming employment dates, there are certain regulated industries where a more comprehensive reference is required. Most of these are in the financial services industry, such as in the present case.
Pursuant to the “Representative Notification Framework” (“RNF”) established by MAS, financial institutions that are regulated by MAS must notify and obtain a RNF licence from MAS before hiring someone to carry out regulated activities. They must also look into the background of the person they propose to hire, including conducting reference checks with former employers or principals to determine whether that person has an adverse record, or has ever been dismissed or asked to resign. Financial institutions are also required to obtain a declaration from the applicant that he satisfies MAS’s Guidelines on Fit and Proper Criteria.
As well as the RNF, the Industry Reference Check System (which is endorsed by MAS) serves as a standardised reference checking system across the different sectors of the financial advisory and insurance industry. The Industry Reference Check System was initiated by various trade and professional associations in Singapore, including the Life Insurance Association of Singapore (“LIA”), which is relevant to the present case. Before hiring a representative, financial institutions regulated by MAS and who are members of the LIA must conduct reference checks with the representative’s former employer or principal using a standardised form (“Reference Check Form”). Further, it is expected that any organisation approached for a reference check under this system will respond in a timely and forthcoming manner, usually approximately seven working days.
The Reference Check Form has one section where the former employer/principal must provide basic information such as the period of employment, reason for departure and any reports of misconduct to MAS, and a second open-ended section where the former employer/principal may provide any other information that it deems relevant. Under this second section, a prospective employer is also able to request more specific information regarding the applicant.
It is particularly important therefore for businesses in such industries to be aware of the potential pitfalls when providing references.
The key takeaway from this case is that employers should ensure that, when giving references, what is said is accurate and does not convey any misleading impression. From a practical perspective, employers may want to ensure that all requests for references are routed to a centralised department (e.g., HR/legal) so that the organisation will have records of all requests and responses to such requests.
In a particularly complex termination, employers may wish to consider engaging the assistance of in-house or external counsel in preparing the reference.
This Update takes a look at the decision. second section, a prospective employer is also able to request more specific information regarding the applicant.
It is particularly important therefore for businesses in such industries to be aware of the potential pitfalls when providing references. The key takeaway from this case is that employers should ensure that, when giving references, what is said is accurate and does not convey any misleading impression. From a practical perspective, employers may want to ensure that all requests for references are routed to a centralised department (e.g., HR/legal) so that the organisation will have records of all requests and responses to such requests.
In a particularly complex termination, employers may wish to consider engaging the assistance of in-house or external counsel in preparing the reference.
Background
Appellant engaged by Respondent as financial adviser
The Appellant was engaged by the Respondent in 2005 as an adviser and financial services associate manager. In 2007, the Appellant was promoted to financial services director and started leading a group of advisers under his own “agency organisation” (the “Ramesh Organisation”) within the Respondent. The Appellant was promoted again in 2009 to senior financial services director and won numerous awards during his time with the Respondent.
Appellant resigns instead of being terminated
The relationship between the Appellant and the Respondent began to deteriorate in 2010, when the Appellant realised that, due to a change in assessment criteria, the advisers in the Ramesh Organisation might not be in the running to receive the awards and incentives that the Respondent gave out annually to its top performers. Apparently on the basis of rumours that the Appellant and many of his team were going to collectively resign, the Appellant was served with a letter of termination in April 2011. It was subsequently agreed that the Appellant would be allowed to resign rather than be terminated.
Prospective employer required to conduct reference checks
The Appellant applied to join Prudential Assurance Company Singapore Pte Ltd (“Prudential”) shortly after resigning from the Respondent. Pursuant to the regulatory framework put in place by the Monetary Authority of Singapore (“MAS”), Prudential was required to notify and obtain an RNF licence before appointing the Appellant to carry out any regulated activities. Prudential was also required to conduct due diligence checks into the Appellant’s background, including a reference check with the Respondent in order to establish whether the Appellant met the prescribed standards. In particular, Prudential was required to inquire from the Respondent whether the Appellant had any adverse record (such as warnings, reprimands or other disciplinary action for misconduct), or whether he had ever been dismissed or asked to resign.
Respondent completes reference check form
In the reference check form sent to the Respondent by Prudential, the Respondent stated the following:
- That the Appellant had left voluntarily;
- The Respondent indicated “N/A” to the section asking whether the Appellant had ever been reported to MAS for misconduct;
- The Respondent attached an annexure to the reference check form advising on the Ramesh Organisation’s persistency ratio as being 43% for 19-month Single Premium persistency and 39.6% for 13- month Regular Premium Persistency. The annexure also mentioned “compliance issues”, whereby the Respondent advised that 14 advisers under the Ramesh Organisation (including the Appellant) had been investigated between 2008 and 2011 and that disciplinary action had been taken against 5 advisers and 3 cases had been referred to the Police for further investigation.
Respondent reluctant to clarify information provided
On receipt of the reference check form from the Respondent, Prudential sought clarification and further information from the Respondent on the 14 advisers who had been investigated. The Respondent replied that it could only provide information on the investigation on the Appellant, which came about from a complaint that the Appellant had been rude and aggressive in his approach. The Respondent advised that no action was taken against the Appellant.
Adverse opinions on Appellant given
Prudential made an offer of employment to the Appellant, conditional on the successful clearance of his reference check. Prudential continued to seek clarification from the Respondent on the information provided in the reference check form, including how the Respondent calculated persistency rates, but did not receive a reply. Approximately three months later, the Respondent advised Prudential that the Ramesh Organisation showed a very poor 13th month persistency rate of 9.0% and advised that they had strong concerns that the Ramesh Organisation had not been providing clients with proper advice, and/or had been carrying out improper practices. The Respondent still failed to address the question of how it calculated persistency rates.
Prospective employer chooses not to hire Appellant
The Respondent also provided similar opinions to MAS that were adverse to the Appellant and suggestive of ethical violations.
Several months after the Appellant’s conditional job offer from Prudential, MAS advised Prudential that it was prepared to issue a conditional RNF licence to the Appellant. However, Prudential advised MAS that it did not wish to proceed with its RNF licence application for the Appellant.
Court of Appeal
SGCA summarises applicable standard of care required when providing references
To determine whether the Respondent had breached its duty of care to the Appellant, the Court held that it was first necessary to consider what the standard of care was. As this issue had not previously been addressed in Singapore, the Court of Appeal took guidance from the English authorities before summarising the applicable standard of care expected of a reasonable employer (including a former employer) when writing a reference for a current or former employee:
The employer must exercise reasonable care to ensure that the facts stated in the reference are true and any opinions expressed there are based on, and supported by, facts which are true.
The employer must also exercise reasonable care to ensure that the reference does not give an unfair or misleading overall impression of the employee, even if the discrete pieces of information which it contains are factually correct. In other words, due care must be taken to ensure that the reference is not only true, but also accurate in the sense of not being misleading or unfair.
The employer is required to exercise reasonable care to disclose any information that relates to information which has already been provided, where to withhold such further information would render the information that has been disclosed incomplete, inaccurate or unfair.
Subject to the foregoing qualifications, the employer is not required to give a full and comprehensive reference or to include all material facts about the employee in the reference.
In general, the employer should not include in the reference, whether explicitly or implicitly, complaints or other allegations against the employee that the latter had no knowledge of and had not been given an opportunity to explain or defend himself against. In particular, complaints that were not conveyed to the employee because they were found to be baseless should not be disclosed unless the employer is, for some reason, obliged to do so.
In assessing what constitutes reasonable care, regard will be had to the gravity of any adverse suggestion or inference contained in the reference. The greater the gravity of any adverse suggestion or inference, the more closely the employer’s conduct will be scrutinised to ascertain whether it has taken reasonable care to ensure that the suggestion or inference in question: (i) is based on facts which are true and accurate; and (ii) is, in view of those facts, fair and reasonable.
High standard of care required because of potential harm to employee
The Court of Appeal held that imposing such a standard of care upon an employer was just because of the potential harm that may be inflicted on an employee through a negligently prepared reference, the inclination that an employer may have to damage the prospects of an employee who may be joining a competitor and the inability of an employee to adequately safeguard his own position.
Particular care should be given where reference will also be relied upon by industry regulator
In the context of the financial advisory and insurance industry, such as in the present case, it was uncontroversial that a negligently prepared reference could cause harm to employees like the Appellant, as a reference given by an employer such as the Respondent would be relied on not only by a prospective new employer, but also by the industry regulator, MAS, in deciding whether to grant a licence. Further, it was not inconceivable that an employer might be motivated to paint an employee in a negative light if the circumstances leading to the departure of the employee were not amicable, particularly where the employee is seeking employment with an industry competitor. Finally, as the information provided in a reference was not commonly disclosed to an employee, the employee may not have the opportunity to defend himself or correct any mistake or misrepresentation in the reference.
Respondent had breached duty of care owed to Appellant
On the facts of the present case, the Court of Appeal held that the Respondent had breached its duty of care to the Appellant in preparing the reference to Prudential. This was for several reasons including:
- Using the 13-month measure, as opposed to the 19-month measure
- for the persistency ratio of regular premium policies (which the Appellant had no knowledge of and was therefore misleading and unfair to the Appellant);
- Withholding relevant information and failing to respond adequately in communications with Prudential; and
- Providing information in respect of the compliance issues that was incomplete and thus misleading and inaccurate and failing to disclose relevant information when further enquiries were made by Prudential regarding the investigations against advisers in the Ramesh Organisation.
Respondent’s breach of duty caused harm to Appellant
The Court of Appeal also found that the Respondent’s breach of duty to the Appellant caused Prudential not to hire him. On the evidence, it was clear that Prudential’s eventual decision not to hire the Appellant arose from the delay in getting the Appellant approved. The entire process that Prudential went through in its attempt to hire the Appellant spanned almost seven months. The Court held that it could not be disputed that the process took far longer than a normal application for a RNF licence would have taken and the Court was satisfied that the delay could be attributed to either the Respondent’s reference check response to Prudential or the further information conveyed by the Respondent in its subsequent correspondence with Prudential and MAS.
The Court of Appeal however did not deal with the issue of loss/damage suffered by the Respondent as that will be dealt with at the assessment of damages stage.
For further information, please contact:
Jenny Tsin, Partner, WongPartnership
jenny.tsin@wongpartnership.com
