In the recent case of Hincks v Sense Network Ltd the High Court has considered the duties that an employer has when providing references.
The Claimant, Mr Hincks, worked as an Independent Financial Adviser. His employer acted as an appointed representative for Sense Network Limited (“Sense”). He was required by Sense to obtain pre-approval before giving advice and carrying out transactions on behalf of clients. He failed to do so on a number of occasions. An internal investigation found that his actions were ‘malicious’ and that he had attempted to conceal his failures. Mr Hincks later asked Sense for a reference. The findings from the investigation were referred to by Sense in the reference. As Mr Hincks was FCA regulated, Sense had a duty (under the rules operating at the time) to provide a reference which gave complete and accurate information on Mr Hincks fitness and propriety to carry out regulated activities.
Mr Hincks brought a claim against Sense for negligent misstatement, arguing that where a reference contains negative opinions based on the outcome of an internal investigation, the giver of that reference has to ensure that the underlying investigation was reasonably conducted and procedurally fair. He claimed that the investigation in his case had not been fair.
The High Court dismissed the claim. It saw two main problems with the approach proposed by Mr Hincks. The first was that it is unlikely to be possible to make meaningful inquiries into the fairness of an earlier investigation, particularly where a considerable time has lapsed between termination of employment and the request for a reference. The second was that it would impose a considerable and disproportionate burden on the giver of the reference.
The court said that, in most circumstances, a reasonable reference writer should not be required to enquire into the procedural fairness of earlier investigations. However, they should conduct an appraisal of any facts and opinions which they intend to include in a reference and take reasonable care to satisfy themselves that any facts set out in a reference are accurate and true and that there was a proper and legitimate basis for any opinions expressed in the reference. They are also required to take reasonable care to ensure that the reference is fair in the sense of not being misleading either because of the information explicitly included or not included in it or by implication, nuance or innuendo.
The court also said that if there are any obvious errors in the material available to the reference writer or if they became aware of anything that cast doubt on the reliability of that material, further enquiries should be made as part of the requirement to take reasonable care to ensure that the reference is fair.
This case is a useful reminder of the duties imposed on the giver of a reference and why many employers prefer to keep the information given in references to a minimum.
It also raises the important issue of how long records should be kept after employment has terminated where there is a regulatory requirement to provide certain information in a reference. In these cases it will be important to ensure that sufficient information is kept on file to ensure that regulatory requirements can be satisfied.