Hincks v Sense Network Ltd - References: Duty of care

High Court – April 2018

What duty of care does a reference writer owe when they include facts and opinions in a reference that are based on a previous investigation?

Claims of negligent misstatement, a tortious claim, can be made against ex-employers if they provide an inaccurate reference to a potential employer.

When writing references, the employer owes a duty of care to the employee. Previous cases have shown that this duty is to exercise reasonable skill and care to provide a true, fair and accurate reference.

Facts

Hincks worked as an independent financial adviser. A number of issues arose during the course of 2013. Initially, there were concerns with the financial advice provided to clients which led the employer to inform Hincks that he was required to seek pre-approval for all advice and sales before providing this to clients. Following on from this, there was an incident where Hincks re-registered the files of existing clients onto financial platforms without seeking pre-approval. This was, however, categorised as an administrative error by the employer. It was then discovered that Hincks had failed to receive pre-approval before carrying out a transaction on behalf of a client. The employer suspended Hincks for non-compliance which meant he could no longer carry out any client transactions or meetings. During the suspension, Hincks carried out remedial work on files and compensation had to be paid to clients who did not receive planned annual reviews.

Towards the end of 2014, Hincks was reintroduced to his previous work however, the pre-approval process was breached again in November 2014. An investigation meeting was carried out. The 2014 breach was treated as a “repeat breach” because of his history and it was determined that the breach was “malicious” because he had attempted to conceal the submission of the investment application knowing he had breached the pre-approval procedures. Hinck’s authority was terminated and an appeal against this decision was rejected.

A reference request was then made. The company’s compliance director sent a reference which referred to:

  • the re-registration of client files
  • the period of suspension
  • the payment of compensation to clients
  • the pre-approval breach in November 2014 and
  • the opinion that Hincks had “knowingly and deliberately circumvented” the process to seek pre-approval.

Hincks brought a claim for negligent misstatement, contending the internal investigation was a sham and, in these circumstances, the reference writer has to satisfy himself that the investigation was reasonable and procedurally fair.

High Court

The High Court commented that the precise standard of care that applies to a reasonable reference writer will depend upon the individual facts of the case, however, the common features of this duty include:

  • to conduct an objective and rigorous appraisal of facts and opinions, especially where these are negative, regardless of whether these were determined by a previous investigation or not
  • to take reasonable care to be satisfied the facts in the reference are accurate and true
  • to take reasonable care to be satisfied any opinion in the reference had a proper and legitimate basis
  • to take reasonable care to consider and review underlying material used in an earlier investigation to understand any opinions formed on the conclusion of the investigation, and
  • to take reasonable care to ensure the reference was fair and does not mislead because of any missing information, implication, nuance or innuendo.

The High Court held that it would be too onerous a burden to require the reference writer to assess the procedural fairness of an earlier investigation or, where this could not be carried out, to undertake a re-investigation.

Instead, the High Court determined that only where there are obvious errors or information which casts doubt on the reliability or integrity of the investigation, e.g. a “red flag”, should the reference writer carry out further inquiries.

Applying this to the case, the High Court held there was nothing within the investigation materials which required the reference writer to take any additional steps. Indeed, the information contained within the reference was supported by this material. The High Court dismissed the claim.

Note for employers

There is no obligation on an employer to provide a reference, however, where they do provide one either voluntarily or under a company policy, the duty to take reasonable care to provide a fair and accurate reference will apply.

This decision highlights that reference writers need to ensure, in advance of writing the reference, that any negative opinions which will be included have been formed on a proper and legitimate basis. To do so, the reference writer may be required to review relevant materials relating to this opinion, such as investigation documents. Only where there are “red flags” will the reference writer have to go further and consider whether the investigation itself was carried out appropriately and fairly.

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