Unauthorized Job References, Quirky Question # 27

Quirky Question # 27:

We recently terminated our Controller.  We had concerns about the way in which he was managing his department.  Certain funds (not an insubstantial amount) were not accounted for and our firm’s accounting records designed to track various purchases and expenditures were largely inscrutable.  We lost a lot of money due to these problems.  My perception is that he was either incompetent, or, possibly, dishonest.  Despite that fact, we terminated him without cause.

I just learned that several weeks ago, he asked our CFO to write him a job reference and our CFO did so.  None of us in the Law Department had a chance to bless this recommendation before it was provided to our ex-Controller.  I recently obtained a copy of the reference and it’s quite enthusiastic (perhaps an understatement by me).  This situation makes me somewhat uneasy on a couple of levels.  Are my anxieties misplaced or is this something I should worry about?

Dorsey’s Analysis:

I hate to add to your anxieties, but unfortunately, your concerns are justified.  There is a reason that many companies provide only “name, rank and serial number” when asked about former employees.  Typically, this limited disclosure is designed to avoid the risks associated with providing negative or damaging information about a former employee.  Here, your question poses the unusual (dare I say, “Quirky”) opposite situation – the risks associated with providing positive information about a former employee, who, at least from your account, does not deserve the enthusiastic endorsement.

I am aware of two cases that are analogous to the situation you described, both of which involved rather grim facts.  In one case, a teacher was dismissed by a school board for inappropriate sexual contact with a student.  Notwithstanding the reason for the dismissal, the teacher sought and obtained a positive letter of recommendation from one of his former colleagues.  The recommendation omitted any explanation of why the teacher was fired.  He then obtained another teaching position in a different school district where he again engaged in inappropriate sexual conduct with a student.  The student and her family sued the first employer, pointing out that but for the erroneous information contained in the letter of recommendation, the teacher never would have been hired by the second school district and the sexual assault would not have occurred.  The court refused to dismiss this “negligent reference” theory.

In a similar case, an employer fired an employee for various unpredictable behavioral problems, including bringing a firearm to work.  Following his discharge, the employee sought and obtained a glowing reference letter from the employer who had fired him.  He obtained a new job, and not long thereafter, not only brought a firearm to his new place of employment but shot and killed a co-worker.  The decedent’s estate sued the first employer in connection with the “negligent” reference letter.  Again, the court refused to dismiss the case in response to defendant’s motion, meaning that barring settlement, the case would proceed to trial.

These cases stand for a simple proposition which understandably appears to be at the root of your anxieties regarding this situation – employers cannot disseminate inaccurate, positive information about a former employee.  While there is no affirmative obligation to disclose any information about a former employee, once an employer undertakes to disclose some information in a reference letter, that information should be accurate.  As in any negligence context, it is “foreseeable” that when making a hiring decision, a prospective employer will rely, at least in part, on the information the former employer provides.

Your situation does not involve the physical violence associated with the two cases described above, but the absence of that factor does not provide me much solace.  For example, let’s assume that your intuition regarding your ex-employee’s dishonesty is accurate.  Let’s assume further that he embezzles substantial sums from his new employer or customers or vendors of his new employer.  While I have not seen the “quite enthusiastic” reference letter you describe in your question, it would not be a stretch for the financially injured party to argue that but for the reference letter, your former employee would not have been hired and would not have caused the financial harm attributable to his conduct.

Clearly, there are other factors that bear upon this hypothetical situation.  For example, what other reference checking did the subsequent employer engage in?  What information did the second employer obtain about your former employee?  What conduct did he engage in?  What financial controls existed at the second company that should have detected the embezzlement?  Were others complicit in this activity?

These, and numerous other inquiries, would affect any ultimate liability determination.  As your question recognizes, however, these are issues about which you and your company should not have to worry.  Your firm needs to establish clear policies regarding how reference letters are handled: who has the authority to draft them; who will review the letters that have been drafted; what will the consequences be if these directives are ignored.  I recommend that you adopt and publicize such policies promptly.

In the meantime, keep your fingers crossed that your former employee was just incompetent rather than dishonest, and that his performance improves at his new employer.  The longer he works at his subsequent employer without incident or problem, the lower the likelihood of any risk to your firm resulting from the reference letter.  (Incidentally, I doubt that a subsequent employer would have a legitimate complaint about a subjective, overly enthusiastic reference letter regarding an honest former employee who was just not very skilled.)

Dorsey & Whitney

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