Cardinal rules: tell truth and don't gild the lily

1 April 2014

A good reference is a precious commodity for anybody seeking work. However, an employee that leaves following a dispute with their employer, be it a personal grievance, litigation or otherwise, is unlikely to have their praises sung to a potential new employer.

Robert Lewis was employed by JP Morgan Chase as the Chief Executive of its New Zealand operations.

By March 2010, things had soured between the employee and his employer to the point that Lewis brought a personal grievance alleging that he had been unjustifiably disadvantaged.

The personal grievance was settled and it was agreed that Lewis would resign his position. The agreement included a clause, as many settlements do, preventing either party from making any disparaging comments about the other. JP Morgan was also required to make an ‘agreed' statement announcing Lewis' departure which it did.

Within a month of his resignation, Lewis applied for a role with Westpac Bank.

According to Lewis, Westpac asked JP Morgan Chase to confirm that he had been employed as its New Zealand Chief Executive. Lewis claims that when asked, his former employer denied that Lewis had been employed in the role. JP Morgan, on the other hand, says it was never contacted by Westpac.

Whatever the reason, Lewis' application was unsuccessful and he was unable to find work for a period of six months.

Lewis subsequently brought a claim in the Employment Relations Authority, seeking an award of $170,000 from his former employer - $50,000 to compensate for the distress he suffered and $120,000 for lost wages. He was unsuccessful.

Lewis has now challenged the Authority's decision in the Employment Court, following an unsuccessful application by JP Morgan to strike out Lewis' claim. The Appeal will soon be heard by the Court of Appeal.

Lewis' case concerns a settlement with his former employer so the outcome might be different were it concerning an employee who had left under different circumstances.

However, nothing could make clearer the risks for employers of giving an untruthful reference than the colourful British case between Guardian Assurances and Graham Spring, which was decided some time ago.

Spring was employed by Guardian, an insurance company based in the United Kingdom, as a sales director and office manager.

Following a corporate reorganisation, Guardian discovered that Spring was planning on working for a competitor - Scottish Amicable. This did not go down well with his employer and they sent him on his way with alacrity.

Undeterred, Spring pursued his prospective employment with Scottish Amicable. Unfortunately for Spring however, rules regulating the insurance industry in Britain prevented an insurance company from appointing anyone as a company representative without first obtaining a character reference from their previous employer.

Scottish Amicable sought a reference from Guardian. Guardian obliged with a response that Spring said was the "kiss of death".

In its letter, Guardian said Spring was "a man of little or no integrity and could not be regarded as honest"; he "consistently kept the best leads to himself with little regard for the sales team that he supposedly was to manage"; and he left the company "owing some £12,000 in funding which to date has not been repaid".

Readers will not be surprised to learn that Spring's job application was passed over by Scottish Amicable. He was unable to obtain a job for several years and was eventually struck off the insurance industry register.

Spring brought a claim against his former employer which went all the way to the House of Lords. Spring argued that Guardian had a duty to provide a full, frank and truthful reference prepared using reasonable care.

The House of Lords decided that Guardian's reference fell well short of the mark in terms of its accuracy. It seems that while Spring may at times have been incompetent, there was nothing to suggest he was dishonest. Spring therefore won his case despite his warts and was given damages for his trouble.

There is no obligation on an employer to provide a reference for an employee or to answer questions. However, the cardinal rule for employers is to tell the truth and avoid gilding the lily.