Employee Records: New Developments In Defamation

November 16, 2010

By Brian Babcock

Words are not just the lawyer’s stock in trade – they are the building blocks of any legal dispute. Every document in an employee’s file is a source where a disappointed employee or former employee may find grounds for a claim for damages. Sometimes, the old adage “the less said the better” is still an excellent policy. However, modern employers now need to keep more extensive records, containing more sophisticated information. The more complex it gets, the greater the risk of error.

For example, performance evaluation or appraisals, written warnings, termination letters, and letters of reference are important parts of the employer’s toolkit. They take on increasing importance in this era of continually expanding regulation. Whether human rights, employment standards, union grievances, employment insurance, health and safety, or cause for dismissal, documentation is vital. Standards of acceptable decision making in areas of employment law still range from subjective to objective, but are trending towards requiring objective reasons. In areas where a subjective basis is still permitted (“suitability” or “fit” for example), objective explanations are still the best evidence to avoid allegations of bias or discrimination.

A negative performance evaluation can cost an employer, by way of damages for defamation. Defamation includes any statement which tends to lower the Plaintiff’s reputation in the opinion of right thinking people. Defamation damages have been rising steadily in recent years.

Performance evaluations, letters of reference and termination letters are often considered safe even if they contain untrue statements, because they may be protected by the defence of “qualified privilege”. This defence arises when statements made honestly, without malice or improper motive, and in a situation where the person making the statement had a duty to make it to the recipient, even when they turn out not to be true.

In a recent British Columbia case a supervisor checked a box on a form specifying “inadequate performance” as one of several the reasons for dismissal. This was not true. “Inadequate performance” would certainly lower a senior manager’s reputation, especially one who had been doing a job for many years.

Copies of the form were only used internally, but it was copied to a number of people. At trial, there was no evidence of the identity (beyond the name) of one recipient, and no explanation as to why that person had received the form.

The Court determined that the employer had failed to prove that this unidentified employee had a duty to receive the form, or, to put it another way, that the person needed to know the information for a legitimate business reason. Thus, it was not a privileged statement, because the privilege only covers statements to people who need to know. Even internal circulation, to a person who did not have a duty to receive it, is not covered by qualified privilege.

Defamation damages were awarded on top of damages for the dismissal.

Performance reviews are often performed poorly. Supervisors or employers may receive very little training. It is an area that is potentially a liability mine field for an employer.

This case illustrates the need for an employer to be highly diligent about documenting a negative performance review, to substantiate it, and ensure only those with a duty actually see the review. This applies not only to departing employees, but ongoing reviews as well. Performance appraisals remain a strong tool for measuring progress, or justifying discipline or dismissal, but they need to be done correctly, systematically, objectively and with caution.

Similar concerns apply to letters of reference. Many employers try to avoid the risks of references by refusing to provide them. But the refusal may hamper an employee’s efforts to find new work, which not only may benefit an employer during the notice period, but can create hard feelings. In many industries, especially where the dismissal is without cause, you may need to deal with your former employee in the future. A fair reference often helps build bridges. But first, do no harm.

A response to an inquiry for a reference check by a prospective employer (of a former employee) may also lead to liability. Unwittingly, a representative of an employer may simply review the former employee’s file to respond to the reference check. Reliance upon an inaccurate performance appraisal in response the reference check may be defamatory. Although the defence of qualified privilege often applies to reference letters, “improper motive” is an exception, and might be found from poorly chosen language.

Even if the response to the reference check is not defamatory or is protected by qualified privilege, an employer may nonetheless be liable for negligence. The contractual relationship between an employee and employer may be a relationship of sufficient proximity such that it was within the reasonable contemplation of the employer that carelessness on its part, in providing a verbal or written reference, might cause damage to an employee. Thus, if an employer provides a reference that results in a loss of employment by a former employee, not only could an employer be sued for defamation, it could be sued for negligence.

On the other hand, a glowing reference which is untrue might make the former employer liable to the new employer for misrepresentation, if the employee causes losses in his or her new job.

There appeared to be a developing trend to impose an obligation upon an employer to provide a letter of reference. Several court decisions had awarded an enhanced level of damages when a terminated employee was refused a letter of reference. This trend now appears to be stopped. In more recent case law, the Ontario Court of Appeal has stated that the failure of an employer to provide a letter of reference is an “inappropriate” factor on which to base higher damages. The apparent lack of duty to provide a reference plus the potential liability in defamation or negligence suggests an employer should proceed cautiously when providing information about former employees.

The appeal court has also ruled, though, that it may be unfair to refuse to provide a reference unless the departing employee signs a release. Providing references or not should be a matter of policy, not tactics.

With increased awareness of rights to privacy, the confidentiality and accuracy of employee records is an area of exposure worthy of active risk management, starting with a review of the systems in place, followed by training as required.

Weilers has been advising and training employers and managers for over 60 years.