However, a recent New York Court of Appeals case, affirmed by an appellate court June 14, held that in the securities industry, honesty is a safe course of action. In Rosenberg v. Metlife Inc., New York’s highest court stated that an employer’s statement regarding the basis for an employee’s termination of employment, made on a National Association of Securities Dealers employee termination notice, known as a form U-5, was entitled to an absolute privilege against defamation claims.
Generally, a defamatory statement, which is a false statement concerning the plaintiff conveyed to a third party which damages the individual’s reputation, will subject the speaker to liability unless the speaker can demonstrate the existence of a qualified or absolute privilege.
An absolute privilege, as the name implies, provides complete immunity from defamation claims. A qualified privilege protects the speaker from defamation claims, but the privilege is lost if the plaintiff demonstrates the privilege was abused, such as where the speaker has serious doubt whether the statement is true.
The allegedly defamatory statement in the Metlife case was: "An internal review disclosed Mr. Rosenberg appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory money laundering violations." It’s far from the typical "name, rank and serial number" response.
Not surprisingly, a defamation claim followed. The federal court hearing the case found that the statement was entitled to some degree of privilege, but could not determine whether the privilege was qualified or absolute under New York law. Accordingly, the federal court referred the state law question to the New York Court of Appeals for consideration.
In holding that the absolute privilege applied to U-5 forms, the Court of Appeals reasoned that the National Association of Securities Dealers performs a quasi-governmental function delegated to it by the Securities and Exchange Act and its responsibilities include investigation and adjudication of suspected violations of SEC laws and the association’s rules. The court held that the U-5 form played an important role in this process, as it is typically the association’s first indication of possible misconduct, which may lead to the initiation of disciplinary action. This quasi-governmental function, in conjunction with the protection of the public interest—that is, protecting the public from unscrupulous brokers—warranted the highest protection available against defamation claims.
Metlife may be a prelude to judicial extension of the absolute privilege to other contexts where there is also a strong public interest in truthful disclosure of employment-related information, such as health care. But at present, non-securities industry employers are only covered by the limited protections of the qualified privilege.
As a practical matter, qualified privilege provides limited protection to employers because it can be lost if the plaintiff shows abuse of the privilege on the part of the speaker. Plaintiffs invariably claim this is the case. Clearly, employers prefer to stay out of the courtroom in the first place. Victory in court is always a little bitter when the costs of achieving it are factored in. As a result, the safest post-employment reference remains the "name, rank and serial number" approach.
Nevertheless, many employers find it disquieting not to disclose the truth regarding a former employee, even though there is ordinarily no legal duty to do so. If an employer divulges additional information, the following precautions should be taken to help ensure the qualified privilege is maintained:
1. Keep it brief. Since there is a risk of losing the qualified privilege, shorter is better. The more information you provide, the greater the risk that it will provide fodder for a defamation claim.
2. Don’t stray far from standard policy. If references are only given in writing, do not make an oral reference that can be misconstrued as derogatory in any manner. If references always include certain basic information, such as date of hire and title, include that information in the reference along with the additional information.
3. Limit statements to documented facts where possible. If an employee was terminated for frequent unexcused attendance violations, explain that the employee had 13 absences in a three-month period. Such statements are easier to verify if challenged.
4. Avoid conclusions. Wherever possible, use noncommittal terms rather than definitive statements. For example, it is preferable to state that the company’s investigation indicated there "may have been a violation of workplace policies" rather than "the company’s investigation concluded that the employee stole company property."
5. Consider silence as an option. Unless a safety-sensitive position is at issue—where a former employee was terminated for workplace violence and references are sought for a position that involves the former employee working with children, for instance—purposefully failing to respond to the reference request may accomplish the same goal while reducing exposure to a potential claim.
6. Always consider whether the statement could be deemed retaliatory. If the employee filed an administrative charge of discrimination or discrimination lawsuit (or has stated an intention to do so) or engaged in other protected activities, you are probably already on high alert. In these situations, reference requests need to be handled with extra care, and it is advisable to consult with counsel before providing a reference. In many cases, even weak discrimination claims can spawn retaliation claims.
For the majority of employers, the Metlife decision is of little practical value and the "safe" response to reference requests remains disclosure of basic employment data. Where additional information is given, however, following the steps outlined above should help minimize the risk of defamation claims and bolster the qualified-privilege defense should a defamation claim be asserted.
Russell Adler practices labor and employment law at WolfBlock, advising employers and defending against discrimination and a variety of other employment-related claims.