onesty is the best policy. Yet when it comes to post-employment references,
most human resources representatives disagree. Instead, many employers give only
the most basic facts regarding former employees, fearing that any qualification
or additional facts, other than dates of employment, title and perhaps compensation,
however truthful, will result in a defamation claim. Such claims have convinced
most human resources representatives that honesty isn’t worth the hassle.
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.
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