When can an employer give a negative reference for a former employee? The situation in Gary Curtis v Bank of Nova Scotia seemed like the ideal time. There, an employee, while under suspicion of fraud and facing an investigation, resigned and then began to apply for jobs in the same industry. When these prospective employers contacted his former employer for a reference, the Bank of Nova Scotia advised them of how his employment had ended.
There was just one problem – the employer did not have the evidence of the employee’s suspected wrongdoing to support this negative reference. What happened next showed the importance of a properly conducted investigation – and the consequences of not having the facts on your side.
The Facts
The plaintiff had been with the employer for twelve years and was one of the top mortgage salespeople in Toronto. In April of 2012 his employer began an investigation into his conduct after allegations surfaced that he:
- had accepted and relied on customer documentation that included fraudulent information, and
- had also accepted referrals from mortgage brokers.
The plaintiff was placed on paid suspension during the investigation, and he resigned before it was completed. The employer closed his file with the code “not eligible for rehire”.
The investigator then initiated an alert about the plaintiff’s conduct with the Bank Crime Prevention and Investigation Office of the Canadian Bankers Association (the “CBA”). This alert stated that there was “strong evidence” that the plaintiff had knowingly uttered fraudulent documents on several mortgage applications, and that he had resigned during the investigation.
The plaintiff started applying for jobs and received job offers from several major banks. In each case, the prospective employer contacted his former employer and was told that he had “submitted fraudulent documentation in support of mortgage applications”, leading to the job offer being withdrawn. The alert at the CBA was maintained for seven years, which stopped the plaintiff from finding another job in the industry. During this period the plaintiff made multiple attempts to have this alert lifted but was unsuccessful.
The plaintiff, representing himself, sued for wrongful dismissal – which he withdrew (as he had not been fired or even constructively dismissed) and replaced with a claim for defamation.
The Decision
At trial, the employer conceded that it had defamed the plaintiff and advanced the defences of justification (truth) and qualified privilege. Qualified privilege permits a person in authority to make a statement that would otherwise be defamatory – if the statement was made without malice.
The Court reviewed the investigation, finding no wrongdoing on the plaintiff’s part had been found. Further, the investigator had ended their investigation after reviewing only one of the plaintiff’s allegedly problematic transactions. The Court rejected the employer’s defence of justification, as the employer had failed to prove the truth of its statement about the plaintiff’s supposed fraudulent behaviour. Workplace Investigation Should Have Continued
The Court found that the investigation should have continued after the plaintiff had resigned and after the plaintiff had started his claim against the employer. The Court noted that employers treat litigation as a “cloak for freezing activity”, expecting that their lawyers will resolve the matter for them. The Court stated that instead, “litigation is the time to investigate, investigate, and investigate.”
Defence of Qualified Privilege
The Court also rejected the employer’s defence of qualified privilege, finding that the employer had failed to prove that its actions were made without malice. The Court found that the employer had no reason to believe that the plaintiff had committed fraud as its initial investigation had been inconclusive and had not done any additional investigation after his resignation.
The Court held that the employer’s failure to retract the libel (the bogus alert at the CBA) in the face of its knowledge of the negative impact on the plaintiff’s employability constituted malice, which negated the defence of qualified privilege.
The Award
The Court awarded the plaintiff:
- $475,000.00 in special damages for his lost earnings following his resignation
- $175,000.00 in general and aggravated damages for the personal harm of the employer’s conduct, as well as
- $200,000.00 in punitive damages to demonstrate the need for accountability and to deter similar conduct.
Takeaways
Truth is a complete defence to defamation. So, an employer who fires someone for cause and can support this position may advise any future employer about their reasons for firing the employee. However, the employer must do this from a position of certainty. It cannot disseminate negative comments about a former employee without a concrete basis for it.
Where an employee is suspected of misconduct, the employer should do a comprehensive investigation to determine whether its suspicions are justified. This is the case, even when the employee resigns before the completion of the investigation. Even if the employee’s departure from their employment does not become contentious and the investigation has no purpose in litigation, it can identify potential weak points in a company’s operations to address and avoid a similar situation in the future. An employer cannot simply assume that an employee’s departure brings the matter to an end- particularly where the circumstances of the end of the employee’s employment will impact the employee’s career going forward.
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