Employee References - Employers Beware

Saturday, October 1, 2005 - 01:00

On July 19, 2005, in a case of first impression, the New Jersey Appellate Division decided that under certain circumstances, an employer may be held liable for "negligent misrepresentation" in providing employment references to a current or former employee's prospective employer.

Background

In Singer v. Beach Trading Co., Inc., appellate docket number A-1617-04T5, the plaintiff, Marsha Singer, sued her former employer, Beach Trading Co., Inc., and one of its employees, Eli Hizami, for defamation, tortious interference, and negligent misrepresentation. Singer alleged that she was terminated from her position with her subsequent employer, HRK Industries as a result of intentionally misleading information that Beach Trading provided to HRK.

The relevant facts of the case are as follows: Singer claimed that she was hired by Beach Trading in a management position as the Vice President of Daily Operations. At a later juncture, Singer was asked to oversee temporarily the customer service department, which she did until she left Beach Trading in June 2002. Hizami worked as a customer service representative during the time that Singer was "overseeing" that department. Subsequently, Singer applied for a position as a customer service representative with HRK. The owner of HRK, Henry Kasindorf, offered Singer a customer service manager position, based upon the professional experience reflected on her resume. Kasindorf claims that shortly after Singer began her employment, he became dissatisfied with her performance and management skills, and questioned the "validity" of the representations in her resume. At this point, he decided to contact Beach Trading purportedly to verify the accuracy of those representations.

In what the court characterized as "needless subterfuge," Kasindorf made a series of telephone calls to Beach Trading in which he did not identify himself and did not reveal the true nature of his call. He spoke with several members of the customer service department, including Hizami, all of whom told Kasindorf that Singer had been a customer service representative at Beach Trading, and not a manager, supervisor or Vice President. Kasindorf never asked to speak with the owners or corporate officers of Beach Trading.

As a result of the information Kasindorf received during these phone calls, he terminated Singer's employment. Singer alleges that Kasindorf informed her that she was being terminated because she had been hired under fraudulent terms and had misrepresented her professional history. Kasindorf, on the other hand, contended that this alleged misrepresentation played a minor role in his decision to terminate Singer, that instead he decided to terminate her based upon her poor performance, and that he had reached this decision prior to his making phone calls to Beach Trading. Kasindorf further argued that he intended to use Singer's alleged misrepresentation to invalidate her contractual right to severance pay.

Singer sued Beach Trading and Hizami, alleging defamation, tortious interference and negligent misrepresentation. The trial court granted summary judgment in favor of the defendants on all counts of Singer's complaint. On appeal, the Appellate Division affirmed the dismissal of the defamation and tortious interference claims, but reversed on the negligent misrepresentation claim, remanding that claim back to the trial court for further consideration.

Negligent Misrepresentation And The Court's Decision

Typically, negligent misrepresentation arises when a plaintiff is the direct recipient of the statement alleged to have been provided negligently and the plaintiff relies on that information to his or her own detriment. In Singer v. Beach Trading, however, the court held that even though Singer was not the direct recipient of the misinformation, she was nevertheless entitled to assert a cause of action for negligent misrepresentation because she was injured by the dissemination of the misinformation.

The court compared this situation to one of negligent misrepresentation causing economic loss under the Restatement of Torts Section 552, and found that summary judgment must be reversed because a jury could determine that Kasindorf told Beach Trading that he was calling to verify Singer's employment, and that Beach Trading, by voluntarily responding to the inquiry, undertook the duty to exercise reasonable care or competence in its response to Kasindorf. The court held that the jury then would have to determine whether Beach Trading breached that duty, based upon the disputed facts in the case (particularly, whether or not the Beach Trading employees knew or should have known of Singer's actual title at Beach Trading). The court determined that although it had been established that Kasindorf called Beach Trading to verify Singer's references and Hizami responded to Kasindorf with erroneous information, it would be for a jury to decide whether the defendants' actions were reasonable or whether they, instead, constituted negligent dissemination of false information.

The court also noted that in this case, there was a factual dispute as to whether the employees who provided the information to Kasindorf were acting within the scope of their employment and whether they were authorized to respond to inquiries about former employees. Finally, the court noted that there were other factual disputes concerning the circumstances of HRK's hiring of Singer, Kasindorf's decision to make the reference inquiries, and Kasindorf's reasons for terminating Singer (critical to the issue of whether Kasindorf actually relied on the statements by Beach Trading, and whether Singer was terminated because of that reliance). In light of the presence of these material, disputed facts, the court reversed the motion court's summary judgment on the negligent misrepresentation claim, concluding that once a jury has had an opportunity to hear evidence on these issues and to make these factual determinations, the jury may find that Beach Trading is liable to the plaintiff if:

(1) the inquiring party clearly identified the nature of the inquiry;

(2) the employer voluntarily decided to respond to the inquiry, and thereafter unreasonably provided false or inaccurate information;

(3) the person providing the inaccurate information acted within the scope of his or her employment;

(4) the recipient of the incorrect information relied on its accuracy to support an adverse employment action against the plaintiff; and

(5) the plaintiff suffered quantifiable damages proximately caused by the negligent misrepresentation.

What Does This Mean To You As An Employer?

Employers often have to make the choice whether to adopt a policy to give positive, neutral, or negative references in response to an inquiry from a current or former employee's prospective employer. There has not been a New Jersey court ruling that employers have an affirmative duty to provide a reference at all. In addition, unlike other states, New Jersey currently has no law providing indemnification to employers for the truthful disclosure to potential new employers of employment-related information. Many employers have adopted a policy of giving dates of employment and title/position held only. However, many employers choose to provide references, and therefore must be prudent in creating a policy that indicates those individuals within the company who may respond, what information they may provide, and to whom such information may be given.

Employers may want to consider the following points in making decisions on how best to deal with the issue of employee references:

  • Consider adopting a neutral or "name, rank, and serial number" policy where you disclose only dates of employment, last position held, and possibly salary information (with the consent of the employee or former employee) to prospective employers.

  • Whatever policy you choose to adopt with regard to references, be certain that you have a strict policy in place that dictates who may disseminate such information and what these individuals may say. Train your employees on this subject.

  • Make sure that your policies and practices with regard to employee references are applied in a fair and consistent way to avoid claims of unfair or discriminatory treatment. Likewise, be certain that your actual practices are consistent with any written policies.

  • Note that there are situations in which employers may be required to provide negative information, so long as such information is truthful, in order to avoid a lawsuit from the subsequent employer and/or third parties. For example, when providing references, employers should consider whether it is foreseeable that the current or former employee might cause harm to individuals or property in the prospective employer's workplace. In such cases, it may be appropriate, and even required, to alert the prospective employer to this fact.

  • Be cognizant of any professional or ethical obligations to provide a detailed reference.

  • If you choose to disclose substantive information as part of your employee references policy, you must disclose all substantive information about the employee - good and bad. Partial disclosures are not advisable and could lead to actions by the former employee and/or the new employer.

  • Consider incorporating language regarding your employee reference policy into your standard separation and release agreements.

The law in this area continues to evolve. It would be prudent, therefore, for the employer to contact legal counsel to assist in drafting a policy appropriate to your workplace and to air any questions concerning whether or not to provide a reference in a particular situation, and, if so, what information to provide. However, with the Singer decision, the Appellate Division has made it clear that if the employer chooses to give such information upon an inquiry from a prospective employer, the employer would be best served by having a policy in place and by conducting employee training so that each employee knows who is permitted to disseminate such information, and what those individuals may say.

Martha L. Lester is Chair of the Employment Law Practice Group of Lowenstein Sandler PC, based in Roseland, New Jersey. She can be reached at (973) 597-2388. Stefanie P. Tavaglione is an Associate in the firm's Litigation Department. She can be reached at (973) 597-6178. Ms. Lester is the executive editor of the newly published book, A Practical Guide To Federal And New Jersey Employment Law: The Employer's Resource. To obtain a copy, please contact Karen Cerreto at (973) 422-6466 or email kcerreto@lowenstein.com.

Please email the authors at mlester@lowenstein.com or stavaglione@lowenstein.com with questions about this article.