Northern Exposure

Tactical Considerations for Reference Letters in Canada

By Derek Knoechel

As the authors of the July 13, 2009, Northern Exposure article “Canadian Employers May Be Obligated to Provide References” indicate, a positive reference letter can be worth its weight in gold to an employee who has been fired.

But employers often don’t want to provide reference letters, and a reference letter can become a sticking point in negotiations between the employer and fired employee. In light of the potential exposure to bad-faith damages, employers must be careful not to cross the fine line from legitimate “hard bargaining” to “bad-faith conduct.”

Unfortunately, the normal rules of negotiation don’t apply to employers. Tactics that would be considered “fair game” in a commercial context may be considered “offsides” in the employment context, particularly when bargaining over severance at dismissal. Employers often have tremendous leverage over a fired employee since the employee is without a source of income. Overt attempts to take advantage of the situation typically can end badly for employers.

As a result, employers often are forced to negotiate with one hand (if not both) tied behind their back at least until the employee obtains legal representation. Even then, employers must be mindful that judges are aware that the field remains tilted in favor of the employer because of the vast difference in financial resources.

Does all this mean that an employer must comply with an employee’s demand for a positive reference letter?

The answer, at least in British Columbia, is “no.”

B.C.’s highest court has stated that employers are not required to provide letters of reference to departing employees, and the employer’s failure to provide a reference letter is not an appropriate factor to be considered when determining the amount of reasonable notice that should have been provided. Nor should the mere failure to provide a reference letter, in and of itself, result in bad-faith damages.

Of course, employers may commit themselves to providing reference letters either by way of company policy, past practice, or a specific commitment to a departing employee. The failure to follow through with such a commitment without a compelling reason may constitute bad faith.

In addition, where an employer has engaged in other inappropriate conduct, a refusal to provide a reference letter may be seen as yet another example of the employer’s “unreasonable” conduct.

But luckily for employers in B.C. at least, the B.C. Court of Appeal has recognized that there are many legitimate reasons why an employer may not want to provide a letter of reference. Thus as long as the employer can establish a reasonable basis for its decision not to provide a reference letter – whether in general or in a specific case – it can avoid bad-faith damages.

Of course, “bad faith” cases turn on their particular facts, and employers must be aware of the optics associated with any action taken during the dismissal process. Should the matter proceed to trial, judges will subject an employer’s actions to careful scrutiny.

Employers should think twice before suggesting that they are willing to provide a positive reference but only if the employee accepts a “lowball” severance offer. And only those employers who enjoy playing with fire (and getting burned) should try this tactic with a 20-year employee who is an innocent victim of corporate downsizing.

In fact, there are many reasons why an employer might choose to provide such assistance to a departing employee, despite the lack of a strict legal obligation to do so.

  • Where there are other facts that could support a bad-faith claim, an unconditional offer to provide a reference letter may help recast prior events in a more favorable light.
  • An offer to provide such assistance may also reduce an employer’s exposure for failing to provide reasonable notice. Where the employee finds another job during the “notice period” that should have been provided, the “loss” for that period is reduced by the new income received. A reference letter may assist a fired employee in doing so.
  • Where the parties can’t settle a claim because they disagree on the employee’s chance of reemployment, an employer might choose to unilaterally offer a reference letter or other assistance to facilitate early reemployment. Such a proactive move may not only reduce the employer’s exposure, it may successfully change the tone of negotiations. Should the employee ultimately refuse this good-faith gesture, the employer will have a much easier time portraying itself as the “reasonable” party. It’s a relatively low-risk move, and it sure beats playing with fire.