RCSA Reference Checking – Part 1

RCSA Reference Checking Manual PART ONE: A Duty of Care

Table of Contents Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Preface to the 5th Edition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1. Introduction 1.1 A Note on the “Law of Reference Checking”.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.2 The Multi-Jurisdictional Question.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2. Duty of Care Key Points.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1 Introduction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

RCSA Code Response. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Ponder Point.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.2.1 Certain conduct may be lawful in one jurisdiction; but not in another.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.2 Spring’s Case: The case that started it all.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.2.2 Sometimes legislation applies beyond the boundaries of a particular jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

RCSA Code Response. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Ponder Point.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.3.1 Liability for Damage.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1.3 Carrying on business.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.3 Duty & Breach.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.3.1 Summary of Principles .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.3.2 Duty to Client.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Action Point. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.3.3 Duty to Candidate.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.4 Why Reference Check?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Ponder Point.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.4.1 For whose benefit?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1.4.2 Reference Checking as Risk Management.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.4 Reform.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Ponder Point.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.4.1 Contributory Negligence.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.4.2 Personal Injury Reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Ponder Point.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.5 Final Words about Defences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

RCSA Reference Checking: Part One – Duty of Care

2.5.1 Absolute Final Word.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

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Acknowledgments This manual could not have been written without the generous support of RCSA, its Board, management team and its members over many years. That support has been expressed in different ways, but perhaps most significantly through the sense of inquiry and desire for knowledge that the author has encountered in hundreds of members across workshops, webinars and Q&A forums in Australia and New Zealand and in the course of thousands of contacts on the topic.

Most of all, the author would like to acknowledge the contribution of the two original co-authors of the first editions of the Reference Checking Manual, Mark Curran, whose analysis of the Spring decision of the UK House of Lords and concept of checking references within the parameters of the job; and Leigh Olson FRCSA (Life), whose ethics case studies continue to shape and inform the content of this manual.

Preface to the 5th Edition It has been 15 years since we produced the first edition of the Reference Checking Manual for use by RCSA Members. The first edition was prepared from a single State perspective and, in the main, concentrated on the law that applied in that State.

Subsequent editions sought to emphasise general principles of law that applied across all Australian jurisdictions and in doing so may have deleted some of the detail of the first edition.

This fifth edition represents a substantial rewriting of the topic. It is our first attempt to present the scope of all Australian Federal, State and Territory jurisdictions as well as that of New Zealand.

That is made possible (in part) by the encroachment of federal law, and principles extracted from federal law, upon all Australian jurisdictions as well as by moves towards greater harmonisation of the commercial laws that operate in Australia and New Zealand in an era of Closer Economic Relations. There is still a way to go.

Although employment agent licensing schemes have been dismantled in New Zealand, Queensland, New South Wales and Victoria, they still exist in the ACT, SA and WA and employment agents remain regulated in at least four Australian jurisdictions through a combination of licensing schemes and statutory codes of conduct; whilst partially regulated in others.

RCSA Reference Checking: Part One – Duty of Care

The establishment in Australia of a uniform consumer law commencing in January 2011, complete with statutory guarantees of the suitability of services (extending to employment services in some instances) has created a new category of non-excludable risk that will mean that recruiters’ “replacement guarantees” will not be enough, in many instances, to avoid liability if reference checking does not meet requisite standards.

The development of privacy law in the private sector has had a significant impact on the operations of employment agents. Recent moves towards uniform privacy principles in Australia and talk of harmonisation with New Zealand have had a significant impact and will continue to do so.

The so-called “skills and talent shortage” provided further incentive for Members in Australia and New Zealand to recruit from further afield. Likewise, the contraction of the labour market during the Global Financial Crisis provided an incentive for many recruiters to seek to make placements in markets further afield. This has been facilitated to some extent the increased use of electronic commerce, which together with the expansion of the Internet and social networking, produces a new set of challenges to Members operating within Trans-Tasman or global markets.

At the same time, the expansion of mutual recognition schemes has led to greater mobility of the professional workforce; and has meant that recruiters need to understand how to evaluate the skills experience and qualifications of the candidates gained in “foreign” jurisdictions.

In the 15 years or so since the first edition of this manual was published we have seen a wide range of automated candidate/job matching tools come on to the market. These do not replace the need for adequate reference checking. Moreover, they are frequently developed in jurisdictions that do not have the same legal controls over reference checking that exist in Australia and New Zealand and may, to that extent, represent a compliance risk for Australian and New Zealand recruiters who use and rely on them without investigating how they work.

The development of the RCSA Code for Professional Conduct and the maturing of its procedures for investigation and determination of complaints have also contributed to our understanding of issues that face Members in Australia and New Zealand. The ability to reference Service Delivery Standards and other quality assurance regimes in assessing whether a Member’s conduct has been professional means that each function that a recruiter undertakes in the course of matching candidates and jobs can 3

usually be evaluated against some benchmark that will help RCSA and its members to assess whether the function is being carried out in a professional manner.

Well documented system failures with regard to professional registration and recruitment have resulted in the imposition of more stringent demands with respect to checking professional registration and criminal histories, validating identity and preventing résumé fraud. As this edition goes to print, the industry is buzzing with stories highlighting the embarrassment of a major retailer and its recruitment agency that failed to conduct adequate reference checks when appointing a senior executive, who was later found not to have the background and experience claimed.

All these factors have combined to make this fifth edition of the Reference Checking Manual a timely addition to the many resources available to assist RCSA Members in the conduct of their daily work. The Reference Checking Manual has grown since it was first published - so much so that it is now published in parts. They are: • PART 1: Reference Checking: A Duty of Care

This manual cannot deal with every question that might arise and it does not replace the need for professional advice. We do not offer it as a legal text book for reference checking. At most, we hope that it might assist Members to develop a framework within which to identify problems that can arise; and perhaps, within that framework, to seek some solutions.

We think that perhaps 90% or more of the law described in this manual is plain “common sense” and that it reflects a regard for candidates and clients in a manner that is consistent with the RCSA’s Code requirements that Members should observe a “high standard of ethics, probity and professional conduct which requires not simply compliance with the law; but extends to honesty, equity, integrity, social and corporate responsibility in all dealings and holds up to disclosure and to public scrutiny”.

A little of what is discussed in this manual might fall into the heady realm of “uncommon sense”; and as to the rest – it is either unknown or nonsense!

Except where stated, it has been prepared having regard to the law as at June 2014.

• PART 2: Contractual & Consumer Issues • PART 3: Information Gathering & Discrimination • PART 4: Reference Checking: Miscellaneous Laws • PART 5: Reference Checking: The Privacy Context At various points we have included “action points” and “ponder points” and “RCSA Code cross reference points” for you to consider. These are important diagnostic exercises. If you have difficulty in answering or responding to them confidently, we recommend that you seek professional advice.

RCSA Reference Checking: Part One – Duty of Care

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1. Introduction 1.1 A Note on the “Law of Reference Checking” There is no such thing as the “law of reference checking”. Instead, reference checking is an activity, the various aspects of which attract the operation of a range of legal protections and obligations. These protections and obligations arise in the common law as well as in the statutory law of each of the Australian and New Zealand jurisdictions. This will often mean that principles that apply to reference checking will be derived from cases that have arisen in other contexts. Wherever possible, we have tried to provide examples from reported cases in which the courts have had to consider a reference that has been given, or the conduct of a recruiter.

It is also necessary to understand that many of the laws overlap to a considerable extent such that there is, as is said, “more than one way to skin a cat”. Sometimes the principles conflict with each other and cause problems of legal coherence.

Example: We will see later that New Zealand courts have been reluctant to extend the law of negligence to extend duties of care to candidates; but a recruiter might still be liable in respect of statements carelessly made under the tort of defamation; or for breach of the section 9 Fair Trading Act 1986 (NZ) prohibition against misleading conduct.

However most of those apparent conflicts can usually be resolved once detailed information becomes available concerning the facts of any particular situation.

1.2 The Multi-Jurisdictional Question Usually whenever we receive a BSC inquiry we will have to ask the inquirer to identify the jurisdiction in which the inquiry arises; and we have to ask whether the inquirer carries on business in any other jurisdiction. There are two reasons for this.

1.2.1 Certain conduct may be lawful in one jurisdiction; but not in another.

Example: In Queensland written permission must be obtained from a work seeker before disclosing the identity or other details of a work seeker. There is no equivalent requirement in New South Wales. A recruiter operating in one of the NSW border towns such as Tweed Heads would have to be careful if recruiting on behalf of candidates or clients in Coolangatta to ensure that the requirements of both States RCSA Reference Checking: Part One – Duty of Care

were met. Coolangatta/Tweed Heads is a continuous border town. The NSW/Qld border runs down the centre of one of its streets! The same degree of care would need to be exercised by recruiters who are not located in a border town; but who are carrying on business in another jurisdiction – e.g. through use of the Internet.

1.2.2 Sometimes legislation applies beyond the boundaries of a particular jurisdiction Example: A private employment agent based in Sydney who is recruiting in New South Wales and Queensland and placing candidates in the Australian Capital Territory, New South Wales and Queensland might have to comply with: the Fair Trading Act (NSW), the Agents Act (ACT) and the Private Employment Agents Act (Qld) – so far as the making of disclosures about the charging of candidate fees is concerned. They are all different!

It is therefore essential that Members should know where they are carrying on business and if they are carrying on business in another jurisdiction, it is important to know the laws of that jurisdiction.

1.3 Carrying on business Australian and New Zealand law is similar in this respect.

Carrying on business generally means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit and implicit in this idea are the features of continuity and system.

The idea of carrying on a business usually involves a repetition or continuity of acts.

This aspect was considered by the English Court of Appeal in Smith v Anderson (1880) where Lord Justice Brett said: “The expression ‘carrying on’ implies a repetition of acts and excludes the case of an association formed for doing one particular act which is never to be repeated. That series of acts is to be a series of acts which constitute a business.”

But a “one off” transaction or venture may have a business character. In a later Court of Appeal case the same judge, who had by then become Lord Esher, considered the same phrase, but this time in the context of the Partnership Act. He said: 5

“Whether one or two transactions make a business depends on the circumstances of each case. I take the test to be this: if an isolated transaction, which if repeated would be a transaction in a business, is proved to have been undertaken with the intention that it should be the first of several transactions, that is with the intent of carrying on a business, then it is a first transaction in an existing business. The business exists from the time of the commencement of that transaction with the intent that it should be one of a series ...”

1.3.1 Summary of Principles The following principles can be extracted from the cases.

1. Whether a person carries on business within a given jurisdiction is a question of fact to be determined in each case according to its own special circumstances.

2. Carrying on business usually involves some repetition of activities or course of transactions.

3. However, a single transaction may constitute the carrying on of business if it is proven that there was an intention to carry on business and the transaction was undertaken in pursuance of that intention.

4. Acts within a relevant jurisdiction that amount to or are ancillary to transactions that make up or support business may amount to the carrying on business in that jurisdiction.

5. Mere solicitation of offers over the Internet seems generally not to amount to carrying on of business under general law.

8. Mere presence in a jurisdiction through a human or mechanical agency with no power to bind or make decisions is unlikely to amount to the carrying on business in that jurisdiction.

9. Making an offer in a jurisdiction may constitute the carrying on of business in that jurisdiction.

10. The acceptance of offers in a jurisdiction may constitute the carrying on of business in that jurisdiction.

11. Specific statutory laws of a jurisdiction may stipulate that certain activities constitute the carrying on of business in that jurisdiction.

12. In the case of a corporation, business is unlikely to be carried on if the activity is activity described in one only of the subparagraphs to sub-section 21(3) of the Corporations Act 2001 (C’th); but if more than one such activity is carried out, the totality of activities must be considered or according to common law rules. As to whether an overseas company carries on business in New Zealand – see section 332(b) Companies Act 1993 (NZ).

Action Point Review your operations against the checklist of points above and list the jurisdictions in which you think you might be carrying on business. Are you familiar with the laws of those jurisdictions that apply to reference checking or any of your other business activities carried on in those jurisdictions?

6. However uploading information to the internet for the solicitation of business may constitute the carrying on a business in the jurisdiction in which the information was uploaded.

7. Communication (including advertisements) published in a jurisdiction with a view only to seeking to interest residents of that jurisdiction in business transactions that are to be entered into outside the jurisdiction will not constitute the carrying on business in that jurisdiction under general law. Note, however, that the publication may be caught by specific statutory provisions such that the communication may contravene some other law of the jurisdiction.

RCSA Reference Checking: Part One – Duty of Care

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1.4 Why Reference Check?

Although it is customary within the industry to speak about, “reference checking”, the checking of references is only one part of the process of candidate selection.

Some people think that it is over-rated as a predictive tool and prefer to use it only as a means of cross checking opinions of suitability that might be formed by other means – e.g. evaluative testing, interview etc.

In view of the growing reluctance of many employers to provide references about their former employees, the short time that people are typically staying in jobs, the use of probationary arrangements, and the management distance that often separates the referee from the candidate, many people are now concerned that the reference checking process may have outlived its usefulness.

Nevertheless, the need to conduct reference checks and undertake suitable background checking remains an important function undertaken by recruitment consultants and a failure to undertake the process well, or at all, will often draw adverse comment.

Here is an example of the way in which Federal Magistrate Lucev treated such a failure in Wang v Minister for Immigration & Anor. See also the very serious consequences of such a failure to which Lucev FM alludes by reference to one recent Queensland case: “It is noteworthy that the reference does not mention the applicant’s unsatisfactory grades in all subjects studied, her failure to achieve satisfactory course progress, failure to complete Year 12 or its equivalent, and her need to develop her English skills to a more functional level: see also paras.16 and 17 below. The reference is plainly misleading, no matter how literally correct it might be. It is disturbing that a reference was provided in this form by a major education services provider more than a decade after the House of Lords judgment in Spring v Guardian Assurance plc [1994] UKHL 7; [1995] 2 AC 296 (“Spring”) suggested the possibility of a duty not to negligently cause economic loss to a prospective employer by the provision of an inaccurate reference, although in that case a specifically requested reference rather than a general reference was referred to: Spring at 342 per Lord Woolf. More recently in HWC v Corporation of the Synod of the Diocese of Brisbane & Ors (2008) 220 FLR 92; [2008] QSC 212 the Queensland Supreme Court has said that there is an arguable case of liability for breach of duty of care arising where a teacher, who had been engaged in improper conduct, had been allowed to resign

RCSA Reference Checking: Part One – Duty of Care

and provided with a reference from the Principal of the school which allowed him to seek employment elsewhere, and having gained employment in another State, again engaged in improper conduct (sexual abuse) of a pupil, who now, as an adult, sought to bring civil proceedings for damages for personal injuries.”

1.4.1 For whose benefit?

It is often assumed that reference checking is carried out for the benefit of the client.

That is frequently the case. But it is not always so.

Sometimes reference checking expressly falls outside the scope of the services provided to the client. This might make sense in a case where an agency presents candidates on a contingent basis and is not paid for any services, other than for a presentation that results in a successful placement. In such a case reference checking might primarily be for the benefit of the agency. It might even be for the benefit of the candidate.

So we can usually identify at least three different stakeholders in the reference checking process: Clients Where reference checking is carried out for the benefit of clients, it may be subject to contractual duties; duties of care; and statutory guarantees - mostly aimed at ensuring that the recruiter provides a professional service and exercises reasonable skill and diligence in the selection and presentation of candidates who appear to be suitable for the roles for which they are put forward. An agency may also owe professional duties under RCSA’s Code.

Agency Even if an agency has scoped its services so as to exclude reference checking, it might still want to conduct reference checking for its own needs - to protect the Agency’s reputation as one that sources and presents good candidates; and perhaps to minimise the risk of having to make a replacement under commercial candidate replacement provisions.

Here the focus will be on the proper carrying out by a consultant of his or her duties as an employee. Duties of care and contractual obligations owed to the Agency will be to the fore. The consultant may also owe professional duties under RCSA’s Code.

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Candidate Some reference checking is carried out for the benefit of the candidate - to ensure that he or she is matched to suitable work that does not exceed the candidate’s skills and experience, or subject the candidate to any health and safety risk. Often, the ability to present well checked references will be of assistance to a candidate who is looking for work.

The duties owed to the candidate will primarily be duties of care to ensure that accurate and objective information is presented; contractual duties; and a range of statutory duties, some of which derive from Employment Agency legislation. In addition, duties arising from privacy protections and professional duties under RSCA’s Code will be to the fore. A range of other protections such as those found in anti-discrimination laws; lapsed convictions or “clean slate laws”; and the law of defamation may also be relevant.

1.4.2 Reference Checking as Risk Management As you can see, reference checking can lead you not a legal minefield. We suggest that one of the chief purposes of reference checking is that of managing risk – where risk is understood to encompass all the disbenefits of making an unsuitable placement.

Those risks could include: Business risk - the damage done to your business and its goodwill when an unsuitable placement is made.

Legal risk – all the many varieties of legal risk and liability that may arise (including liability to a candidate) when an unsuitable placement is made.

Professional risk – the risk to your professional reputation that may arise from making a candidate/job mis-match.

Ponder Point We have spoken in terms of making an “unsuitable placement” rather than in terms of placing an “unsuitable candidate”. Just as it may be said that a candidate may be unsuitable for a particular job; it may equally be said that some jobs are unsuitable for particular candidates!

RCSA Reference Checking: Part One – Duty of Care

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2. Duty of Care Key Points • The common law imposes a duty on everyone to take reasonable care to avoid foreseeable harm to others (“the duty of care”). A breach of the duty of care is known as “negligence”.

• Several different people can owe legal duties of care at the same time.

Example: A referee and a recruiter may both owe legal duties of care to a candidate and to the prospective client when furnishing or passing on a reference. If something goes wrong and loss or damage results, they may both have to share liability in proportion to extent to which their separate actions might be said to have caused the loss or damage (“contributory negligence”).

• The legal duty of care extends to all types of actions – including the giving of advice and the making of statements about a person.

• A recruiter owes a legal duty of care to candidates, clients and others to whom they are closely connected by their actions (a “proximate relationship”).

• The precise standard of that duty may vary with the circumstances and may require different things in different settings (“the standard of care”). If a person is held out as having special “expertise”, “specialist skills” or as a “professional” in a given field, they will owe a commensurately higher standard of care.

• The common law duty of care has been modified in many jurisdictions by statutory laws that alter the incidence of liability, or which cap the damages that may be awarded.

Example: In New Zealand, liability to pay damages for personal injuries arising by accident has been replaced by a statutory accident compensation scheme.

In Australia, the National Professional Standards Framework has allowed some professions to cap their liability for damages. NOTE: the schemes are somewhat limited in number and the Employment Services Industry has not joined the framework. Accountants, on the other hand, have actively taken up participation.

• The legal duty of care is very broad and intersects with other laws – e.g. the law of defamation, consumer law, contract and others. The courts are therefore reluctant to impose new duties if the loss or damage that results from negligence is limited to economic loss, except in cases where the proximate relationship is very close (e.g. employer and employee). One of the current debates in this area concerns the question of whether such a duty is owed to the subject of a reference when giving or passing on a reference.

• Liability for breach of the legal duty of care can often be excluded or modified by the use of contractual exclusion clauses and indemnities (sometimes called “hold harmless clauses”).

• If the duty of care is breached and foreseeable damage results, common law imposes liability on the person in breach to compensate anyone who has suffered loss (“damages”).

• An employer can be made legally liable for loss or damage caused by its employee’s breach of the legal duty of care occurring in the course of employment (“vicarious liability”).

• Types of loss generally recognised at common law include personal injuries, property damage and economic loss (“loss or damage”).

RCSA Reference Checking: Part One – Duty of Care

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2.1 Introduction There are many circumstances in which the law imposes a duty on a person to take reasonable care not to cause harm to others.

Put simply, the law of negligence requires a person to be careful in all actions to take reasonable steps to avoid causing foreseeable harm to someone else.

RCSA Code Response Members must observe a high standard of professional conduct Ponder Point To what extent does the requirement to observe a high standard of professional conduct entail taking reasonable steps to avoid causing harm to others through your work as a recruiter?

2.2 Spring’s Case: The case that started it all Our first edition of the Reference Checking Manual was published shortly after the UK House of Lords handed down its 1994 decision in the case of Spring v. Guardian Insurance PIc. That case focused attention, perhaps for the first time, on the nature of the legal duties that arise when providing, and passing on, a reference.

The Facts Mr. Spring was employed as a sales director and office manager by Corinium, who were agents for the sale of insurance policies issued by Guardian Assurance. Corinium was taken over by another corporation and a new chief executive was appointed.

Spring was dismissed shortly after without explanation.

He then attempted to set up business elsewhere selling the policies of Scottish Amicable.

Both Guardian Assurance and Scottish Amicable were members of an industry association, whose code of conduct required them to exchange full and frank references regarding former employees whenever asked to do so by another association member.

Guardian Assurance was requested to give a reference for Mr. Spring.

RCSA Reference Checking: Part One – Duty of Care

The reference that Guardian Assurance gave was, in the words of one Judge, so bad that it amounted to “the kiss of death”. Here is how it was reported in the House of Lords judgment: The Reference “Mr. Spring held the position of Sales Manager until he was asked to leave in August of this year. His former superior has stated in writing that he was seen by some of the sales staff as a person who consistently kept the best leads for himself with little regard for the sales team that he supposedly was to manage; and his former superior has further stated that he is a man of little or no integrity and could not be regarded as honest … Since the 1st January 1989, Messrs Spring and Parker shared all their commission earnings on a 50:50 basis and left owing the company some £12,000 in funding which to date has not been repaid. This matter is now in the hands of solicitors. The current lapse ratio is running at 18% and this is only for policies written since March of this year. Since their departure, we have found a serious case of mis-selling where the concept of “best advice” was ignored and the policies sold yielded the highest commissions. GRE personnel have had to visit the investor to rectify the situation. There have been other cases where there has been bad advice but there is no current evidence to indicate whether it was deliberate or through ignorance.”

Not surprisingly, Mr. Spring did not find it easy to obtain employment with an insurance company after the appearance of the reference and because of that he suffered loss.

Mr. Spring’s Legal Proceedings Mr. Spring commenced legal action alleging – • Malicious falsehood; • Breach of contract; and • Negligence.

You can see from this that Mr. Spring tried at least three separate ways of “skinning the cat”.

The trial judge found that the reference was inaccurate. He thought that Mr. Spring was not fraudulent, merely incompetent. The suggestion of fraud contained in the reference was therefore potentially defamatory; but Mr. Spring did not base his action in defamation. In any event, it might have failed at that time, because an employer who 10

gave a character reference was generally entitled to raise a defence of qualified privilege unless there was some malice.

to whether other relationships (and in particular the relationship between recruiter and candidate) is sufficiently close to attract the duty of care.

As the trial judge held that there was no malice, a defence of qualified privilege would have stood. The action in malicious falsehood also failed because of that same finding.

We will look at the approaches of the Australian and New Zealand Courts in more detail later. However, the case remains of importance to recruiters and in this manual we will use it in several ways:

The trial judge did think that Guardian prepared the reference carelessly. He allowed the claim in negligence; but dismissed the claim in contract. Perhaps Mr. Spring would not have been jubilant upon learning that his alleged incompetence was now also the subject of a judicial finding against him; but he had won on one of his grounds. The Court thought that his former employer had breached its duty of care towards him when it had said, in effect, that he had been fraudulent and he was entitled to an award of damages.

The employer appealed. On appeal by Guardian, the Court of Appeal dismissed the claims in both negligence and contract and the award of damages in Mr. Spring’s favour was overturned.

Undeterred, Mr. Spring appealed to the House of Lords, which held in his favour by a majority of four to one.

Importance to Recruitment The case has received extensive consideration by the courts both in Australia and New Zealand.

Although Australian courts sometimes treat it as not applying to the particular facts of the case that might be before them, they have generally accepted it as a correct statement of legal principle regarding the circumstances in which a Court may find that an employer who gives a reference regarding a former employee owes to the employee a duty: “…to avoid making untrue statements negligently or expressing unfounded opinions even if honestly believed to be true or honestly held.”

New Zealand Courts have been more cautious in adopting Spring and remain determined not to allow the law of negligence to encroach too far upon the law of defamation so as to undermine the defence of qualified privilege. Nevertheless, it appears that they do recognise that it is likely to apply in the circumstances where a close relationship, such as that of employer/employee exists between the person giving the reference and the person whom it concerns. It remains an open question as RCSA Reference Checking: Part One – Duty of Care

• We will use the reference as a case study in what can go wrong – even with a written reference; • We will look at how its principles might apply to the “special relationship” that exists between a recruiter and a candidate to see whether recruiters might owe a similar duty of care; • We will look at the other causes of action relied on in Spring, namely breach of contract and malicious falsehood and consider how they might apply to a recruiter; and • We will consider how other causes of action (e.g. some of the consumer protection provisions or employment agent regulations might operate in a case such as Mr Spring’s.

2.3 Duty & Breach Usually, a person will owe a legal duty of care to another person when they are so closely connected through their actions that there is a foreseeable risk of harming that person if the duty is breached. They are said to be in a proximate relationship with each other. In one early case, they were described as being “neighbours” in the eyes of the law.

Typically a recruiter might owe such a duty to: • a client; • a client’s employees (i.e. a prospective candidate’s co-workers); • a candidate; • a client’s customers or clients (e.g. patients if your client is a hospital) • dependents (e.g. family) of anyone to whom the recruiter might owe a legal duty of care. Statutory schemes dating back as far as 1846 allowed relatives of people killed by the wrongdoing of others to recover damages.

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The standard of care is that which is reasonably required to avoid foreseeable risk of loss or damage that might be caused by any breach of the duty.

It is flexible in its application and changes with circumstances – including advancements in professional knowledge and practice so that it is perilous to ignore changes in professional standards or business conditions.

RCSA Code Response: Principle 7 – Professional Knowledge 1. Members must work diligently to develop and maintain a satisfactory and up to date level of relevant professional knowledge and, where required by RCSA’s By-Laws, maintain a Continuing Professional Education program to the level prescribed by the RCSA Levels and Criteria of Professional Membership issued from time to time.

2. Members must ensure that their Staff are adequately trained and skilled to undertake their responsibilities.

2.3.1 Liability for Damage At common law, if you breach the standard of care and your breach causes loss or damage to someone to whom you owed a duty of care, you will be liable to compensate the loss or damage.

The type of loss or damage that can be suffered could be: Personal injury – e.g. if a candidate injures a co-worker or a customer or client of the recruiter’s client; or if being unsuited to the work in which you have placed him/her injures him/herself; Property damage – e.g. if a candidate mishandles plant and equipment causing damage to it or to other property; Economic loss – e.g. if a candidate about whom a recruiter carelessly passes on inaccurate information loses the opportunity to obtain work – as happened in Spring’s Case.

It can be helpful to think about what this means with regard to duties owed to clients and to candidates.

Ponder Point In Spring, a case involving the duty owed by an employer to a former employee when giving a reference, the duty was described as a duty “… to avoid making untrue statements negligently or expressing unfounded opinions even if honestly believed to be true or honestly held.”

What words would you use to describe the duty which as a recruiter you owe to: 1. a candidate; 2. a client 3. when checking a reference?

RCSA Reference Checking: Part One – Duty of Care

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2.3.2 Duty to Client We will assume that the client is the person who will employ the candidate. There are some circumstances where recruiters may be in a supplier/consumer relationship with the candidate. We are not treating this as a client relationship in this manual. We deal with it under the heading of the duty owed to the candidate.

Recruiters expose themselves to liability in negligence to clients in – • providing written or verbal reports to clients regarding potential employees; • passing on references to clients which relate to candidates; • the process of reference checking itself including deciding to check or not to check references.

It is not enough merely to establish that a recruiter owes a client a duty of care. The relevant duty must be breached before any liability falls upon the recruiter.

Whether there is a breach of duty will depend on whether the recruiter’s conduct has fallen short of what a reasonable person, exercising the degree of skill and care expected of the recruiter would have done.

Accordingly, the duty imposed on a recruiter would require him or her to exercise reasonable care when – • validating the identity of the candidate and corroborating information provided by either the candidate or a referee; • conducting reference checks of candidates with respect to competencies viewed as desirable by the employer and desirable competencies; • conducting reference checks of candidates with respect to competencies disclosed in references; and • preparing reports or communicating verbally with clients.

It can be helpful to think about how the duty of care applies to the risk of the different categories of harm that are to be avoided. Those could be: Personal Injury A recruiter could be liable in negligence for having presented a candidate who constituted a risk to public health or safety without having adequately checked references and suitability to the extent necessary to identify and warn of that risk.

RCSA Reference Checking: Part One – Duty of Care

Example: A candidate may have a propensity for violence and vandalism. Inadequate reference checking takes place with the result that this is not disclosed to the client.

The candidate, after being employed on the basis of the recruiter’s recommendation, assaults another employee and damages property of the client. The assault victim looks to the employer for compensation on the basis that the client/employer is vicariously responsible for the acts of its employee and directly responsible to provide a safe workplace. The client subsequently looks to the recruiter for reimbursement.

Keegan v Sussan Corporation (Aust.) Pty Ltd (2014) The defendant was ordered to pay $338,000 when a manager whom it employed despite an adverse reference, was found to have bullied the plaintiff.

The defendant asked a referee if she would employ the candidate again and the referee’s response was “no”. When asked why, the referee said she did not believe that the candidate was management material and she would need to learn management skills and people skills. The employer went ahead and employed the candidate anyway – leaving her to learn these skills “on the job”. The Queensland Supreme Court said: [39] In the face of such a clearly adverse referee report from [the referee] it should have been obvious at the outset to [the Defendant Employer] that she was employing a person with probably limited management skills. [The Defendant Employer] was in effect put on notice of the need for [the Candidate] to receive management training and, at least initially, to closely scrutinise and support her performance as a manager.

Property damage A recruiter could also be liable in negligence for damage that is caused to the property of a client or to another employee where a candidate is engaged on the basis of a report or short listing compiled by a recruiter.

Example: Inadequate reference checking fails to identify that the candidate has a poor record in handling certain types of machinery. The candidate is placed in a position in which he/she is required to operate that machinery. The candidate mishandles the machinery causing damage to it and to other property. The client (or its insurer) looks to the recruiter for compensation.

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Economic Loss Recruiters can expose themselves to an action by the client for negligent mis-statement about the suitability of a candidate (often as the result of a failure to check references adequately) that causes economic loss - e.g. through the fraud or incompetence of the placed candidate.

Example: A recruiter states in a report that a candidate is “beyond reproach in matters of integrity”. The client relies on this report and employs the candidate. The candidate proves not to have those attributes and causes economic loss to the client (for example, he defrauds the client). The client might look to the recruiter for compensation.

The recruiter would owe a duty of care to the client in the example given above because: • the recruiter has access to information or regarding candidates; • the recruiter will realise that he/she is being trusted to give the best of his/her information or advice as the basis for action on the part of the client; • It is reasonable for the client to act on the information passed on by the recruiter.

The Wedeco AVP Case In Driver Recruitment Pty Ltd (trading as Authorised Solutions) v Wedeco AVP Pty Ltd a client successfully sued a recruitment agency for negligence and obtained an award of damages of about $164,000 for economic losses caused by employing a candidate in respect of whom adequate background inquires had not been made. The losses arose in part as a result of fraud committed by the candidate once he had obtained employment. Had the inquiries been made they would have revealed that the candidate’s claimed qualifications had been false, that he had been bankrupt and was an undischarged bankrupt, and that in his business activities he had engaged in fraudulent practices.

Taking Steps to Avoid a Breach of Duty Owed to the Client • Ask clients what attributes they view as desirable. Keep a written record; • Contact the authors of references, referees and other third parties regarding the agreed attributes, attributes disclosed in references and desirable attributes; • Record the results of reference checks on the file; RCSA Reference Checking: Part One – Duty of Care

• Base recommendations and reports on the degree to which the candidates meet the agreed attributes. The attributes should be satisfied at a high level before any favourable recommendation or report is made.

• Scoping the Client Service Agreement to make it clear whether reference checking falls within the scope of your services or not can help; but ay not provide full protection.

• An exclusion cause could be inserted in the contract between the recruiter and client to protect the recruiter from liability in negligence.

• It should be carefully drafted to clearly identify the liability that is excluded and should specifically refer to negligence.

• Even so. The clause might not be effective against statutory provisions such as the implied warranties contained in the Australian Consumer Law or, where it applies, the Consumer Guarantees Act 1993 (NZ). We discuss this in the chapter on Contract and Consumer Protection.

• A disclaimer can be effective. However it may not provide full protection. We will discuss this in the part dealing with contract.

2.3.3 Duty to Candidate In many cases the liability of a recruiter to a candidate (especially if they are in a close proximate relationship) will be similar to that of a former employer who chooses to give a reference. We will consider them together; and in doing so will have an opportunity to consider some of the cases in which it has been alleged that a legal duty of care has been breached when an adverse reference or report was given.

The necessary relationship of proximity allowing a candidate to recover might be established, for example, because of some – • Contract – e.g. a contractual promise of exclusivity; • course of dealing; or • assumption of a responsibility to advise – e.g. where a recruiter is called upon under a provision such as section 11 of the statutory Code of Conduct contained in the Private Employment Agents (Code of Conduct) Regulation) 2005 (Qld) to give a work seeker “accurate advice about employment and placement options, including current labour market information”.

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Duty to avoid Personal Injury Subject to the tort reform and accident compensation reforms that have been made in some jurisdictions (most notably in New Zealand ), a recruiter could be liable in negligence for injury that is caused to a candidate due to an unsuitable placement brought about by a lack of careful attention to matching the candidate to the position.

Elliott v Nanda & Commonwealth The applicant obtained work as a receptionist in a doctor’s surgery after the Commonwealth Employment Service referred her to the doctor for employment. The CES had earlier received complaints from several women about sexual harassment by the doctor at a previous surgery. When the applicant suffered sexual harassment, the CES was held liable to pay compensation for having “permitted” the harassment. This is a discrimination case, rather than a negligence case; but it illustrates the manner in which carelessness in making a suitable placement can put a candidate at risk of personal injury.

Duty to Avoid Causing Economic Loss Economic damage may be suffered as a loss of income through personal injury, or as a loss of an opportunity for employment security advancement or promotion.

An unsuitable placement brought about by careless inattention to assessing the candidate’s attributes for a particular job can leave a recruiter exposed to claims for compensation for economic damage of this type.

Although the question sometimes arises in circumstances where the candidate has been placed in a position that is beyond his/her abilities, it more frequently arises when the candidate has not been placed at all because of some adverse reference or report and the economic loss stems from some damage that has been done to the candidate’s reputation.

Example: if a candidate about whom a recruiter carelessly passes on inaccurate information loses the opportunity to obtain work.

“Sticks and stones can break my bones; and words can often hurt me!”

Once it is recognised that a statement carelessly made, or an opinion carelessly formed, about a candidate’s suitability (or lack thereof) to perform certain work is capable of harming the candidate physically or reputationally there exists the possibility that a legal duty of care will be imposed.

RCSA Reference Checking: Part One – Duty of Care

The duty is perhaps best summed up by the House of Lords in Spring as a duty… “…to avoid making untrue statements negligently or expressing unfounded opinions even if honestly believed to be true or honestly held.”

A statement made or an opinion formed about the suitability of a placement must have a sound factual (and therefore objective) basis. It is not enough that the person who makes the statement or forms the opinion honestly believes it to be true. This will therefore require the maker or opinion holder, objectively and reasonably, to consider all relevant information regarding the candidate’s character and ability and the requirements of the position.

Wade’s Case In Wade a former member of the Victorian Police Force sought to recover economic loss said to have resulted from the provision of information by the Victoria Police to the Queensland Criminal Justice Commission which was false and misleading and which caused him to lose employment with a manufacturer of gaming machines in Queensland.

Negligence involving damage to reputation There has been an ongoing debate about whether damage to reputation should be dealt with by courts applying the law of negligence or the law of defamation.

In Spring the U.K. House of Lords considered that a claim could be brought under the law of negligence as well as under the law of defamation. But the defences are different.

New Zealand and Australian courts have been more reserved and, after some initial interest in Spring’s Case, have tended to prefer to deal with claims of damage to reputation as defamation claims rather than as negligence claims.

New Zealand Law Courts in New Zealand have been reluctant to allow negligence claims for loss of reputation because it is considered that the law of defamation provides a better framework for imposing liability for such losses. The effect of this has been that it has been difficult for candidates in New Zealand to maintain a successful action in negligence for harm suffered as a result of an adverse report or reference. That is not to say that it is impossible – merely that some other way of “skinning the cat” ought usually be sought.

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In those cases where the New Zealand courts have suggested that a legal duty of care might arise, there has generally been some “special relationship” of reliance.

Midland Metals In Midland Metals Overseas Pte Limited v. The Christchurch press Company Limited & Ors, the New Zealand Court of Appeal disallowed a claim in negligence brought by supplier of goods against the newspaper, which published an adverse report about the plaintiff’s goods. The Court of Appeal was not prepared to allow the doctrine in Spring any wider application than to the circumstances in which a former employee may have a claim in negligence against a former employer in respect of a carelessly prepared reference. Justices Gault, Keith and McGrath said: “While we can readily accept the desirability of providing remedy in Mr. Spring’s case and accept that such cases might justify imposing a duty of care in negligence, we do not see that referring to harm in that case as economic loss distinguishes it from defamation cases… there is not the necessary special relationship or proximity between the newspaper publisher and persons to (or whose goods) are referred to in a news item.”

Leigh v The AG In a more recent decision, and one which perhaps is closer to the situation that arises when a recruiter is called upon to undertake a reference check, the New Zealand High Court in Leigh v. The Attorney General & Anor refused to impose a duty of care upon the Ministry of Environment and the then Deputy Secretary of the Ministry in circumstances where it became necessary to make certain adverse comments regarding the plaintiff in a briefing paper that was prepared for the Minister. The adverse comments alleged included comment to the effect that the plaintiff: “…was incompetent”; “… was irresponsible”; “… was overly emotional”; “… was not fit to be employed by government Department, Ministry or agency as a professional communications recruiter”;

RCSA Reference Checking: Part One – Duty of Care

and that her work: “…had received consistent adverse comment from government departments, senior officials and from the Minister responsible for Climate Change Issues as a consequence of her incompetence.”

The High Court relied upon what had previously been held in Midland Metals, noting that: The Court of Appeal in Midland Metals was inclined to confine any impact of the House of Lords decision in Spring to circumstances where there was a special relationship between the maker of the statement and the person about whom the statement was made, or where there has been a relevant assumption of responsibility by [the person making statement].

The Court went on to hold that the briefing paper was not prepared as a reference or to address the plaintiff’s competence of the sake of prospective employment. It was a document that was required by the Minister to provide information in the context of criticism of the circumstances in which a certain consultant (the plaintiff) was retained.

The court said: “The opportunity to consider the impact on her future employment prospects, which would be to the fore in preparing a reference, could not reasonably come within the immediate scope of concerns for the officials in the Ministry when preparing a prompt response to the Minister’s request.”

Although the Court did not treat the plaintiff’s status as an independent contractor (as distinct from that of an employee) as decisive on its own, the Court did remark: “It does, however, distance her to a material degree away from the relationship that applies between employer and employee.”

The Court therefore concluded: “… the relationship between [the plaintiff] and the Ministry falls outside the requisite proximity that would be required to impute the duty of care.”

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The Court justified its findings by saying: “The Courts have been wary of imposing a duty for negligent misstatement causing damage to reputation because the law addresses that harm within the law of defamation…

Another policy consideration is not to upset the balance between freedom of expression and a recognition of rights to protection of reputation. That takes on some real significance where the context of the communication is the Ministry’s requirement to respond to a request for information from a Minister of the Crown.

There should be no chilling influence, as would arise from the prospect of tortious liability from negligent misstatement exerted on those responding to such a requirement, given the level of importance attaching to full, frank and prompt responses in such situations”.

On appeal to the Court of Appeal Leigh v Attorney-General [2010] NZCA 624, the court affirmed the principle that the claim should be brought as one of defamation rather than negligence and considered that the statements made regarding Ms Leigh were capable of being defamatory of her. The matter was remitted for trial on that basis.

Ponder Point It looks as though a New Zealand court would follow Spring in the case of an action brought by a former employee against a former employer.

But do you think that a recruiter is in a similar position to that of the Ministry officials, who had to provide a “full frank and prompt response” on important matters?

What would be necessary to bring your relationship with your candidate within the boundaries of a proximate relationship – or place it beyond those boundaries?

How might you manage your candidate’s expectations in that regard?

Australian Law The New Zealand approach to this issue has found favour with the Australian Courts.

Sattin v Nationwide News In Sattin v Nationwide News Pty Limited the defendant newspaper had published a photograph of the plaintiff and a male person, with the caption that the plaintiff and the male person were newly wed, whereas the plaintiff was married to another person RCSA Reference Checking: Part One – Duty of Care

and had never been married to the male person shown in the photograph. Levine J, after considering the judgments of the Law Lords in Spring and the decisions of the New Zealand Court of Appeal in Bell-Booth Group Limited v Attorney-General and South Pacific Manufacturing Co Limited v New Zealand Security Consultants & Investigations Limited, refused an application by the plaintiff to amend her statement of claim by adding a cause of action in negligence.

Sullivan v Moody In Sullivan v Moody the Australian High Court had to consider whether medical practitioners, social workers and departmental officers, who were involved in investigating and reporting upon allegations of child sexual abuse owe a duty of care to the suspects. It was alleged that their reports had been prepared carelessly as a result of which the suspects suffered loss. The court was not prepared to find that any legal duty of care was owed in circumstances where to impose such a duty might lead to a result that was “legally incoherent” with the law of defamation.

Coco Roco The New South Wales Supreme Court applied the following comments of the High Court in refusing to hold that a newspaper owed a duty of care to a restaurant owner when publishing a review that caused economic loss: [53] Developments in the law of negligence over the last thirty or more years reveal the difficulty of identifying unifying principles that would allow ready solution of novel problems. Nonetheless, that does not mean that novel cases are to be decided by reference only to some intuitive sense of what is ‘fair’ or ‘unfair’. There are cases, and this is one, where to find a duty of care would so cut across other legal principles as to impair their proper application and thus lead to the conclusion that there is no duty of care of the kind asserted.

[54] The present cases can be seen as focusing as much upon the communication of information by the respondents to the appellants and to third parties as upon the competence with which examinations or other procedures were conducted. The core of the complaint by each appellant is that he was injured as a result of what he, and others, were told. At once, then, it can be seen that there is an intersection with the law of defamation which resolves the competing interests of the parties through well-developed principles about privilege and the like. To apply 17

the law of negligence in the present case would resolve that competition on an altogether different basis. It would allow recovery of damages for publishing statements to the discredit of a person where the law of defamation would not.

[55] More fundamentally, however, these cases present a question about coherence of the law...”

That long running case concluded in June 2014 with orders that the defendant pay approximately $600,000 damages and interest for defamation.

In Summary It is accepted by some commentators that, in an appropriate case, the common law will impose a legal duty on persons who give, obtain or pass on references to take reasonable care to avoid harm to the candidates whom they concern. However, the issue currently remains open on the basis that the law of defamation may provide a more suitable legal framework for actions of this type.

Accordingly, we might say that Australian law in the last ten years or so has moved closer to the position in New Zealand. It remains to be seen how the common law will develop. The need for it to develop is reduced to some extent by the reform of defamation laws and by the advancement of consumer protection laws, which afford remedies to those who have suffered loss as a result of “misleading” conduct (including statements). These developments will be discussed in later chapters.

Remember, however, that we are only talking here about negligence claims that involve loss of reputation and which may therefore intersect with the law of defamation and other laws that are more specifically tailored to deal with damage to reputation. The legal duty of care will still apply in other settings.

NOTE: The reluctance which the Australian and New Zealand Courts have shown toward extending the Spring doctrine to circumstances where the law of defamation might be called into play to protect a candidate will not apply to avoid a duty of care being owed to protect clients; and it does not apply to avoid a duty of care being owed to prevent economic harm that arises otherwise than from injury to reputation.

It would also seem that courts in Australia and New Zealand will be prepared to apply the Spring principle, where the relationship is especially close. Just how close your relationship with your candidates is will be a matter that will vary from case to case.

RCSA Reference Checking: Part One – Duty of Care

Minimising Risk In any event, and to allow for future developments in the law of Australia and New Zealand in this area, some additional measures might be taken by recruiters to minimise the possibility of being sued by a disappointed candidate: • Assess the nature of your relationship with candidates. To do this you will have to carefully consider any written or oral arrangements entered into with the candidates as well as your usual course of dealing; • If you contract with candidates you should be reviewing the terms of your contract to ensure that the contract is clear about the scope of services you will be providing; • Appropriate disclaimers and exclusions should be included; • If any aspect of that relationship suggests that a duty of care might be imposed: »» You will need to be particularly clear about how you will manage any contest between the interests of the candidate and the interests of the client; »» You will need to be clear about how you will handle any confidentiality issue regarding adverse information; »» You might wish to seek indemnities from either your client or your candidate.

2.4 Reform 2.4.1 Contributory Negligence Originally at common law it was not possible for a person to recover damages for breach of duty of care in negligence if the person had contributed in any degree to the injury which he or she suffered. Contributory negligence on the part of the plaintiff thus provided a complete defence.

Early Tort reform introduced the notion that anyone who contributed to the loss should be proportionally liable to the extent of their contribution.

This reform was brought about in New Zealand in 1947 by Contributory Negligence Act 1947.

The various Australian States introduced the reform at different stages, the last to do so being New South Wales in 1965.

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2.4.2 Personal Injury Reform New Zealand In 1972, New Zealand introduced substantial reform of the law of negligence (duty of care) in the form of legislation that did away with claims for personal injury arising out of accidents and replaced them with a form of statutory insurance cover. The current legislation is the Accident Compensation Act 2001.

The statutory compensation scheme provides cover in circumstances where an accident causes death or specific types of physical and mental injuries.

If an injury is covered under the Act it is not possible for the injured person to sue for common law compensatory damages. However, if the injury is not covered, the injured person is left to his or her common law remedy.

There are some exceptions.

Australia Many members will recall, or may have heard of, the insurance indemnity crisis which beset businesses in the late 1990s and early 2000s.

That crisis arose as a result of a number of decisions in which ruinous awards of damages were made against people who had provided professional advice. It affected most professions and affected the employment services industry most particularly because the employment services industry placed candidates and on-hired services into most professions.

Between the 2001 and 2005 more than 35 separate piece of legislation were passed in Australia, which were designed to achieve several major reforms.

Reduced Liability Schemes Whilst “Good Samaritans” volunteers, community workers, government authorities and providers of recreational services benefited from these changes, a most significant change concerned the introduction of professional standards protections on the proviso that certain peer based standards were met.

Apologies The legislation of the States and Territories varies considerably and great caution should be exercised to ensure that any apology or statement of regret that is offered in circumstances from which it may be inferred that the apology amounts to an admission of liability, is crafted so as to attract the statutory protections.

Proportionate Liability Scheme Once again, the changes are not uniform across all State and Territory jurisdictions. In some jurisdictions awards of exemplary, punitive and aggravated damages are no longer available in respect of personal injury claims.

A significant development was the introduction of a more robust proportionate liability scheme which had the effect, in the case of claims other than claims for personal injury, of ensuring that a defendant could not be made liable for the whole amount of any damages if it had only contributed a portion. Under the proportionate liability schemes a defendant must notify the plaintiff of the identity of all persons who contributed to the loss which the plaintiff has suffered.

Example: If you were a recruiter who received the reference in Spring’s Case and Mr Spring wanted to sue you; you would have to notify him of the identity of the referee if you wished to limit your liability to the extent of your own contribution.

Ponder Point Are there situations in which this could prove problematic? What if you had given an assurance of confidentiality to the referee?

There is now professional standards legislation in most Australian States and Territories forming part of a national scheme.

They have not, at the date of publication being accessed by recruitment professionals.

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2.5 Final Words about Defences Typical defences often raised in negligence actions are: • No duty was owed to the plaintiff because: »» He/she was not a “neighbour” – i.e. not in a proximate relationship; »» The defendant (recruiter) undertook no responsibility to provide advice or express an opinion;

2.5.1 Absolute Final Word The best defence is always to be able to show that you have discharged your duty – to have been careful and sensible, within reasonable bounds, to avoid harm to your neighbour. This will require you to give some thought to the scope of those “reasonable bounds”. It will also require you to have documented the actions which you took so that you can meet the requirements of proof, which require more than mere assertion.

»» A contractual exclusion modified or removed the duty.

• The duty was not breached – i.e. the defendant’s (recruiter’s) actions were reasonable in all the circumstances.

• No harm was done – i.e. no foreseeable loss was suffered by the plaintiff.

• The plaintiff voluntarily assumed of the risk of harm – i.e. consented to it knowing the nature of the risk.

Fortunately, you do not owe a duty to the whole world. However it is important for you to identify those people to whom you do owe a duty so that you can take their position into consideration whenever you are acting in a way that might cause them harm.

It is possible, in some instances, to exclude liability contractually. This possibility was referred to by the House of Lords in Spring. Excluding a duty of care is a difficult and technical task and you should always seek qualified legal assistance. The task is made more difficult if you are not in a contractual relationship with the party whom you wish to prevent from suing you.

A negligence action will not succeed if no loss has been caused by the breach of duty.

Remember, however, that other forms of action may succeed without proof of loss.

Voluntary assumption of the risk begins with consent; but in order to give an effective consent one must know the nature of the risk to which content is being given. This will require you to think about how you explain those risks to people who are likely to be affected.

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