Spring v Guardian Assurance plc [1995] 2 AC 296

An ex-employee sued his former employer for providing a negligent and damaging reference which caused him economic loss. The House of Lords held that an employer owes a duty of care to an employee when preparing a reference for a third party.

Facts

The plaintiff, Mr Spring, was dismissed from his role as a company sales director for Guardian Assurance plc (‘Guardian’). He then sought to work for another insurance company, Scottish Amicable, in a similar capacity. Under the rules of the regulatory body, the Life Assurance and Unit Trust Regulatory Organisation (LAUTRO), Scottish Amicable was required to seek a reference from Guardian. Guardian provided a reference which was highly unfavourable, characterising Mr Spring as a man of ‘little or no integrity and was dishonest’ and concluding he was ‘a man of dubious integrity and should not be recruited.’ As a direct result of this reference, Scottish Amicable refused to appoint him, and he was effectively rendered unemployable in the financial services industry, thereby suffering significant economic loss. Mr Spring brought an action against Guardian alleging, amongst other things, negligence in the preparation of the reference.

Issues

The central legal issue before the House of Lords was whether an employer who provides a reference in respect of a former employee owes a duty of care to that employee in respect of the preparation of that reference. Specifically, the court had to decide if the employee could claim damages for economic loss caused by a carelessly prepared but not maliciously false reference, or if the only available remedy was in defamation, which would require the plaintiff to overcome the defence of qualified privilege by proving malice.

Judgment

The House of a Lords, by a majority of 4-1, held that a duty of care was owed by the employer to the former employee. The majority found that the principles established in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 were applicable.

Lord Goff of Chieveley (Majority)

Lord Goff, giving the leading speech, concluded that the relationship between an employer and a former employee was such that it gave rise to a duty of care. He reasoned that when an employer provides a reference, they assume a responsibility to the employee to exercise reasonable skill and care in its preparation because they know the employee is relying on them and that a negligent reference could cause financial harm. He stated:

the employer does provide the reference in response to an inquiry from a third party, and he does so for the assistance of the third party in deciding whether to employ the subject of the reference. Even so, the provision of such a reference is a service which is, in the circumstances, performed on behalf of the employee as well as the prospective new employer. But the important point is that the employer is, in my opinion, possessed of special knowledge, derived from his experience of the employee’s character, skill and diligence in the performance of his duties in his employment; and, in the context of the reference, he holds himself out as possessing that special knowledge. Patently, the employee relies upon him to exercise due skill and care in the preparation of the reference before making it available to the third party. In these circumstances, it seems to me that all the elements requisite for the application of the Hedley Byrne principle are present.

Lord Goff dismissed the argument that the tort of defamation provided an exclusive remedy, finding no reason in principle why the two causes of action could not co-exist. The duty in negligence concerned a lack of care, whereas defamation concerned the protection of reputation and required malice to defeat a defence of qualified privilege.

Lord Keith of Kinkel (Dissenting)

Lord Keith delivered a powerful dissent. He argued that the law of defamation, with its established defence of qualified privilege, created a carefully calibrated balance between protecting reputation and encouraging free and frank communication on matters of public interest, such as employment references. To introduce a concurrent duty of care in negligence would, in his view, completely undermine this balance and render the defence of qualified privilege effectively useless in this context. He argued:

It would be inconsistent with that long-standing and fully developed line of authority to hold that a duty of care to avoid any such damage could arise in a situation where there was no malice… the existence of a duty of care in negligence in the preparation of a confidential report upon an employee or former employee is inconsistent with the law of qualified privilege in the field of defamation. That law has been developed over a very long period to strike a reasonable balance between the interest of the maker of the statement in freedom of speech and the interest of its subject in the protection of his reputation. A duty of care in negligence would cut across that balance.

Lord Woolf (Majority)

Lord Woolf agreed with the majority, applying the three-stage test from Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605. He concluded that the damage was foreseeable, there was a relationship of proximity between the parties, and it was fair, just and reasonable to impose a duty of care. He highlighted the significant power imbalance between an employer and an ex-employee, making it just to impose a duty to protect the employee from the potentially catastrophic consequences of a careless reference.

Implications

The decision in Spring v Guardian Assurance was a landmark ruling which significantly extended the scope of an employer’s liability. It confirmed that an employer (or ex-employer) can be held liable in negligence for pure economic loss suffered by an employee (or ex-employee) as a result of a carelessly prepared reference. This established a cause of action in negligence separate from defamation, meaning a claimant does not have to prove malice. The case solidified the application of the Hedley Byrne principle of assumed responsibility to the employer-employee relationship in the context of providing references and underlined the importance of employers having robust and fair procedures for their preparation.

Verdict: Appeal allowed. The preliminary issue was determined in favour of the plaintiff, establishing that a duty of care in negligence was owed to him by his former employer in respect of the preparation of the reference.

Source: Spring v Guardian Assurance plc [1995] 2 AC 296