Employers should not use reference letter as a bargaining chip

Employers should never use a positive reference letter as a bargaining chip in trying to persuade a terminated employee to accept a severance offer.

If you terminated an employee for reasons that have nothing to do with their personal performance, withholding a positive reference as a bargaining chip to get them to sign a Release will likely result in you paying more money at the end of the day than you needed to.

This is not to suggest for a moment that employers should lie in reference letters and give a glowing recommendations that is tongue in cheek..

Put yourself in the employee’s shoes. Imagine that you worked for a company for 10 years and every year received an very positive performance review. One month after your last excellent review, you are terminated as a result of downsizing.

When you or your lawyer tries to talk to the employer about increasing the package, they resist. When you ask for a letter of reference so you can start your job search, regardless of whether a deal can be struck, the employer refuses. It tells you that it will only provide a reference letter when you sign a Release.

The employee’s lawyer will now claim for a notice period longer than usual as a result of this bad faith treatment. If the facts are as black and white as the ones I set out above, the notice period could be extended by up to about four months.

Now, instead of paying 8 months pay in lieu of notice for this 10-year employee, the employer pays 11 or 12.

Employers should remember that the sooner the employee gets a new job, the less money the employer will have to pay.

An employee is obliged to mitigate their damages by looking for new work. It is like the landlord whose tenant runs out on them without giving proper notice: they can sue for the lost rent, but they have to prove to the judge that they put an ad in the paper and tried to rent the apartment out. If they rent it out immediately, they can’t get the rent twice, once from the new tenant and again from the old one.

Separate and apart from treating terminated employees with dignity, the employer has real and immediate financial interests that are best served by helping that employee find work as soon as possible. On the other hand, providing a glowing letter of reference for an employee who was far less than glowing does not really help anyone. It is not a matter of a new employer suing the old employer for misrepresenting the employee’s attributes, this rarely if ever happens. The problem, in fact, is that most potential employers, after a successful first or second interview, will want to speak directly to the person whose name is on the bottom of that reference letter.

Statistical studies of human resource managers show that they want to have a live conversation with the old employer regardless of what any reference letter says.

So, if you have written a glowing letter for someone but terminated them because you didn’t want them around anymore, what do you do when the potential employer asks, “So why was John’s employment terminated? Would you hire John back in the future?”

Pregnant pauses tend to follow such questions unless you are an excellent liar. After the pause, the game is up.

Terminated employees should never provide a reference letter to potential employers that is signed by somebody they do not trust completely to back up the glowing terms in the reference. That conversation will happen behind a closed door and the employee will never know what was said.

Often, an employee will be able to provide the names and phone numbers of individuals they worked with or for at some time during their former employment whom they can trust to say good things.

Letters of reference, at the end of the day, have more symbolic value for the terminated employee whose ego has been hurt than real usefulness. If your potential employer likes you at the interview, they are usually going to want to talk to somebody who has worked with you before they make the hiring decision. While reference letters don’t hurt, they don’t necessarily help that much.

As publsihed in The Hamilton Spectator, February 11, 2006. Ed Canning practices labour and employment law representing both employers and employees with Ross & McBride LLP.