Can an employer give a former employee’s prospective employer a negative reference? The Ontario Superior Court of Justice recently grappled with this question in a case where an employee suspected of engaging in fraudulent transactions resigned from his position and sought work in the same industry. However, the employee’s former employer advised prospective employers of how the employee’s role ended when conducting a reference check. The issue was that the former employer did not have evidence of the employee’s suspected wrongdoing to support this negative reference. 

Employee Subject of Fraud Investigation; Resigns From Job

In the case of Gary Curtis v. Bank of Nova Scotia, the plaintiff employee (the “employee”) had been employed by the defendant employer (the “employer”) for 12 years and was a top mortgage salesperson in Toronto. In April 2012, the employer commenced an investigation after learning of allegations that the employee had accepted and relied on customer documentation, which included fraudulent information. It was also alleged that the employee had accepted referrals from mortgage brokers, which he was not permitted to do because another section of the bank’s mortgage department handled them. 

The employee was suspended with pay pending further investigation of “procedural irregularities.” However, since the employee was on 100% commission, it was unclear how this differed from a suspension without pay. The employee subsequently resigned as he was unsure how long we would be left without any income. He subsequently sought employment at the bank’s competitors. However, this made it easy for the employer to conclude he left to escape or “outrun” a fraud investigation.  

Employee Makes Claim for Defamation Against Employer

The employer accepted the employee’s resignation and closed his employment file with the code “ineligible for rehire.” On May 3, 2012, the investigator-initiated a “SIFT” alert on the Bank Crime Prevention and Investigation Office (BCPIO) of the Canadian Bankers Association (CBA) database. This alert indicated “strong evidence” suggesting that the employee knowingly uttered fraudulent documents on several mortgage applications and highlighted that he had resigned during the investigation.

The employee received job offers from several major banks. In each case, the prospective employer contacted the employee and was told that the employee had “submitted fraudulent documentation in support of mortgage applications.” Accordingly, the job offers were withdrawn. The SIFT alert at the CBA was also maintained for seven years, which prevented the employee from securing a new job in the same industry. During this time, the employee made multiple attempts to have this alert lifted; however, his efforts were unsuccessful. 

Ultimately, the employee commenced a claim for wrongful dismissal or constructive dismissal and defamation against the employer. However, the employee withdrew the employment law claims and amended the claim, reducing the case to one founded in defamation. The employee sought general damages of $10,000,000, aggravated damages of $3,000,000, special damages of $3,000,000, and punitive damages of $2,000,000.

Court Rejects Bank’s Defences of Justification and Qualified Privilege

The Court noted that the employee’s status as “not eligible for rehire” was “not defamatory as an internal statement, and there was insufficient evidence of the bank having communicated it outside its own organization.” The Court did note, however, that “[h]ad the SIFT alert not been requested unjustifiably by the bank investigator, the inference can be drawn, as invited by the bank in defence of the damages case, that the plaintiff could have accepted any of the three employment offers he received in May 2012.”

Thus, while the bank did not defame the employee by internally noting that he was ineligible for hire, “the report to BCPIO for inclusion on the SIFT database, as well as the communications to inquiring employers that [the employee] had submitted fraudulent mortgage documents, established prima facie liability on the part of the bank. The bank conceded this, and it relied on the two defences.”

Defence of Justification

The employer advanced the defences of justification and qualified privilege. However, upon reviewing the investigation, the Court determined that the employee did not engage in wrongdoing. Moreover, the investigator concluded their investigation after only reviewing one of the employee’s allegedly problematic files. 

Thus, the Court rejected the employer’s defence of justification after finding that the employer failed to prove the truth of its statement about the alleged fraudulent behaviour. It was also determined that the investigation should have continued even after the employee submitted his resignation and commenced the claim against the employer. 

Defence of Qualified Privilege

The Court also rejected the employer’s defence of qualified privilege, which allows a person in a position of authority to make a statement that would otherwise be defamatory if the statement was made without malice. This came after the Court found that the employer had failed to prove its actions were made without malice. Given the inconclusive investigation, the employer did not have reason to believe that the plaintiff had committed fraud. 

The Court held that the employer’s failure to retract the libel, despite knowing its negative impact on the employee’s future job opportunities, constituted malice. The Court noted that employers treat litigation as a “cloak for freezing activity.” However, “litigation is the time to investigate, investigate, and investigate.”

Employee Awarded Substantial Damages

The trial judge concluded that the evidence, at its highest, showed that the employee broke the employer’s policies and failed to exercise due diligence; alternatively, the employer acted with malice. Ultimately, the Court ordered the employer to pay damages to the employee in the following amounts:

• $175,000.00 in general and aggravated damages to account for the personal harm suffered by the employee as a result of the employer’s conduct;
• $475,000.00 for special damages to compensate the employee’s lost earnings following his resignation, although this award could have been higher as the employee’s evidence was unsupported by any labour market expert evidence; and 
• $200,000.00 in punitive damages to demonstrate the need for accountability in this case and to deter employers from engaging in similar conduct. In this case, the defamation impeded the employee’s future employment prospects and was harmful due to the importance that employment places on one’s personal identity and social status. 

Contact Haynes Law Firm in Toronto for Trusted Legal Advice on Wrongful and Constructive Dismissal Claims 

The trusted employment law team at Haynes Law Firm in Toronto helps employees and employers resolve their workplace disputes as efficiently and effectively as possible. We work closely with each client to understand their circumstances and identify the most advantageous path to address employment-related issues through mediation, arbitration or litigation when necessary. We are dedicated to finding the best resolution for you.

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