Canada: Poor Reference Check Results In Damages

Recruiting capable talent is challenging at the best of times. The demand for solid candidates remains strong while the available talent pool seemingly keeps shrinking.

As a result employers often turn to new, imaginative ways to recruit talent. Some offer financial incentives, others concentrate on the allure of work-life balance, while others still follow a more traditional means by relying on the services of personnel agencies and recruiters. Sometimes employers end up getting more (or less, depending on one's perspective) than they asked for.

A case in point is the recent, as yet unreported decision of the Ontario Superior Court in The Treaty Group Inc. v. Drake International Inc. The Treaty Group, which carries on business as "Leather Treaty", was experiencing exponential growth in 1996 and needed help. On the advice of a trusted business advisor it looked to Drake International Inc. (Drake), a global personnel and training firm, to assist in filling its human resources needs. Drake was retained to find the best possible candidate and provide the "highest calibre of professional screening, evaluation and reference-checking."

Drake referred Beverly Simpson to Leather Treaty, which eventually hired her to assist with bookkeeping tasks. Simpson was responsible for bookkeeping generally, doing bank reconciliations, managing petty cash, processing and issuing cheques and paying accounts. She was given a great deal of independence and seldom would the owners of Leather Treaty review her work.

It turns out Leather Treaty got more than it bargained for. Simpson defrauded the company of $263,324.20. It also turns out that she had been twice criminally convicted of defrauding former employers prior to joining Leather Treaty.

Leather Treaty sued and obtained a civil judgment against Simpson and her spouse, which remained uncollected. It then sued Drake for breach of contract, negligent misrepresentation and negligence to recover monies stolen and other damages. After all, Drake had promised to perform the "highest calibre of professional screening, evaluation and reference-checking" and, presumably after having done so, recommended Simpson to Leather Treaty.

The court found that Drake had failed to do any meaningful references checks on Simpson. Had those checks been properly done, Simpson's prior fraud convictions would have been uncovered and Leather Treaty would presumably not have offered Simpson employment. Thus, the court found Drake had breached its contract with Leather Treaty and ordered it to pay damages for breach of contract.

In addition, however, the court also found Drake liable for negligent misrepresentation and negligence. Drake had falsely represented its services and, by extension Simpson, to Leather Treaty. It had failed to properly investigate Simpson's past and Leather Treaty relied on Drake's representations to its obvious detriment.

The court’s assessment of the standard of care that Drake owed to Leather Treaty in the circumstances is interesting. To support its allegation of negligence, Leather Treaty called an expert witness to testify as to the standards for checking references in the placement industry. The expert testified that, when checking references, the industry standard is to check the candidate’s last five years of employment and/or the last three references. The expert also testified that it was important to verify the candidates’ dates of employment, positions held, reason(s) for termination and eligibility for hire. Drake failed to do these checks on Simpson.

In the end, Drake was found responsible for 50% (i.e. $131,662.10) of the amounts Simpson had defrauded Leather Treaty. Drake would have been ordered to pay 100% of the funds stolen but for the court’s finding that Leather Treaty had been equally negligent in failing to supervise and initiate internal controls to minimize its exposure to fraud.

While “contributory negligence” is a well-accepted principle in assessing damages in negligence claims the same cannot be said about claims for breach of contract. However, after closely reviewing the case law, the court ruled that Leather Treaty’s breach of contract claim could equally be discounted on the basis of “contributory fault.” In other words, Leather Treaty’s breach of contract claim was discounted based on its own actions that served to increase its damages.

This case serves a clear reminder to placement agencies of their obligations and potential liabilities in referring candidates to their clients. In addition to their contractual obligations, such agencies must adhere to a reasonable standard of care in performing their duties or face damages under tort law. The decision also serves to remind employers of their exposure to potential liabilities for misrepresenting former employees to employers during reference checks.

Should you have any questions about this decision or your obligations and potential liabilities in providing misleading references, please do not hesitate to contact any member of our Employment and Labour Relations Group.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2006 McMillan Binch Mendelsohn LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions