United States: Employee Reference Releases: Who's In and Who's Out?

A recent Indiana defamation case, Manhas v. Franciscan Hammond Clinic, serves as a critical reminder of the importance of scrutinizing physician and employee reference forms and releases. Dr. Sheila Manhas and Franciscan Hammond Clinic (FHC) were parties to a settlement agreement that included a provision whereby Dr. Manhas would direct inquiries from prospective employers to a named person at FHC "who will provide only the following information: dates of employment, last position held, and salary." Subsequently, Dr. Manhas applied for a temporary position as a neurologist at another hospital, and as part of the application process was required to sign a Release of Information/Consent to Background Check Authorization (authorization form). Unfortunately, the prospective employer failed to send the authorization form to the FHC-designated individual, and the person who responded on behalf of FHC was unaware of the settlement agreement.

The prospective employer hired a temporary physician placement agency to complete the credentialing process. By signing the authorization form, Dr. Manhas authorized the placement agency to:

[P]erform a check of [her] background, references, character, employment, motor vehicle, education and criminal history record bearing on information which may be in any state or local files, including those maintained by both public and private organizations and all public records for the purpose of confirming the information contained in the application and/or obtaining other information which may be material to [her] qualifications for employment.

As part of the authorization form, Dr. Manhas consented to release the temporary physician placement agency, "its corporate affiliates, its current and/or former officers, directors and employees, its authorized agents and representatives and all others involved in this background investigation and any subsequent investigations, from any liability in connection with any information they give or gather and any decisions made concerning my employment based on such information" [emphasis added].

As part of the credentialing process, an evaluation of Dr. Manhas was completed by Dr. Majmudar on behalf of FHC, who assessed Manhas's physician skills as either fair or poor, despite neither having known nor worked with Dr. Manhas, and further stated that Dr. Manhas had been terminated by FHC and was not eligible for rehire. After counsel for Dr. Manhas questioned the responses, "Dr. Majmudar reviewed Dr. Manhas's credentialing file and confirmed that he made false and inaccurate statements about Dr. Manhas." Dr. Majmudar then wrote letters to the temporary physician placement agency hired by the prospective employer to undertake the credentialing process and Manhas's attorney "apologizing for the inaccuracies," admitting that he "was wrong to make those statements," noting that Dr. Manhas had left FHC in good standing and that he would recommend Dr. Manhas without reservation. Despite the corrective letters, Dr. Manhas filed suit against FHC and its successor for defamation and violation of the Indiana blacklisting statute.

FHC and its affiliates argued that the release contained in the authorization form "relieved them of any and all liability arising out of the responses provided" with respect to Dr. Manhas. The trial court dismissed Dr. Manhas's claim, finding that FHC was included as a released party within the "all others involved in this background investigation and any subsequent investigations" group.

In reversing the trial court's decision, the Court of Appeals of Indiana held that:

[T]he catch-all phrase refers to 'all others involved' with [the prospective employer's] authorized agents and representatives. Further, there is no language in the Authorization Form or the Release from which [the court] can decipher any intent to extend the protection of the Release to third parties, i.e., former employers. A plain reading of the Authorization Form as well as the Release contained therein reveals that [the prospective employer] cast a wide net to relieve itself of any liability and clearly evinces an intent that the Release does not extend to the Defendants [FHC and its affiliates].

The Court of Appeals, however, indicated that had the release been drafted to include a former employer, the former employer would have been released from liability.

Careful reading of the release language included in employee or physician reference requests is critical for assuring compliance with settlement agreements or state law limits on reference information that can be imparted to a prospective employer. For example, when a settlement agreement addresses employee or physician references, providers should attempt to assure that it does not contain provisions waiving release language contained in a prospective employer's reference requests. These waiver provisions are included in some settlement agreements to limit future references to agreed data elements, despite the broad prospective employer reference form signed by the employee/physician and any release contained therein.

Providers should also be aware that some states have statutes that limit the reference information that can be provided on certain healthcare employees. For example, employers in Texas may not disclose information about a licensed nurse or licensed vocational nurse that relates to conduct protected by the Nurse Practice Act. In addition, an employer must "provide an affected nurse an opportunity to submit a statement of reasonable length to the employer to establish the application" of the exceptions. Tex. Labor Code §103.003(b).

Some states also afford immunity to employers providing references. Using Texas again as an example, Tex. Labor Code §103.004 states that an "employer who [provides] information about a current or former employee ... is immune from civil liability for that disclosure or any damages proximately caused by that disclosure unless it is proven by clear and convincing evidence that the information disclosed was known by that employer to be false at the time the disclosure was made or that the disclosure was made with malice or in reckless disregard for the truth or falsity of the information disclosed."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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