HR Blunders has already written about how badmouthing a former employee can get a company in trouble. The opposite — giving a glowing recommendation that glosses over serious problems — can cost companies millions, as a recent court case from Louisiana shows. A positive referral letter that omitted a doctor’s on-the-job drug use may cost his former employer millions of dollars.

Lakeview Anesthesia Associates (LAA) and Lakeview Medical Center (LMC) discovered Dr. Robert Berry — an anesthesiologist — had been using narcotics while on duty. He was terminated from his positions at LAA and LMC.

Berry applied for a position with Kadlec Medical Center, which sought referrals.

Two doctors from LAA issued referral letters, saying Berry was an excellent clinician and that he would be as asset to any anesthesia service. The letters didn’t mention anything about Berry’s dismissal for drug use.

LMC issued its own letter which gave only the dates during which Berry was on staff at the facility. It also said nothing about his drug problem.

Berry started work at Kadlec. While under the influence of Demerol, Berry’s negligent performance led to the near-death of a patient, leaving her in a permanent vegetative state.

Kadlec spent $8 million defending and settling a lawsuit against it. Then, it went after LAA, LMC and the two doctors who wrote the glowing referral letters to recover what it lost because of Berry’s mistake.

The court’s ruling is a bit complicated, but the upshot is that LAA and the two doctors will have to pay for the misleading referrals — possibly in the millions.

Referrals’ content made all the difference

The Fifth Circuit federal court is holding LAA and the two doctors responsible, but not LMC. The court said, “The letters from [the doctors] were false on their face and patently misleading.”

The judge also wrote, “But because Lakeview Medical’s letter was not materially misleading, and because the hospital did not have a legal duty to disclose its investigation of Dr. Berry and its knowledge of his drug problems,” the hospital would not be held responsible.

The matter of how much LAA and its doctors will have to pay is still up in the air. A jury awarded Kadlec $5 million and originally apportioned the responsibility to include the hospital. The matter of apportioning responsibility has been remanded to a lower court since the hospital is no longer liable. Under the original apportionment, the doctors were held 25% responsible, which would have equalled $1.25 million. Taking the hospital out of the equation will likely make that amount go up.

Certainly, you’ve heard the advice before: If you can’t give a good referral, just give the dates the person worked for you. Now, you’ve heard it from a federal court. Best advice: Develop a company policy for HR and all managers regarding referral letters with the advice of legal counsel. Tell managers that 100% adherence to the policy is necessary to keep your company out of costly trouble.

Let us know what you think about this case and about your company’s referral letter policy.

Kadlec v. Lakeview (link is a PDF).