For most employees, there is no legal obligation on an employer to provide a reference. However, if you work in a regulated role or sector, the position can be significantly different. Regulatory rules may require your employer to provide a reference, to include specific information, and to do so regardless of any confidentiality obligations in a settlement agreement.
This article explains the key rules for employees in FCA and PRA regulated firms, and for those working in schools and educational settings. If you work in one of these sectors and have been offered a settlement agreement, understanding these rules before you sign is essential.
For a general guide to references and settlement agreements, including how to negotiate a reference, what a standard reference contains, and your rights if an employer gives a bad reference, please see our main article: Settlement Agreement Reference: How to Get One.
References in FCA and PRA regulated firms
Firms authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) are subject to special rules regarding employment references. These rules derive from general regulatory obligations and, for senior and certified roles, from the Senior Managers and Certification Regime (SM&CR).
FCA authorised firms
For some roles in FCA authorised firms there are specific rules requiring a reference to be given and prescribing what it must contain. An FCA authorised firm must provide, on request to another firm that is considering employing a person into a controlled function, all relevant information of which they are aware (FCA Handbook, SUP 10A.15.15).
The prospective firm has a regulatory obligation to take reasonable steps to obtain sufficient information, which will include seeking references from previous employers going back five years. This is part of the prospective employer’s due diligence to assess whether the candidate for such a role is fit and proper.
The FCA Handbook also makes clear that these obligations apply regardless of any agreement between the firm and the employee upon termination of employment. As SUP 10A.15.4 states:
A firm should not (and should ensure that its appointed representatives do not) enter into any such arrangements or agreements that could conflict with its obligations under this section. FCA Handbook, SUP 10A.15.4
This means that a settlement agreement should not, in practice, override the regulatory obligation to provide a reference or to include information that the regulator requires to be disclosed.
PRA regulated firms
A similar but slightly more onerous regime applies to senior manager and certified roles at relevant firms such as banks, building societies, credit unions, investment firms and insurance companies authorised by the PRA.
If an employee is employed in a relevant regulatory role and finds themselves subject to a disciplinary investigation or procedure which has, or might give rise to the employer determining they are not a fit and proper person to perform a regulated role, this can have serious adverse consequences on their career and employability. The interaction between the regulatory reference obligations and any settlement agreement terms should be considered carefully with the benefit of specialist legal advice.
What this means in practice
If you work in a regulated role at an FCA or PRA authorised firm and are considering a settlement agreement, it is important to understand the following:
- The regulatory reference obligations may require your employer to disclose certain information to future employers in the sector, even if a settlement agreement has been agreed.
- A settlement agreement cannot, and should not, purport to override these regulatory obligations. Any clause that attempts to do so may itself be unenforceable.
- Your employer is required to provide a regulatory reference for up to five years after you leave. The content of that reference may include details of any disciplinary findings or ongoing concerns.
- A prospective employer in the same regulated sector is required to seek a regulatory reference.
Expert tip – If you work in a regulated role and are offered a settlement agreement, you should take specialist legal advice as soon as possible. The regulatory reference framework is complex and can significantly affect your future employment prospects in the sector. Your employment solicitor should consider both the settlement agreement terms and the regulatory obligations in tandem.
References in schools and educational settings
Schools, academies and colleges operate under a separate and strict statutory framework when it comes to employment references. The rules are designed to protect children and are taken seriously by the relevant authorities and regulators.
What schools are required to disclose
If you apply for a job in an academy or maintained school in England, the governors of your previous school must confirm, if asked, whether you were the subject of capability proceedings in the last two years, and provide certain details, including any outcome.
This obligation applies regardless of the circumstances in which you left your previous school and regardless of any settlement agreement. A settlement agreement cannot override the statutory obligation to disclose capability concerns.
Schools seeking references
Schools and colleges are required to comply with strict statutory guidance and this means they must seek a detailed reference before interview from the candidates’ current employer, from a senior person with authority to give references. A ‘To Whom It May Concern’ reference will not be acceptable for these purposes.
This requirement applies even before an interview takes place. It is not sufficient for a school to offer a post and then seek references. Safeguarding obligations require that appropriate checks, including references, are completed before a conditional offer is made.
Safeguarding and references
Where an employee has been involved in safeguarding concerns, the position is particularly sensitive. An employer must carefully consider its legal duties and any regulatory requirements when deciding what to include in a reference. The case of Smith v Surridge [2023] EWHC 351 (KB) illustrates how significant the wording of a school reference can be. In that case, the High Court found that a reference stating there had been safeguarding issues during the employee’s time at the school was defamatory, because a reasonable reader would understand it to mean the employee had done something that caused harm to, or placed at risk, a child, rather than a mere allegation. The precise wording of a reference in this context is therefore critically important.
What this means in practice
If you work in a school or educational setting and have been offered a settlement agreement, you should be aware that:
- The school’s statutory obligations to disclose capability proceedings cannot be excluded by a settlement agreement.
- Any settlement agreement clause that purports to require the school to provide a reference that omits information it is legally required to include may be unenforceable in relation to that obligation.
- However, it is still worth negotiating agreed reference wording for elements that are not subject to mandatory disclosure. A well-drafted reference clause can provide clarity and reassurance where the statutory rules permit it.
- If you have been involved in any safeguarding allegations, the position is particularly complex and specialist legal advice is strongly recommended.
Practical steps if you work in a regulated role or sector
Regardless of which regulated sector you work in, the following steps apply before you sign a settlement agreement:
- Understand the regulatory framework that applies to your role. Your employment solicitor should be familiar with the relevant rules for your sector.
- Check whether your employer has any mandatory reference obligations and whether the draft settlement agreement adequately addresses these.
- Do not assume that a settlement agreement can protect you from the disclosure of information that is required by regulation. It may not be possible to achieve this, and attempting to do so could create further complications.
- Consider whether you need specialist advice beyond employment law – for example, regulatory advice if you are in a senior manager or certified role in financial services.
Related articles
Settlement Agreement Reference: How to Get One
What is a Settlement Agreement?
Confidentiality in Settlement Agreements
Legal Disclaimer
The contents of this article are intended to be for general information purposes only and do not amount to (nor are they intended to be) legal, tax or financial advice or a complete or authoritative statement of the law nor should they be treated as such. No warranty or promise is given, express or implied, as to accuracy of the information on this page and no liability is accepted for any error or omission. You should instruct a specialist employment solicitor to advise you on your particular situation and not act or rely on the information on this page.
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