ComplianceLegalFinanceTax & AccountingOctober 28, 2020

Balancing requirements and restrictions when providing employment references

Providing employment references are a requirement in some states where employers must provide them to prospective employers under specific circumstances. However, it's important to follow certain guidelines and limit the amount of information you provide to avoid the risk of being sued for defamation, as well as other legal claims.

Employment references are a tricky area that almost every employer must navigate at some point. Once an employee leaves your business, a prospective employer is bound to contact you for information about them. As an employer, you know that employment references can be one of your most effective tools for verifying information that a job applicant provides and for determining whether an applicant is qualified to successfully perform the job. However, when you're the one providing the reference, you should consider the following:

  • State job reference requirements: Some states have laws that may require an employer to provide references concerning past employment services to former employees upon their request. Consult our state map to see if your state requires you to provide a reference and the information you are required to provide.
  • Defamation risk: Before you or anyone else in your business responds to an employment reference request, you must realize that certain types of statements about former employees may form the basis for lawsuits against you. Your primary risk is that the former employees may claim that your statements are false and damaging to their reputations and sue you for defamation.
  • Other legal pitfalls: Unfavorable statements also may cause you to incur legal costs in defending suits for invasion of privacy, violations of state blacklisting laws, and similar claims. You may also be legally liable if you do not disclose your knowledge of a dangerous employee.
  • Limiting employment reference risks: Your best policy may be to determine what employment information you can safely provide, as well as what you're required to provide, and what steps you should take in actually providing that information to limit your risk of being sued.

Employment references and defamation

Your risk in providing employment references to prospective employers is that former employees may sue you if your references are unfavorable and lead to job rejections. The claim that former employees are most likely to assert is that the references are false and damaging to their reputations and, therefore, defamatory.

An employer may be liable to a former employee for defamation if the employer communicates to a prospective employer or other person a false statement that results in damage to the former employee's reputation. Defamation is commonly referred to as "slander" if the communication is verbal and as "libel" if the communication is written.

Awards in successful defamation suits may include damages for lost earnings, mental anguish, or pain and suffering and, if the employer's conduct was sufficiently egregious, punitive damages.

A successful defamation claim requires more than merely showing that an employer provided an unfavorable employment reference. Because employment references play an important role in hiring decisions, the law usually protects an employer who in good faith discloses information that the employer believes is true to a prospective employer or other person who has a legitimate interest in receiving the information. This protection may be lost, however, if the information is not limited in scope to the inquiry being made, is disclosed at an improper time, or is disclosed in an improper manner.

Avoiding defamation claims

The following are examples of the types of statements that you should avoid making in giving employment references:

  • Accusations. Accusations that an employee engaged in illegal or improper conduct frequently form the basis for defamation lawsuits. Employers have been liable for defamation for making statements to the effect that a former employee was a thief, used illegal drugs, or made "improper" advances to women. If you fired an employee because you suspected that the employee engaged in illegal or improper conduct and you feel compelled to state the reason for the firing, then restrict the statement to your suspicion ("Employee was fired because he was suspected of taking company property," not "Employee was fired because he stole company property"). However, don't even state a suspicion unless you can support it with objective evidence.
  • Exaggerations. Employers can also get into trouble by exaggerating an employee's misconduct. For example, a statement that employees were fired for "gross insubordination" was defamatory when the employees' only alleged misconduct was their refusal to adjust their expense accounts.
  • Statements not made in good faith. The general protection extended to employers giving employment references requires that the statements be made in good faith. An employer's statements are not made in good faith if the employer knows they are untrue or if the employer makes no effort to determine if they are untrue. For example, an employer who lied in stating that an employee had admitted falsifying expense records was liable for defamation. Similarly liable was an employer whose manager made negative statements about an employee's work performance solely on the basis of rumors. The manager had never supervised, worked with, or evaluated the employee and misrepresented to the prospective employer that he had actually worked with the employee.
  • Statements made to improper parties. The general protection extended to employers giving employment references also requires that the statements be made only to persons having a legitimate business interest in the information disclosed. For example, you can probably tell an inquiring employer that an employee was fired because the employee was suspected of stealing business property, provided there are objective facts to support your suspicion. In contrast, expressing your suspicion to others, such as other employees or friends who have no real reasons for knowing the specific details why the employee was fired, may be defamatory.

Guarding against defamatory statements

When giving employment references, you can reduce your risk of being sued for defamation if you keep in mind the following key points:

  • Be truthful. If your statements are true, they are not defamatory. For this reason, refrain from making any statements that you are not prepared to back up and substantiate if you are sued. Give objective facts or opinions and conclusions that you can support with objective facts, rather than mere allegations, speculation, or gossip. For example, you can safely state that an employee was fired for missing too many days of work. However, once you start providing unsubstantiated opinions on reasons for the absenteeism, such as that the employee was drinking too much or was into illegal drugs, you increase your risk of being sued.
  • Be clear and unambiguous. Keep in mind that statements that are technically true may still be defamatory if they are incomplete or misleading. For example, an employer stated that an employee was fired for drug use but neglected to state that the employee's refusal to hire a supervisor's relative also contributed to the firing decision. The incomplete statement was defamatory because it unduly emphasized the employee's improper conduct. If you should decide to discuss why an employee left your business, state the reasons in objective and specific terms. Refrain from stating that an employee was terminated "for cause," "insubordination," "unsatisfactory performance," or other nonspecific reason, because such phrases may be defamatory by implication.
  • Be objective. The tone of your statements is also important. Your references should not sound petty, vindictive, or accusatory. No matter how trying your relationship with the former employee may have been, you should try to discuss the facts in an objective way, without malice.
  • Be responsive. References should be limited in scope to information that the inquiring employer requests. This does not mean that you should feel compelled to provide all requested information, because generally you're under no legal obligation to provide employment references at all. Rather, the notion here is that you should not volunteer any unfavorable information that is not requested.
  • Stick to job-related facts. Do not provide any information that is irrelevant to the employee's performance or behavior in the workplace. Comments about an employee's personal life are especially hazardous, because even if the comments are true, they may raise invasion of privacy issues.
  • Be selective in choosing your audience. Limit your disclosure of employee information to those persons who have a legitimate interest in that information. A statement that is not defamatory when made to a prospective employer may be defamatory if it is made to friends, spouses, employees, or others who have no business reason to know the information.
  • Limit telephone references. Because you need to be sure that a person to whom you are providing an employment reference has a real business interest in receiving the information, you should use care in providing references over the phone. Unless you are going to limit your references to basic employment data, at a minimum you should arrange to provide the information in a return call. This will give you an opportunity to verify who the caller is. The better alternative is to have the caller make the reference request in writing.
  • Get signed releases or consents. Your best protection against defamation and other claims that may arise from giving employment references is to get the former employee to consent to your release of information.

Other risks in providing references

The main risk an employer faces in providing employment references is being sued for defamation. The following are additional claims that may arise from unfavorable employment references:

  • Invasion of privacy claims. Employers who disclose information about an employee's personal life open the door to being sued for invasion of privacy. In an invasion of privacy claim, employers can be held liable even if the information they disclosed is true, because truth is not a defense as it is in a defamation claim. Accordingly, you should refrain from disclosing information about an employee's financial affairs or marital problems or other private facts unless you are absolutely certain that the disclosure will serve legitimate business purposes. If you feel compelled to disclose private facts, you can limit your potential liability by securing in advance the employee's consent to the disclosure.
  • Equal employment opportunity claims. Employers who refuse to provide references or who provide unjustifiably negative references for former employees have been sued on the basis that their actions damage the employees' equal employment opportunities guaranteed by federal or state fair employment laws. Although such laws on their face generally protect specified classes of "employees" from discrimination, courts have been willing to extend their protection to former employees as well.
  • Interference with prospective employment claims. In several states, a former employee can sue an employer who gives false information to prospective employers with the intention of interfering with the former employee's prospects for employment. This type of claim is similar to, and may be filed in conjunction with, a defamation claim. It differs slightly from defamation in that it focuses primarily on the employer's intent in providing the unfavorable reference.
  • Blacklisting claims. In a majority of the states, an employer's "blacklisting" of a former employee is a crime. Traditionally, blacklisting laws have been applied to prevent employers from providing bad job references in retaliation for a former employee's participation in union or other protected labor activity. However, the laws generally are broad enough to cover any communications that are designed to prevent former employees from securing employment. Most blacklisting laws specifically permit employers to supply letters of recommendation or service as long as the information provided is neither false nor defamatory.

These potential claims should give you further incentive to limit any job references to true and objective facts that are relevant to a former employee's job-performance abilities.

Limiting the risks inherent in providing employment references

Given the potential lawsuit risks, many employers have adopted a policy of giving out no references at all or of giving out only basic employment data such as dates of employment, job titles, and wage rates.

Warning: There is a situation when you may have a legal obligation to provide information about a former employee to a prospective employer. Assume that you know that a former employee has a history of criminal violence or extremely aggressive behavior. Another employer approaches you for a reference in connection with a job that would have your former employee working closely with members of the public. Must you disclose what you know about the employee's past conduct? What if you're not sure that the information is true? Your risk in remaining silent is that you could be sued for negligently failing to disclose the information if the former employee were to subsequently harm someone while on the job. On the other hand, you could be sued for defamation if you do disclose the information and it turns out not to be true.

Faced with this type of situation, you should consult an attorney to determine what, if anything, you may be obligated to disclose.

Problems due to restricted policies abound. Having a severely restricted policy does not foreclose your risk of being sued. For example, if you make exceptions to the policy by giving references for deserving employees, you may open the door to claims of discrimination or unfair treatment. Also, if your refusal to give references compels fired employees to disclose why they left your business, you may become liable for defamation if their disclosures reveal any defamatory comments that you may have made when firing them.

Tip: Apart from your liability risk, you may even have an incentive to provide references for fired employees, who will be less likely to sue you for claims related to their firing if you help them find new jobs.

Institute a limited reference policy and use releases

It's usually in your best interests to have a policy that permits some limited disclosures about employees' work performance. If you should elect to go this route, your next step should be to become familiar with the general types of information that you can safely disclose and with the circumstances under which the disclosure is proper.

In addition, you should consider adopting the practice of securing from your former employees written releases that authorize your disclosure of information in employment references. Your best protection against reference-related lawsuits is to obtain in advance the employee's permission to your disclosure of employment information. You can save yourself a lot of potential future headaches if you make it a practice to discuss with an employee who is leaving your business, either voluntarily or involuntarily, what you are willing to say in response to employment reference inquiries. You should then try to document the employee's consent to your providing information in response to reference requests by having the employee sign a written release authorizing your disclosure.

To ensure that any release you obtain will stand up in court, you want to avoid any signs that you forced the former employee to sign the release. Don't try to rush the employee into signing the document. A signed release will serve its purpose as long as you get it back before you provide the reference.

You should also consider adopting a policy of providing detailed references for former employees who have signed written releases and restricted references of only basic employment data for former employees who have not signed releases. This type of flexible policy will help show that the employee had a real choice in deciding whether or not to sign the release.

Finally, you should view a signed release as an insurance policy that will limit your exposure to liability if you accidentally make statements that are incomplete or misleading or that otherwise may be construed as being defamatory. Don't view the release as being a license to say whatever you want without any risk of being held accountable for your statements. Even if you have obtained a written release, your interests are best served if your employment references are made on the basis of true and objective facts that are relevant to a former employee's job-performance abilities and that you are prepared to substantiate if necessary.

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