Virtually every employer will be contacted at some point by a potential new employer of an ex-employee, seeking information regarding the ex-employee. How much information should the employer give? Should the employer simply provide confirmation of the dates of employment, or should an honest evaluation of the ex-employee’s performance be given, or should the employer refuse to give any information whatsoever? The answer, as so often happens, is not as simple as it may seem…

Although seeking references has a number of benefits for the prospective employer, providing references can be a complicated issue for the current or former employer. Companies that provide references have a duty both to the employee who is the subject of the reference and to the prospective employer who is the recipient of the reference. Giving a negative reference may expose the company to legal liability if the former employee does not get a desired job and decides to sue for defamation or slander. But providing a falsely positive reference or failing to disclose potentially damaging information can leave the company open to legal liability as well.

If a candidate is selected for a position on the basis of a reference and then commits a crime or causes harm to another person while on the job, the new employer might sue the provider of the reference. Several court decisions have held a former employer liable for crimes committed by a former employee in a new job because that employer had provided a positive reference and failed to notify the prospective employer about one or more negative aspects of the former employee’s performance. As a result of these dual sources of liability, providing references sometimes leaves small business owners stuck in the middle.

Avoiding Legal Liability When Providing References

In recent years, many companies have tried to avoid the legal liability involved in providing employee references by enacting policies that strictly limit the information they are willing to supply. When asked for a reference, these companies will not provide any assessment of an employee’s job performance. Instead, they will only confirm the person’s job title, dates of employment, and salary.

According to Robert A. Siegel and Anne E. Garrett in the Los Angeles Business Journal, small business owners have two main options in providing employee references without exposing themselves to legal liability. First, as noted above, they can simply verify the candidate’s basic employment information without making any positive or negative assessment of his or her performance or qualifications. This is known as a “no comment” reference. It has become the policy at a wide range of companies, despite the fact that the prospective employer gains very little information upon which to base a hiring decision.

The second option open to small business owners is to provide a “full disclosure” reference. This type of reference often consists of a letter containing all the relevant facts of a person’s employment, including an appraisal of their performance and potential. Experts suggest that an employer cannot be held liable for defamation in providing this type of reference as long as it is made without malice and the information is based on credible evidence. In fact, several states have enacted laws protecting employers from civil liability when they provide references that include job performance information. But some employers still choose to play it safe by only providing information based on performance appraisals that were signed by the former employee.

“In making a decision between the two alternatives, employers will have to balance the value of full disclosure to prospective employers against the risks of litigation presented by that choice,” Siegel and Garrett wrote. “While full disclosure is viewed by many observers as the most desirable course, and it is clear that many employers will decide to select that alternative in the future, employers should do so with care in order to avoid litigation challenges by unhappy employees.”

Dan Thompson is an Employee Benefits Client Advisor at Gulfshore Insurance. Dan has advised thousands of clients on benefits programs and wellness solutions. Comments and questions are welcome at dthompson@gulfshoreinsurance.com

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