State and local right-to-privacy laws, which are increasing in number, create another area of potential liability when you deal with certain kinds of information. These laws may be general, saying that all citizens have certain rights to privacy, or they may provide for specific rights to privacy in relations between employees and employers. If you told a prospective employer that medical problems made an employee unsuited for certain kinds of work, you might find that you had violated a privacy statute.
Then there are state laws that specifically regulate job references. In some states, for example, when employees leave voluntarily, your references must be in writing, or must be made available to the former employees within 10 days after they ask for a copy. In other states, you must provide a copy of the reference to anyone who leaves your company. Violations may involve criminal penalties, so it's important to know which, if any, laws apply to your company.
With so many pitfalls, it's hardly surprising that many employers have decided to provide nothing beyond a few noncontroversial facts, such as the dates employees worked for the company and their titles when they left. But recent developments suggest such a limited approach -- even strict silence -- won't always protect you from legal liability for mishandling employee references.
The Equitable Life Assurance Society of the United States assigned Carole Lewis, based in the company's St. Paul home office, to help with a work overload in Pittsburgh. After returning to St. Paul, she was commended for her outstanding performance. As requested, Lewis filed expense reports. Because of changing cost-control policies, she was asked to redo the reports three times and claim a smaller reimbursement from the company, even though her supervisors acknowledged that all her business expenses were legitimate. At that point, she had had enough and refused to make any more changes. Her manager fired her for "gross insubordination."
Since Equitable didn't give her a job reference, Lewis had to repeat to prospective employers the company's claim that she had been grossly insubordinate. As you might imagine, this didn't make a great impression, and other companies declined to hire her. She sued Equitable for defamation.
Witnesses from Equitable admitted that Lewis's work was satisfactory and that management was at fault in the travel-expense imbroglio. The jury decided that Lewis hadn't been guilty of gross insubordination, so Equitable's stated reason for firing her was false. In effect, since she didn't lie and repeated Equitable's reason for firing her to prospective employers, Lewis was forced to defame herself. The Minnesota Supreme Court awarded Lewis $75,000 for the defamation claim and $125,100 for lost wages, out-of-pocket costs, and wages that might be lost in the future because of her tarnished reputation.
Remember, it isn't a bad job reference that might bring you headaches. It's the way a reference is handled. To a great extent, you can control this. Specific, truthful job references remain as important as ever to facilitate hiring and provide an incentive for good employee performance.
FALSE SECURITY
Some common strategies are not fail-safe
To avoid legal liabilities stemming from bad references, some sophisticated companies provide only name, rank, and serial number when answering questions about former employees. Recent court cases indicate this may not be a complete shield (see, for example, the experience of Equitable Life, described in the main text).
Other practices intended to shield you from liability for job references may also result in unexpected liability.
* Requiring an employee to sign a release of legal liability before you provide information may be problematic. Often a person can't waive a legal right before he or she has actually been harmed. Beyond this, as a matter of public policy, courts may decline to enforce such waivers.
* If you provide a reference that is somehow misleading -- perhaps because it's an incomplete description of a former employee's performance -- a prospective employer who relies on this information could seek to impose liability on you for certain harm it suffers.
BY THE NUMBERS
The new arithmetic of reference-giving
* Prospective employers check references on only 25% of job candidates, citing that they don't expect the former employer to cooperate as their number-one reason for not bothering to check.
* A plaintiff has a 77% chance of winning a libel or slander case against an employer or against a corporation with which the plaintiff has had previous business dealings. That rate is 35% above the national average of all plaintiff-recovery rates in liability cases.
* Between 1986 and 1988, 79% of fired employees filing a defamation claim recovered damages, compared to 58% of those employees filing a wrongful termination or wrongful discharge claim.
* According to a study of 120 wrongful-discharge cases in California between 1980 and 1986, initial jury verdicts averaged $272,064. Final payments averaged less than half that: $150,000. -- Teri Lammers
Sources: Challenger, Gray & Christmas Inc., Chicago; Jury Verdict Research Inc., Solon, Ohio; Without Just Cause, by Ira Michael Shepard, Paul Heylman, and Robert L. Duston, The Bureau of National Affairs Inc., Washington, D.C., 1989; The Legal and Economic Consequences of Wrongful Termination, The Rand Corp., Santa Monica, Calif., 1988
GIVING REFERENCES
What to say and how to say it
It isn't how much or how little you say in a job reference that will most determine whether you're vulnerable to a lawsuit. Rather, it's the content. These are the points to keep in mind:
* Truth is a complete and absolute defense to any defamation claim (though not necessarily to other claims). Try to stick as closely as possible to specific factual statements about a former employee's job performance.
* Avoid subjective generalities, innuendo, and half-truths. They could leave you wide open to a defamation claim or other charge.
* Limit references to information appropriate to the situation and give them only to persons who have a legitimate business use for them. For instance, if someone is applying for a job on a factory assembly line you probably don't need to review the trouble he or she had understanding double-entry bookkeeping. Issues such as timeliness, willingness to cooperate with others, and so on are likely to be more useful to the prospective employer.
* Apply your policy on employee references consistently, so you don't find yourself facing subsidiary charges of discrimination.
* Don't allow your job references to be colored by personal animosity. Animosity can result in legal liability when a simple, honest mistake in assessing an employee's abilities might not.
