How to give useful job references without getting into hot water

Sometimes it seems you can't do anything without exposing yourself to a lawsuit. In recent years, for example, many companies have become very cautious about giving unfavorable job references for fear of getting slapped with a defamation claim or other legal problem. When successful, these suits may entitle the employee to collect substantial punitive damage awards as well as lost wages, benefits, and the like. Even when unsuccessful, companies end up paying a tidy sum in time, energy, and cash to defend themselves.

To be sure, not every negative job reference is grist for a successful defamation suit. If this were the case, few employers would be willing to verify employee information, and it would be hard for employers to identify good people. Probably all employees would pay a price through lower starting pay or contracts with more restrictive termination policies.

What, then, is defamation? It's saying, writing, or otherwise communicating any untrue and derogatory statement that may harm a person's reputation. Usually, this must be to a third person -- say, one of your current employees or another employer. It doesn't matter who the third persons are, as long as they understand what you're saying.

In one case, for example, Robert Jones, a district sales manager for the pharmaceutical maker Parke, Davis & Co., gave a bad reference about former salesman Neil Stuempges to headhunter Robert Hammer. Jones described Stuempges as a lousy salesman. He was purportedly lazy and hard to motivate. Stuempges, Jones asserted, just didn't belong in sales. All this killed whatever interest Hammer had in finding a job for Stuempges.

Without income for almost a year, Stuempges sued Park, Davis for defamation. At the trial, he showed the many performance commendations he'd received during his 16 years with the company. He explained that he had helped train younger salespeople, and he blamed his de-parture on a dispute he'd had with Jones over sales strat-egy. The jury believed him, and he was awarded $37,750, including $10,000 for punitive damages.

Park, Davis's experience doesn't mean that when it comes to answering requests for job references, you and your staff have to clam up. Instead, you can cooperate and at the same time protect yourself in two ways. First, tell the truth. Provide an honest, specific evaluation of a former employee's work and abilities. Second, communicate only with someone who has a need to know. In legal lingo, most states allow an employer who is acting in good faith a "qualified privilege" to say things that would otherwise be considered defamatory. But you can lose this protection by providing more information than a prospective employer needs to satisfy its legitimate business interests, or by communicating information to people who don't need to know it at all.

You will also lose the privilege's protection if a former employee can prove you acted maliciously: you provided false information and intended harm; or you recklessly provided false information -- you didn't care whether it was accurate or not.

A nurse who had been with the public-health department in Flint, Mich., tried to bring such a case against the department. It had provided a job reference for a former employee, Victoria Wynn, that said she was disgruntled most of the time . . . didn't really apply herself . . . was eager to get on the bandwagon if trouble existed. At least one prospective employer refused to hire Wynn, in part because of this reference, so she sued the health department. She claimed the reference was a malicious swipe resulting from a personality conflict with her former supervisor.

In court, Wynn couldn't demonstrate that the reference was inaccurate. No one at the health department remembered any hostile incidents between Wynn and her supervisor. Nor did anyone report evidence that the supervisor held a grudge that might be an ulterior motive for the negative reference. Wynn lost her case and was ordered to pay the health department's court costs.

You can also be hit with a defamation claim if you handle job references carelessly. After eight years with the FBI, Barry Quinones left for family and health reasons. He declined a transfer and instead applied for jobs with law-enforcement agencies in Pennsylvania and New York. All turned him down. When Quinones discovered that the FBI was telling prospective employers he was incompetent, he sued.

In court, he showed that while he was with the FBI, he'd been promoted several times and had received commendations for his performance. It turned out the FBI simply had inaccurate files. Although the bureau hadn't intended to harm Quinones, the court found it was liable for defamation.

If you mishandle job references, other issues besides defamation can be involved. For example, a bad reference, if untrue, can amount to intentional interference with a former employee's prospective "business relations." In some states, you could be liable for actual losses the employee suffers, as well as punitive damages.

When Joseph Geyer applied for a job as a security assistant with Sears, Roebuck & Co., he listed Miley Security Service Inc. as a reference. His former boss, John Steinbronn, sent Sears a letter accusing Geyer, among other things, of being incompetent, drinking on the job, using a company car without permission, and forging checks. Sears withdrew its offer.

In the resulting litigation, Geyer persuaded a jury that Steinbronn's most serious claims were false. The court ruled that Steinbronn was guilty of defamation, and also that he intentionally and impermissibly interfered with Geyer's business relationship with Sears. Furthermore, the deterioration of Geyer's marriage could be partially blamed on Steinbronn's false charges. Geyer was awarded $100,000 for lost wages and expenses, plus $50,000 in punitive damages; his wife was awarded $35,000 for harm to their marriage.

You may be found to have violated federal or state antidiscrimination laws if a former employee can show that a bad reference was motivated by bias against a protected minority. Title VII of the 1964 Civil Rights Act protects former employees against discrimination on the basis of race, color, religion, sex, and national origin. Other antidiscrimination laws proscribe discrimination against people because of their age, marital status, sexual preference, or handicaps. Similarly, you can be held liable if a bad reference is shown to be retaliation against an employee who charges you with discrimination.

To avoid running afoul of the discrimination laws, it's important to apply whatever policy you develop consistently. For example, if you have a policy of confirming only dates of employment and job title, but frequently provide favorable references for management employees, you could create the appearance of discrimination if your management staff happens to be mostly male, while other ranks within your organization are filled primarily by women -- demographics that have been the pattern in the retail trade. You would be treating a protected minority less favorably than others, even though you didn't intend to.

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.


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.


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


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.