LEGISLATION: New Regs Reduce Employee Reference Liability

A Southeastern waste hauling company had no problem firing its accounts manager after he nearly destroyed the firm's relationship with several big customers. Yet, two weeks later, the company's personnel director was surprised and perplexed when a prospective employer asked for a reference on the former employee.

A common practice in providing job references for ex-employees is to only divulge job title, salary and service dates. The reason: Many employers fear that saying any more will result in a lawsuit from an angry former employee. However, things are starting to change.

Thanks to the emergence of employer-protection laws in many states, personnel managers are more likely to share performance evaluations and other information from employee files with prospective employers.

During the past several years, for example, more than 25 states have passed or are considering laws that make it more difficult for ex-employees to win lawsuits concerning negative job references. Where these laws are in effect, employers who divulge truthful information have some protection against defamation suits and other claims. Indeed, some of these new laws require applicants to sign job-reference waivers and releases.

Business groups lobbying for these immunity laws cite examples where more complete pre-employment information would have greatly benefited the hiring company.

An equipment manufacturer in California, for instance, regrets not having more information on a woman it eventually fired for threatening a co-worker. After she was gone, the company discovered that a previous employer had fired her for violence on the job. "For better or worse, we honored a code of silence," said the manufacturer's personnel chief. The company's former policy, releasing only job title and employment dates, also kept him from providing glowing references to deserving employees.

Last year, a Florida state court ruled that a company could be sued for punitive damages for not disclosing what it knew about a former employee's violent nature. The problem arose when a firm wrote a recommendation letter stating that an ex-employee had been terminated as part of a corporate downsizing. However, the firm failed to mention that the ex-employee was really fired for arriving at work with a gun.

The suit, which was eventually settled, charged that a subsequent employer relied on the letter and thus unsuspectingly hired the gun-toter, who later shot and killed three co-workers and wounded two others in the company cafeteria. The employee then fatally shot himself.

Although the new laws don't force companies to disclose past violent behavior, employers are probably wise to do so. Safety-sensitive issues should be disclosed, say employment law experts. But, they warn, all such information must be carefully documented to show it was provided in good faith.

"In the ideal world, you want to [give] out more information because, when you're hiring someone, you want to [know of any] problems," said a vice president of administration whose company, which now only verifies employment dates, is considering changing its policy.

A human resources manager in Oklahoma, which has a law giving some immunity from liability in job references, releases performance evaluations and other information if a prospective employer sends him a written request signed by the job applicant. In fact, the manager said he won't hire anyone whose former employer won't provide complete references.

Some companies try to minimize liability by asking departing employees to sign written promises not to sue over job references. A federal appeals court ruled last year that such releases can protect employers from defamation suits.

However, critics believe that these new state laws could be abused by employers who are bent on revenge against former employees. Unjustified evaluations could prevent employees from advancing their careers by joining other companies.

"An employer-employee relationship can be like a marriage, and its termination like a divorce," said an employment lawyer. "There are bad feelings on both sides, and giving one side a chance to vent is a pretty dangerous precedent to set."