The Risk of Giving Former Employees References and Why Checking References is Important

Leverage a Lawyer is booming (yay!) and as a result, I’m smack dab in the middle of hiring some new employees right now.  I’ll be honest – I’ve avoided hiring any W2 employees until now.  I’ve only worked with independant contractors in the past and have (until now) gotten away without a full-time employee.  But with the exponential monthly growth that my firm is experiencing, things will spin out of control pretty quickly if I don’t bite the bullet and hire for real.

The thing I am doing today is checking references for two really strong candidates I am considering.  And I wonder how many of you either check references or provide them for former employees?  Have you avoided providing references because you were afraid of liability or a defamation claim?  Did you think that you were actually not allowed legally to give negative references?  These questions came up this week in some discussions I was having with my 7 Figure Club sisters, and I wanted to share my thoughts with the entire Savor community in hopes they will keep you out of trouble and enable you to hire the best possible candidates.

First, as an employer, checking references is important to at least verify that the information the applicant gave you on her application is accurate.  Most former employers are at least willing to verify basic facts like dates of employment, title/job and ending salary.  Cross check that with what the applicant put on her application and you will at least know if she is honest.

But, beyond that, if the applicant gets a glowing review from a former employer, it will tell you that this is someone really great.  You likely won’t get useful information if the situation was bad.  No one is going to give a glowing review for a fired or problem employee.  If the former employer says they can’t tell you anything, it could be a signal of a problem. It could also just mean that they don’t give our references as a policy, but either way, you will likely learn something important if you do make the effort to check references.

Second, if you ARE the former employer, you have to be really careful about what you say about your former employees.  But, you can tell the truth if it is verifiable (one more reason to keep really good records of your employees from day one).

If you say something negative and it isn’t independently verifiable (a hard fact that can be proven by documentation), then you do risk a defamation claim.  But, you can certainly say positive things all day long (assuming you mean them!).

The risk really comes in when you had to fire the employee and someone calls you for a reference.  Because of the risk, some companies have the policy of only giving minimal information about the former employee’s job (as mentioned above):  dates of employment, job title, ending salary and nothing more.  If you have this policy, make sure you put it in the employee manual/handbook that they sign when they are hired.

The good news is that in many states former employers can’t be sued for defamation when giving a reference assuming they give it in good faith.  Good faith means that you should not say nasty things or give your opinions about why they are screwed up and can’t be trusted.  🙂  The best rule of thumb is to focus solely on the facts and keep it brief (unless you want to speak highly of them, of course).

On the flip side (like where I am currently), if you want to call a former employer, disclose it on your job application and ask the applicant (with a check box) if you have permission to contact that former employer.  Make sure the applicant signs the application and keep that in her file.

If you are faced with being asked to give a reference for a fired or problem former employee, here is what you can say to avoid having problems:

1.    Before you fire someone, give them a warning and let them know that if that happens, you will not provide a good reference.  Hopefully, they won’t ask you to give a reference.  If the potential employer calls you, just give out the minimum.  Sometimes the absence of anything more puts the potential employer on alert without you having to say anything else.

2.    Agree on a statement about their performance that the employee signs off on and/or then get a written release of liability from them right then and there:  You can come up with a fairly vanilla statement about them that you agree to give out to prospective employers and that they agree to.  Put it in writing and have them sign it.  The other option is to get them to sign a written Release of Liability before they leave the building on their last day.  The Release of Liability should be worded to give you permission to provide information to prospective employers and should make clear that you will not be liable to them for the information you give to that prospective employer.  Either way, get their signature before they leave on their final day.

3.    Be truthful and factual:  As mentioned above, only speak to what you can verify with documentation (truth is always a defense to a defamation claim).  If you don’t have anything good to say, you can say that the employee didn’t work out and you had to let them go, but that you can’t say anything beyond that (unless you have the Release of Liability in hand).  If you do have a Release signed by the employee, still make sure that you talk about facts and don’t give lots of opinions. Definitely do not insult or say mean things about that employee under any circumstances.

4.    Don’t hide it if the former employee was dangerous:  If the former employee was someone who was physically threatening in any way, you should not hide that fact (assuming it is factual and you can verify it).  If they pose a threat and you don’t say something, you might end up in trouble for that if something bad happens with the new employer.

5.    Designate one person to give references. Have only one person in your company be the one who gives references (likely you as CEO, at least until you are big enough to need an HR department or manager of a large staff).  All requests for references must come to that person, and all other employees must be instructed that they do not have authorization to give ANY information about that former employee, even if they think it is “off the record.”  Put this policy in the employee handbook and point it out when they sign the manual so that they understand this rule clearly.

6.    Keep detailed notes of any references you do give:  When you give a reference, keep notes of what is said and keep that record until the statute of limitations runs on a defamation claim (that is a tort and the statute of limitations is different in every state, but keeping it for 2-3 years should be sufficient).

I’ll let you know how my hiring process goes.  I am very excited to be moving into this place of having real employees because it means things are moving forward with my firm in a big way!  If you have questions about giving or seeking references, or if you have war stories, please share them below.  We can all learn from each other!

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