Is a Former Employer's Bad Reference Illegal?
Generally, an employer is not prohibited by law from providing truthful information about a former employee to a prospective employer. The law has little reason to discourage employers from providing their honest assessments of an employee's performance, regardless of whether this assessment is good or bad. However, crossing the line into making misrepresentations or outright lies could make a bad reference illegal. Legal actions based on misstatements made in job references are typically based on defamation laws which prohibit anyone, including employers, from knowingly publishing or spreading false information about another.
Employer Defamation: Facts, Falsehoods and Opinions
A job-seeker's chances of landing a job can easily be torpedoed by a bad reference from a former employer. As suggested above, it is only by straying from the truth that a prior employer can make a bad reference illegal. However, there are some practical challenges with any defamation case, some of which are are heightened in the context of job references.
Discovering the cause or reason why a job applicant was denied a job is difficult. These days, job seekers are rarely notified when they are not hired and no news, unfortunately, is understood to be bad news. Even if someone does get notified that they were denied a particular job, it rarely explains the reason, except perhaps to say that many qualified individuals applied and another candidate was chosen. As a result, the applicant might be left in the dark about any potentially negative reference from a past employer or supervisor.
However, if a job seeker discovers that a negative reference was provided, the next question is whether the information was either true, false, or just an opinion. Truthful information provided by an employer will be protected by the law in the vast majority of cases. Opinions also are generally protected, and simply because someone disagrees with their former employer's opinion does not entitle them to collect damages under defamation law. Instead, only false factual statements are subject to defamation lawsuits that are governed by individual states' laws.
Further, some states provide more strict laws relating to retaliation or wrongful references against a former employee. For example, California law makes it a misdemeanor when a former employer "by any misrepresentation prevents or attempts to prevent" their former employee from getting a job.
Company Policies on References: Ask, but Don't Tell
Nowadays, it is not unusual for entire companies to have "blanket" policies that require or encourage management or HR representatives to provide very limited information in response to a prospective employer's request for a reference about any employee. For instance, supervisors or HR reps could be directed to limit their sharing of information to employment verification (i.e. so-and-so did work here), as well as starting and end dates of employment. As far as many companies are concerned, this minimizes the possibility of getting sued, harassed, or suffering other fallout relating to former employees.
The clear downside, of course, is that employees with sterling records are left without a potentially valuable reference. Worse yet, inexperienced prospective employers may mistakenly assume the worst about someone who does not receive an explicitly positive reference from their past employer. Nevertheless, such policies are entirely permissible as far as the law is concerned.