Widespread among employers today is a "neutral reference" strategy in providing references for current or former employees. In fact, many attorneys have urged clients to adopt this policy to decrease exposure to liability. Of course, when you're the one seeking the reference, this type of policy severely limits the information you can gather and renders hiring decisions difficult. Our goal in this article is to provide information that will inform your decision in either selecting the appropriate policy or examining whether to revise your current policy.
Outside of some very limited circumstances (e.g., jobs for public safety positions or positions with the federal government requiring security clearance), the law doesn't impose any "affirmative duty" on employers to respond to reference inquiries. As a result, those who choose to give a reference, even a neutral one, face some legal risks.
Defamation is the most common reason for having a neutral reference policy. Defamation exists when an employer knew or should have known it was giving out false information about a former employee. Some states have laws offer some protection to employers who give references. Check your state's laws to see if this applies to you.
Title VII of the Civil Rights Act of 1964, NRS 613.330, and other similar laws expose an employer to legal liability if it can be shown that the employer's reference practices (including providing only a neutral reference) discriminate on the basis of an employee's race, sex, disability, or other protected characteristic. In addition, the same statutes impose liability on an employer for its reference (or refusal to give a reference) if the reference is in retaliation against a former employee who has engaged in protected conduct.
Competing against those dangers is the tort (wrongful act) of negligent hiring, recognized by a majority of states. It places a burden on the prospective employer to conduct a reasonable investigation into an applicant's background before hiring. Thus, it has been argued that simply accepting a neutral reference isn't enough.
How to give references
In light of those issues, you must examine your policies from both sides of the coin: (1) giving references and (2) obtaining references/information about prospective employees. Let's examine the first side of the coin -- giving references.
You should develop a companywide reference policy, which will provide consistency, a key element in minimizing liability with respect to disparate treatment of employees. In setting a companywide policy, consider whether you treat all situations the same. For example, if a positive reference is given for a young Hispanic employee but only a neutral reference is given for an older Asian employee who was terminated, your company may be exposed to a discrimination claim.
Sometimes a company with a neutral reference policy makes dangerous exceptions to the rule. For example, a supervisor may deviate from the policy and give a great employee a positive reference because he felt it was "appropriate." That raises the inevitable issue of policy versus practice -- if the policy isn't actually followed consistently, should it be reexamined to take into account exceptions? The answer to that question sometimes will reveal that your organization may be better served by a more nuanced policy, such as allowing a reference for an employee with at least five years of employment who gave notice and is leaving despite her supervisor's best efforts to keep her. Adopting that type of policy depends on your organization, training/control over supervisors, ability to monitor compliance, risk aversion, and philosophy regarding positive/negative references.
If your company has decided to provide information over and above the "neutral" policy, consider assigning one person to the task, having an approval mechanism, and/or putting additional information in writing. Also consider providing only objective facts about an employee's performance that can be verified rather than subjective opinions. For an employee in your marketing department who is timely and accurate but whose work is never appealing to his supervisor, that may not be practical. On the other hand, a salesperson's sales ranking compared to her peers may be completely objective.
Also, having an unbiased reference person, as opposed to using the supervisor, is a strong defense in a defamation case. Further, in defamation cases, it's often disputed what exactly was said, and slight variations in wording can make a difference between truth and falsity. Written references eliminate that risk but create the risk that an untrained person may write the wrong thing.
Your policy shouldn't be considered in a vacuum. If you obtain permission from a former employee to give references -- in the form of a release signed either upon hiring or when she leaves her position -- then you may have greater leeway and less risk in adopting a more nuanced policy. Again, the best policy for your organization depends on many factors, some of which we have presented for your consideration.