Reference Check Gridlock
Once there were two prisoners in a Siberian gulag. They had been imprisoned many years and were planning to escape. Their guards knew something was up, but had no proof. So they put the prisoners into separate rooms and told them, “we know you are plotting to escape. If you confess and implicate your friend, you will not be punished, but your friend will be shot.” Both prisoners know that the best thing is for both of them to say nothing. But if they hold the line and their friend confesses, they will die. Ultimately, in order to protect themselves, each prisoner will break down and confess, making them both worse off.
This is very much like the situation employers find themselves in when it comes to reference checks. To make intelligent hiring decisions, employers would like to get complete, honest feedback about a potential hire, but they cannot, because other employers, afraid of being sued by disgruntled ex-employees, will give out nothing except job title and dates of employment. Since the employer that behaves with self interest will also someday be in the shoes of the employer who is asking for a reference, both would be better off if they cooperated. Yet, to let candid information flow is perceived as a large risk.
The Truth About the Defamation Threat
The reality of the threat of defamation from employer references is often well exaggerated. The truth is that very few employers are ever sued for defamation and almost none are found liable. In 1997 there were only 13 cases in the United States in which employees sued ex-employers for defamation in the context of reference-giving. Of those cases only four were successful and only once was a plaintiff’s award of damages upheld. In 1998 there were four cases with not one successful plaintiff and in 1999 there were five case with only one plaintiff succeeding. Research by Ramona Paetzold and Steven Wilborn published in 1992 looked at all reported defamation cases for two sets of five year periods, one from the late 1960’s and one from the late 1980’s and found the proportion of cases lost by employers to be only 25%. Interestingly the study found that plaintiffs were actually less successful in the later time period. Their rate of surviving summary judgment dropped from 83% to 55%; the success rate at trial dropped from 28% to 19% and success on appeal dropped from 16% to 11%. As the statistics from the years 1997-1999 show, this trend is continuing.
The reason employees seldom win these cases is because they must prove malice. In essence, they have to show not only that the statements made in the reference were defamatory and false, but also that they were unusually reckless and malicious and that the employer had no basis for making the statements at all. The difficulty of clearing that hurdle is illustrated by the facts in one of the rare cases where the plaintiff prevailed. In Babb v. Minder and Carter Jones Lumber Co., 806 F.2d 749 (1986), the defendant accused the plaintiff of making sexual overtures to several employees and “mooning” another. Minder had absolutely no evidence to support these allegations. They fired Babb, and made these remarks about her, based only on unsubstantiated rumors.
An employer’s qualified privilege in almost always upheld. For example, see Willis v. Roche Biomedical Lab, Inc. 21 F.3d 1368 (5th Cir. 1994). In Willis, the defendant told plaintiff’s employer that he had failed a drug test. The information resulted in plaintiff’s dismissal. At trial, it was uncontested that this statement was false, and that it was the result of a negligent mistake by the lab. The court found this was not enough to establish malice and granted summary judgment for the defendant.
Those employers that are found liable for defamation in the context of giving references have usually made statements that a reasonable person would not have made. There are situations in which even a reasonable and careful employer can find themselves on the wrong end of a liability judgment. Reference checking is not one of these types of situations. An employer who sets up a proper system of guidelines, training and controls is generally protected from liability.
Harm
To compensate for this lack of candor in reference checking employers often use a combination of strategies such as interviews and resume credential, criminal history and credit background checks as well as personality, drug and honesty testing. These techniques are often not just a waste of company resources but a profound violation of employee privacy and right to fair treatment. None of these techniques give the employer what they really need to run their businesses effectively. They may produce negative bits of data to screen people out but they are no substitute for learning how a potential hire handled previous jobs. Without this information an employer does not have the tools necessary to hire the most qualified candidate which can lead to very costly mistakes.
Increasingly, employers are being sued for failing to use reasonable care by hiring people who commit violent acts. At present, more than 7,000 employee homicides and 2 million physical assaults happen at workplaces each year.
Meanwhile, employees can not capitalize on the most valuable asset they possess- performance records- as they engage in job searches that are likely to reoccur over a lifetime. A 1993 survey commissioned by Robert Half International, a staffing services firm, asked 200 executives if a company’s refusal to comment on an employee’s performance was detrimental to his or her chance of getting a job: 44 percent answered that it was.
There is also the risk of unemployment compensation costs. In virtually every state, unemployment compensation is funded by employers and the amount an employer pays is directly, if not perfectly, determined by its individual experience. The cost to an employer when a former employee collects unemployment compensation can be several thousand dollars. For these reasons, it is not unusual for employers to contest questionable UC claims. Refusing to give a reference for a good former employee may result in that person collecting unemployment compensation for a longer period of time at the owner’s expense.
Additionally, a relatively new form of liability known as negligent referral may be emerging as a threat to the employer who does not give out detailed reference information. Recently, a Florida appellate court upheld a lower court ruling finding Allstate Insurance liable for providing a neutral reference letter to Fireman’s Fund insurance despite the company’s knowledge of the candidate’s violent propensities. The individual later went on to murder three executives at his new place of employment.
Conclusion: Mutual Cooperation
Reference checking is too often a matter of misunderstood risks. There is admittedly some legal risk involved in engaging in more than the “name, rank and serial number” approach to reference giving. But there are other risks as well, such as the risk of not finding the right people for the right job to say nothing of the growing risk employers face for not getting or receiving more complete references. Moreover, employees who hold several jobs over the course of their careers involving often different skill sets, are penalized by not being able to provide evidence of past job performance to prospective employers. People generally think of employment issues as a zero sum game in which every gain by employees is a loss for management, and vice versa. Sometimes that’s true. A dollar more for employee salaries is a dollar less for executive bonuses and dividends. But there are exceptions to this rule, and reference checking is one of them. If employers would abandon the “name, rank and serial number” approach, and adopt a policy of providing each other honest information about their former employees’ performance the quality of their hiring decisions, and their bottom lines, would increase and the workforce would benefit substantially.
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