Is it illegal to give a bad reference?
Sometimes you just can't give a glowing reference – but here's what you need to consider legally.

Not every employee leaves a company on the best terms, and sometimes managers just aren’t able to give glowing references for underperforming staff.

But there are some legalities to consider if you’re thinking of stretching the truth – either negatively or positively – around references for an outgoing employee.

Benjamin Baumgarten, a solicitor specialising in employment law at Colin Biggers & Paisley Lawyers, gives some tips on these tricky questions:

  • What do employers need to know if they’re thinking about providing a negative reference?
  • What can employers do if they think a candidate's referee isn’t being completely honest?
  • What could happen if you give a positive reference when an employee doesn’t really deserve it?

Think twice about giving a negative reference

“An employer needs to tread carefully if they are considering providing a negative reference to a prospective employer,” Baumgarten says.

“Firstly, an employer may be exposed to liability if the comments made in a written reference or to a prospective employer are considered defamatory.”

However, in Australia most laws regarding defamation will provide the employer with a defence if they can prove what was written or said was substantially true, he says.

“If you're able to prove that what you've said or researched is substantially true, that would act as a defence to any comments that you've made in reference to an ex-employee.”

Be careful, though. If an employee can prove that those negative comments were made maliciously, then the defence is no longer available to the employer.

When a reference causes monetary loss

New employers and ex-employees can also pursue legal action if a reference causes a financial loss.

“Another cause of action that would be available to both an ex-employee and a prospective employer would be claiming negligence in the form of a negligent misstatement,” Baumgarten says.

“For ex-employees, that would occur in a situation where a referee has made an incorrect statement about an employee, and that results in that employee missing out on that job or suffering some form of loss.”

It works the other way too, and can be used by prospective employers, Baumgarten says.

“If you hire someone based on a misstatement made from the old employer and you suffer loss because of hiring that person, then that course of action is also available to you.

“Maybe you've relied on a statement from the old employer saying that, for example, Bob is a really great worker and he's really good with numbers.

“But if Bob turns out to be not very good with spreadsheets and it causes the business to lose money, then that's a negligent misstatement.”

How can employers check references?

Technology is increasingly used by recruiters and prospective employers to help screen candidates, Baumgarten says.

“If an employer feels as though the candidate’s referee is not being honest, there are many ways of addressing this.”

One way is to outsource reference checks to a third-party company.

“Instead of relying on your gut instinct which sometimes might serve you well, when there's a lot at stake you might want to automate that process – especially if it's for a senior level position, or one where there are a lot of ethical duties that need to be adhered to.

“You want to make sure that whoever is being led into the company has been thoroughly vetted, as there's a lot that can go wrong.”

Technology reveals ‘digital body language’

Larger companies are increasingly using sophisticated automated referencing checking companies such as Xref, Baumgarten says.

Digital reference checking technology is so advanced that it can tell if a candidate’s referee is providing dishonest information by examining their “digital body language”.

For instance, it can reveal how fast the referee completes feedback, and where they logged in from.

“That might send up a red flag to say that, look, we don't think that prospective employee's referee is being totally honest with the information that's being given.”

Companies at the top end of town who can afford to use this technology, and where there might be more at stake are increasingly using these systems, Baumgarten says.