Addressing the cloud over employee references: a survey of recently enacted state legislation.

• Author: Long, Alex B.

A recent survey by the Society for Human Resource Management found that sixty-three percent of personnel managers refused to provide reference information about former employees to prospective employers.(1) Prompted by fear of lawsuits from disgruntled employees, many employers have adopted a "name, rank and serial number" approach to references, confirming only employees' dates of employment and job titles.(2) Several problems are inherent in this approach. Without complete references, prospective employers are forced either to hire prospective employees without the information necessary to make informed selections or reject employees and select other, potentially less desirable candidates. In the process, good candidates may be unable to secure jobs as a result of their past employers' reference policies.

This problem has not gone unnoticed by state legislatures. The threat of increased legal action and the current inability of employers to obtain references on prospective employees prompted employer groups and human resource professionals to call on state legislatures to "lift the cloud that hangs over reference-checking."(3) In an effort to increase the free exchange of references, at least twenty-six states now provide some type of statutory immunity for employers when they provide a reference.(4) Prior to 1995, only five states had such laws.(5) This Note examines the nationwide trend towards employer immunity.

Numerous factors influence employers' decisions to provide references. Traditionally, employers were concerned about defamation suits.(6) The common law affords employers a conditional privilege for the disclosure of information concerning employees;(7) however, many employers view this protection as inadequate.(8) Negligent hiring suits, whereby employers can be held liable for damages resulting from their failure to adequately investigate employees' backgrounds,(9) combined with increasing concern over negligent referral or negligent misrepresentation claims, have compounded employers' legal concerns in recent years.(10) Under this latter cause of action, employers can be held liable for not disclosing potentially dangerous characteristics of former employees or for misrepresenting the actual reasons for an employee's termination.(11)

The legal relationship between employers and employees also has changed in recent years. Statutory measures, such as Title VII of the Civil Rights Act of 1964,(12) have created additional remedies for employees suffering defamatory references.(13) Perhaps the greatest single cause of the current reference gridlock is employers' apparent misconception concerning the likelihood of a lawsuit based on a reference. According to a group representing employers' interests, many companies have adopted a "no comment" policy toward requests for references, despite the fact that their fear of lawsuits outweighs the actual number of such suits.(14) The recent statutory reforms are an attempt by state legislatures to address some of these concerns.

The first section of this Note briefly examines the causes of action that can stem from employee references. The second section discusses the current environment employers face as they weigh the potential costs and benefits of providing references. The Note also addresses the policy concerns that are inherent in any attempt to encourage the exchange of references. The next section surveys the various laws state legislatures have passed recently in an effort to address these problems. It analyzes the different approaches utilized by the states, how they alter common law doctrines, and, most importantly, how effective they are likely to be in promoting the exchange of employee references. This Note proposes a model statute that incorporates some of the features of these new statutes as well as some of the proposed reforms offered by academics. Specifically, the proposed statute would require that in safety sensitive employment settings, employers should be required by statute to disclose relevant information about potentially dangerous employees. The Note concludes that despite the state legislatures' efforts, the majority of statutes will ultimately prove ineffective in encouraging cautious employers to freely exchange referrals. Indeed, it argues that legislative action alone is incapable of adequately achieving the goal of facilitating the exchange of references. Finally, this Note addresses the root cause of the current reference gridlock--employers' fears over lawsuits. In order for individual employers to make a reasoned assessment about providing a reference, they need documented evidence about the potential risks they face. Associations representing employers should, therefore, assess the true risks of defamation suits.

POTENTIAL CAUSES OF ACTION

Acts of hiring or providing references potentially can expose employers to several forms of liability. Perhaps the most obvious is a defamation claim. In a defamation claim, the harm of a negative or untrue reference is borne by the employee through damaged reputation or loss of a job opportunity.(15) Claims of negligent hiring and negligent misrepresentation are also becoming increasingly important. In contrast to defamation claims, the damages resulting from these actions are borne by third parties who were harmed as a result of hiring an individual.(16) To understand fully the aims of the newly enacted statutes, an overview of each cause of action is required.

Defamation

At common law, the elements of a defamation claim are:

(a) a false and defamatory statement concerning another;

(b) an unprivileged publication to a third party;

(c) fault amounting at least to negligence on the part of the publisher; and

(d) either actionability of the statement irrespective of special harm or the existence of special harm caused by the publication.(17)

A communication is defamatory if it tends to harm the reputation of another in a way that lowers that person in the estimation of the community or deters others from associating with that person.(18)

Numerous authors have discussed at length the claim of defamation as it relates to employee references.(19) A particularly vexing concern for employers is that any statement, even one expressed as an opinion, can amount to actionable defamation if it reasonably implies a false assertion of fact.(20) Statements that negatively represent an employee's abilities, criminal history, honesty, or integrity can be bases for a defamation claim.(21)

Truth is an absolute defense to a defamation claim.(22) Another defense to a defamation claim is privilege.(23) A publication may be privileged if "there is information that affects a sufficiently important interest of the recipient or a third person" and "the recipient is one to whom the publisher is under a legal duty to publish the defamatory matter or is a person to whom its publication is otherwise within the generally accepted standards of decent conduct."(24) An absolute privilege exists for statements made in judicial proceedings, legislative proceedings, and executive communications.(25) In instances in which public policy favors the free exchange of information over an individual's interest in his or her privacy, a qualified privilege exists.(26) As a general rule, statements made in the employer reference context are considered conditionally privileged due to the important interest at stake.(27)

Once the defendant establishes the existence of a privilege, the plaintiff bears the burden of proving its abuse.(28) Under common law, the privilege can be abused by knowledge of falsity or reckless disregard as to the falsity of the defamatory matter, publication for an improper purpose, publication to persons other than those to whom the communication is important, or publication not reasonably believed to be necessary to accomplish the purpose for which the occasion is privileged.(29) Although the term "malice" is not listed in the Restatement, it is often cited as a condition required to defeat common law qualified privilege.(30)

Negligent Hiring

The tort of negligent hiring is now recognized in almost every state.(31) Under this theory, "an employer has the duty to exercise reasonable care in view of all the circumstances in hiring individuals who, because of the employment, may pose a threat of injury to members of the public."(32) Because an employer can be held liable for acts of its employees which occur outside the scope of the employees' duties, negligent hiring is an exception to the doctrine of respondeat superior.(33)

To succeed on a claim of negligent hiring, a plaintiff must prove:

1. "[T]he employee who caused the injury was unfit for hiring or retention, or was fit only if properly supervised."(34)

2. "[T]he employer's hiring or retention of the unfit employee, or the failure to properly supervise the employee, was the proximate cause of the plaintiff's injuries."(35)

3. "[T]he employer knew or should have known of the employee's lack of fitness."(36)

The "prototype example of a negligent hiring claim"(37) is Ponticas v. K.M.S. Investments.(38) In Ponticas, prior to hiring the employee as resident manager of an apartment complex, the employer failed to make any inquiry into the employee's background other than performing a credit check and having him complete a standard application form.(39) The employer was therefore, unaware of the employee's convictions for burglary, receiving stolen property, and armed robbery.(40) As resident manager, the employee had access to all of the apartments in the complex through use of a passkey.(41) Soon after being hired, the employee entered a tenant's apartment through use of the passkey and sexually assaulted the tenant at knifepoint.(42)

The court in Ponticas concluded that the scope of the employer's duty to investigate a prospective employee is "directly related to the severity of risk third parties are subjected to by an incompetent...