Court Watch
April 19, 1999

Employment Reference Checks

Two recent cases, one from Colorado and the other from Texas illustrate two problem areas associated with responding to and making reference checks. In Fluid Technology, Inc. v. CVJ Axles, Inc., 964 P.2d 614 (Colo. App. 1998), Fluid hired a bookkeeper that CVJ had terminated and prosecuted for embezzlement. When Fluid contacted CVJ to check the bookkeeper's reference, CVJ informed Fluid of the bookkeeper's dates of employment and stated that he had been a "fine employee." After the bookkeeper embezzled funds from Fluid, Fluid sued CVJ for negligent misrepresentation. Despite efforts by CVJ to have the case dismissed, Fluid was allowed to proceed to trial with the case. Thus, based on the court's decision, rendering false information in response to a reference check has the potential of creating liability for employers.

In the Texas case, Read v. The Scott Fetzer Co., Civ. No. 97-0707, 1998 Tex. LEXIS 160 (Dec. 31, 1998), the representations made by the previous employer were not at issue. Rather, the case centered on whether the employer had a duty to check references. In Read, a vacuum cleaner manufacturer retained independent distributors to sell its vacuums to non-commercial users. These independent distributors then were responsible for establishing a "door-to-door" sales force that would sell the vacuum cleaners through "in-home demonstrations." Mickey Carter was recruited by one of the manufacturer's independent distributors to work as an independent contractor and sell vacuums door-to-door by way of in-home demonstrations. When applying for employment, Carter listed three references and three prior places of employment. The independent distributor, however, never checked Carter's references and never contacted his previous places of employment. Had it done so, the independent distributor might have learned that several women at one of Carter's previous employers had complained about Carter's sexually inappropriate behavior. The independent distributor also might have learned that Carter had been arrested and received a deferred sentence for indecency with a child thereby resulting in his termination. Shortly after being hired, Carter contacted Read in an effort to sell her a vacuum cleaner and later sexually assaulted her at her home.

Read sued the manufacturer and the independent distributor under a negligence theory claiming that the manufacturer and independent distributor had a duty to establish adequate safeguards to eliminate dangerous salespersons from their sales force given that salespeople were required to sell vacuum cleaners by way of in-home demonstrations. A jury returned a verdict in favor of Read and awarded compensatory and punitive damages totaling Nine Hundred Sixty Thousand Dollars ($960,000). Although the punitive damage award was eventually reversed on appeal, the award of compensatory damages was upheld.

The Fluid Technology and Read cases represent nightmare situations associated with reference checks. While several states have codified common-law, qualified privileges that protect employers from suit for giving a reference, the qualified privilege typically requires that the employer act in good faith. Nonetheless, these statutes, and the qualified privilege they codify, vary from state to state. In light of these cases, we recommend the following measures.

An employer's goal in responding to requests for references is to provide accurate and uniform information for each former employee from a singular centralized source. To accomplish this goal, employers should first create a singular, centralized voice to respond to requests for references. Ideally, the voice should be that of the human resources department. Even within the human resources department, employers should identify one person or a particular level of management that will be responsible for responding to requests for references. Second, employers should have a uniform written policy in place. The policy should clearly identify the procedure for responding to reference requests and note the information to be given. This information should be limited to dates of employment and salary. By limiting the information provided to dates of employment and salary, employers provide only objective facts that are easy to verify and do not speak to a former employee's job performance. Third, employers must apply the policy in a uniform fashion for all employees. The policy is worthless if not applied uniformly and can lead to other potential problems where an employer refuses to give even basic information for "problem" employees who were terminated for committing a bad act or engaging in some statutorily protected activity during their employment such as filing a charge of discrimination.

As for performing reference checks, be sure to check references. Read is a great example of what you may fail to discover by not picking up the telephone and making a call to a former employer or reference. Moreover, when employers check references they should document the fact that references were checked. Even if employers checking references encounter an employer who only gives the limited information outlined above, the prospective employer will at least be able to show that it took reasonable steps to learn what it could by contacting the employee's past employer. If the defendant in Read had checked Carter's references and learned about his past, it in all likelihood would not have hired Carter. Even if Carter's previous employer gave only limited information, the defendant in Read would still have been able to show that it acted reasonably in checking Carter's references and, as a result, could have avoided minimized any risk of liability for Carter's actions in assaulting Read.

Despite protections under the common law and some state statutes, the truth of the matter is that it is better to be safe than sorry when it comes to responding to reference requests. And while the conservative approach to responding to reference requests may not remove all risks, it is nonetheless an effective way to avoid a lawsuit in connection with providing an employment reference.