SME: Legal pitfalls of reference checking

SME: Reference checking

By Kate Southam

In large organisations reference checking is usually assigned to the HR department or outsourced to experts.

No such luck for small business operators who find the reference checking process time consuming and sometimes down right frightening. An increasing number of employers have banned managers from providing references for former employees to avoid potential legal issues.

Legal issues of reference checking

Senior associate of Harmers Workplace Lawyers Peter Ferraro explains that possible legal pitfalls facing former employers providing references include being accused of defamation, misrepresentation or an invasion of privacy.

“Intentionally providing inaccurate information about someone or withholding critical information about an employee could land you in trouble with a claim for misrepresentation from the new employer with the potential to seek compensation for damages,” Mr Ferraro says.

He says an organisation that makes a bad hire partly based on information collected via reference checking could seek damages from the organisation that provided the reference. Damages could be based on the cost of the recruitment process plus any money that was paid to the employee on termination or even for a financial loss caused by the bad hire. 

A candidate could also bring an action if information provided by a referee was defamatory or invaded their privacy.

Mr Ferraro says that while a reference was yet to land a company or individual in court in Australia, he had dealt with threatening letters on behalf on his clients so the potential for action exists.

What does a no reference policy mean?

If you find yourself stonewalled when trying to reference check your preferred candidate don’t assume your judgment is off. The candidate might be a great fit but are just unfortunate to have worked for a company that has a no reference policy.

Organsiations that have a no reference policy will usually provide a certificate of employment or a verbal statement of employment to confirm the tenure of a former employee; his/her job role and their duties. These details are usually furnished by the HR department rather than a former manager. It is permissible to ask: “Would you re-employ X.” The question might not always receive an answer but it is worth asking. However, if you do get an answer that the company would not re-employ and you can’t probe for more information then proceed with caution.

The HR person was not the direct report so the information provided is cursory and without context.

There are reasons people would not be re-employed for reasons other than poor performance such as a department being dissolved or a job role being made redundant.  

Can a manager still provide a reference?

Managers often provide a “personal reference” that is tantamount to a professional reference.

Where the manager is employed by an organisation with a no reference policy and they are providing a reference for a former employee of the same organisation then the organisation could still be legally liable.

In many cases, organisations have written policies that they fail to bring to life with training or staff reminder circulars so if you decide to adopt a no reference policy at your company, make sure your employees are clear that it is exists and how it works.

In cases where a manager has left the organisation where the job candidate was once employed then they are free to provide a reference. If that reference is defamatory, misleading or contravenes privacy provisions then it is likely that the manger rather than the former employer would be liable.

How can a candidate find out what a referee said?

Under the Privacy Act, a job candidate can apply to see notes made about them during recruitment process.

Harmers Workplace Lawyers senior associate, Bronwyn Maynard, says candidates can just apply directly to an employer or recruiter. There is no third-party process.

Ms Maynard explains that exemptions exist such as where the records include personal information about other people or is commercially sensitive.

There is no set timeframe for employers to follow but Ms Maynard says expecting an answer back within 30 days is reasonable.

If a candidate applied to see your notes and you had written details to remind yourself who they were or to note a red flag then you could be in trouble. Details such as a candidate’s physical appearance, their parental or carer responsibilities, a personal belief they shared during the interview process or other sensitive information should not be noted down.

Take the same care when you are providing a reference as well. While it is highly unlikely, a candidate could take action for defamation. You also need to be careful not to invade someone’s privacy by over sharing information about them.  


Article from CareerOne, May 2011.

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