Wisconsin Lawyer
Vol. 81, No. 4, April 2008

Employer Liability for Employment References

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• CLE Books updates Wisconsin Employment Law, Hiring and Firing in Wisconsin, and Guide to Employment Discrimination in Wisconsin

by Matthew L. Mac Kelly

any businesses today are hesitant to provide information about their former employees to prospective employers because of the threat of potential lawsuits. Frequently, this fear is so strong that human resources departments institute policies against giving any employment references. Whether this approach is a "best practice," however, substantially depends on the individual circumstances. The following discussion highlights the legal issues underlying employment references and other information given by employers about former employees.

There are primarily four potential sources of liability arising out of the provision of employment references to prospective employers: 1) defamation arising out of the common law and Wis. Stat. section 895.487; 2) invasion of privacy arising out of the common law and Wis. Stat. section 995.50; 3) retaliation under the Wisconsin Fair Employment Act and Title VII of the 1964 Civil Rights Act; and 4) negligent referral or breach of duty to warn, which has yet to be recognized by the Wisconsin Supreme Court but represents an expansion of the existing claim of negligent hiring.

Defamation

Defamation generally. A communication is defamatory if it "tends to harm the reputation of another so as to lower him in the estimation of the community or deter third persons from associating or dealing with him."¹ When the communication can be interpreted in both a defamatory and a nondefamatory way, the applicable test is how the subject of the communication interpreted the communication.² In other words, the question is whether the subject reasonably understood the communication as defamatory, which is an issue for the jury to decide.³

Both compensatory and punitive damages may be available for a successful defamation claim.⁴ The availability of punitive damages is determined by the level of malice toward the defamed party.⁵ Generally, punitive damages may be available if the communication was made with express malice (the defamatory communication was made with motives of ill will, envy, spite, revenge, or related motives) or actual malice (the defamatory communication was made with knowledge that the statement was false or with reckless disregard of the truth).⁶

Defenses to defamation claims. The two defenses to defamation claims are truth and privilege. Truth is an absolute defense to defamation claims.⁷ To establish this defense, however, the employer must affirmatively prove the statement or information was truthful.⁸ The plaintiff is not required to prove the statement was false.

A frequently asserted defense is that the employer has a particular privilege in making the defamatory statement. In other words, the defense of privilege is that the employer is immune from liability for making allegedly defamatory communications.

The first type of privilege is absolute privilege. When an employer has an absolute privilege regarding its comments about former employees, the employer has complete protection, regardless of the motive for the communication.⁹ Absolute privilege extends only to communications made by judicial officers, statements made in legislative proceedings, and communications made by certain governmental officers.¹⁰ As such, this privilege does not apply in most employment reference situations.

The second type of privilege is characterized as conditional privilege. A conditional privilege gives protection depending on the employer's motivation. Conditional privileges usually extend to those individuals having a legitimate common interest with the recipient of the communication.¹¹ A legitimate common interest exists when "any one of several persons having a common interest in a particular subject matter correctly or reasonably believe that there is information that another sharing the common interest is entitled to know."¹² For example, a conditional privilege may protect the employer when the statement is made to business partners, fellow corporate officers, fellow shareholders, and co-employees about matters such as common property, business, or other professional interests.¹³

Conditional privilege and employer-employee relationships. Wisconsin courts have held that a conditional privilege attaches to certain communications between an employer and individuals or entities having a common interest in the employee's conduct. Examples of situations in which a conditional privilege attaches include the provision of letters of reference from former employers to prospective employers¹⁴ and the making of communications by employers to employees about the reason for another employee's discharge.¹⁵

A conditional privilege may be lost, however, under any of the following circumstances: 1) The employer knows of or shows reckless disregard for the falsity of the defamatory communication. 2) The employer publishes the defamatory matter for some purpose other than that for which the privilege was given. 3) Publication of the defamatory matter is made to some person not reasonably believed to have a need to know the matter to accomplish the purpose for which the privilege is extended. 4) The publication includes a defamatory communication but is not reasonably necessary to accomplish the purpose for which the privilege is extended. 5) The publication includes unprivileged as well as privileged matter.¹⁶

Employment reference legislation. In 1995, Wisconsin enacted Wis. Stat. section 895.487, which codified the common law conditional privilege regarding defamation claims arising out of employment references. Section 895.487(2) establishes a presumption that an employer responding to a reference request is acting in good faith and is immune from all civil liability that may result from providing that reference to a prospective employer. This presumption of good faith, however, may be lost if there is clear and convincing evidence that the employer knowingly provided false information, made the reference maliciously, or made the reference in violation of Wisconsin's blacklisting statute.¹⁷

The case of Gibson v. Overnite Transportation Co.¹⁸ gives guidance on the application of Wis. Stat. section 895.487. In Gibson, the plaintiff crossed a picket line to complete a work assignment and was harassed by union supporters. The plaintiff resigned from Overnite Transportation (Overnite) and falsely informed his supervisor he was quitting to help his ailing grandfather's company. The plaintiff actually went to work for another trucking company.¹⁹

An agent for the new employer contacted Overnite for an employment reference. The plaintiff's former supervisor at Overnite allegedly made a series of false and disparaging statements about the plaintiff in response, and the plaintiff's new employer terminated his employment based on the negative reference from Overnite.²⁰

The plaintiff sued Overnite for defamation. The jury found that the former supervisor acted with express malice and held Overnite liable for defamation, awarding the plaintiff $33,000 in compensatory damages for lost wages and $250,000 in punitive damages. This award was upheld on appeal.²¹

The Wisconsin Court of Appeals clarified the type of proof needed to establish defamation in the context of responding to employment reference inquiries under Wis. Stat. section 895.487(2). The court stated that a plaintiff does not need to prove the employer acted with actual malice (that is, that the employer made statements with either knowledge the statements were false or with reckless disregard of the truth). The plaintiff only needs to prove that the employer provided the reference information out of ill-will, bad intent, envy, spite, hatred, revenge, or another bad motive against the person defamed.²²

Privacy Implications of Employment Information

In Zinda v. Louisiana Pacific Corp., the court analyzed the conditional privilege in the context of privacy rights. In Zinda, the employer's newsletter reported "comings and goings" of employees. When an employee was terminated, the newsletter indicated the reason for the termination. The plaintiff's termination was reported as being for falsifying employment forms. The newsletter was allowed to circulate outside the employer's premises, including at the hospital where the plaintiff's wife worked.²³

Because of the publicity at the hospital, the plaintiff brought a claim of "unreasonable publicity" under Wis. Stat. section 895.50(2)(c) (now renumbered as section 995.50(2)(c)).²⁴ The Wisconsin Supreme Court noted that employees of the company "had a proper interest in being informed of the plaintiff's discharge," and concluded it was up to the jury to determine if the employer lost its conditional privilege by "excessively publish[ing]" the information.²⁵ Although the employees had an interest in knowing the reasons for the plaintiff's termination, the newsletter may have been an unreasonable way to serve that interest.

Retaliation Claims for Negative References

A former employee may have a claim for retaliation if the employer gives a negative reference after learning that 1) the former employee has filed a discrimination action under the Wisconsin Fair Employment Act or Title VII of the 1964 Civil Rights Act; or 2) the former employee complained about illegal discrimination.²⁶ For example, in Robinson v. Shell Oil Co.,²⁷ the plaintiff alleged that his former employer gave a prospective employer a negative job reference in retaliation for the plaintiff's filing of an EEOC complaint. The U.S. Supreme Court held that the term employees as used in the retaliation section of Title VII extends to former employees.²⁸

Negligent Referral or Duty to Warn

Some states, such as California and Florida, have implemented the doctrine of negligent referral or duty to warn.²⁹ Under this doctrine, an employer may be held liable for providing reference information that is untrue or omits knowledge of an employee's dangerous and criminal propensities. To date, the doctrine of negligent referral or duty to warn has not been adopted in Wisconsin in the employment context. The Wisconsin Supreme Court's decision in Miller v. Wal-Mart Stores Inc., however, provides support for the belief that the court might sometime uphold a negligent referral cause of action.³⁰

For example, the Miller court held that a negligent hiring or supervision claim is valid in Wisconsin. This claim requires only that the employer must have some duty of care to others (such as a duty to hire someone who is not foreseeably likely to cause harm to another³¹); the employer must breach the duty; and the negligently hired or supervised employee must cause the plaintiff's injury.³² Similarly, in a negligent referral or duty to warn case, a former employer would have a duty to accurately represent whether a former employee could pose a foreseeable risk of harming another employee if employed by the prospective employer.³³

Comparing the standards in Miller to the standards in negligent referral or duty to warn cases, it seems the Wisconsin Supreme Court would only have to make a very short leap from its recognition of a duty to hire someone who is not a foreseeable risk to recognition of a duty on the part of employers giving employment references or letters of recommendation to also take reasonable care not to misrepresent (by affirmation or omission) the character of a former employee if the former employee presents risks, such as potentially harming people in the workplace or committing crimes imputable to the prospective employer.

Minimizing Risk

To help reduce the potential for defamation claims, consider some of the following when advising your business clients:

• When making representations about former employees to others, all communications should be truthful and in good faith.
• Clients should make sure the people they give references to have legitimate business reasons to request the information. If requests are received by telephone, legitimacy may be difficult to determine. Clients should consider instituting a policy that replies will be made only to written reference requests. Callers should be informed of this policy and given an address where they can send reference requests.
• Information obtained from the applicant's references, such as that obtained from an application or interviews, should be kept confidential. This information should be shared only with people directly involved in the hiring process. If responses to reference requests contain defamatory statements, restricted access will help avoid a claim of unreasonable publication, as in the Zinda case.
• Clients should limit the individuals in the company who may give employment references. For example, information-giving could be limited to a human resources officer or direct supervisor who would only provide information documented in the employee's records.
• Clients' statements must be consistent with the justification given to the former employee at the time of termination. Clients should not inform a prospective employer that the former employee's departure was for a reason different than the reason given to the employee at termination.
• Clients should avoid accusations that an employee engaged in illegal or improper conduct. Employers have been found liable for defamation for making statements to the effect that a former employee was a thief, used illegal drugs, or made improper advances toward coworkers. If a client fired an employee because it suspected the former employee was engaged in illegal or improper conduct and the client feels compelled to state that reason for the termination, then the statement should be restricted to the suspicion with an explicit caveat that the reason was a suspicion. (For example, "Employee was fired because he was suspected of taking company property," not "Employee was fired because he stole company property."). However, the client should not state a suspicion unless it can be supported with objective evidence.
• Clients should avoid exaggerating an employee's misconduct. For example, a statement that an employee was fired for gross insubordination may be defamatory when the alleged misconduct was the refusal to adjust an expense account.
• The client should obtain a release from the employees for whom it provides references. If an employee leaves the company, the client should bring up the issue of future references. Clients should not tell employees that references will not be given unless they sign the release, however, because doing so could invalidate the release if employees do sign it.³⁴ The client should speak with the employee about what information will be communicated to prospective employers if the employee elects to sign a release. The employee should be informed that, if he or she does not sign the release, information given to prospective employers will be kept to a bare minimum.
• If the employer has reason to believe a former employee represents a foreseeable risk (such as violence, dishonesty, sexual harassment, and so on) to a prospective employer or his or her employees, then the employer should consider making those concerns known to the prospective employer upon inquiry.

These guidelines are an important part of an overall plan to help business clients lower their risk of being sued by former employees.

Endnotes

Wisconsin Lawyer