INTERVIEW EDGE • JUNE 1996

Waiving Liability for Employee References

A year after Paul Calden was booted out of Allstate Corporation in Tampa, Florida, he was hired by Fireman's Fund. Three years later, when Calden killed three Fireman's executives in a shooting rampage, the widows of the murdered men sued Allstate for failing to disclose the truth about their former employee. Although his supervisor at Allstate called Calden a "total lunatic," the company's reference letter had attributed Calden's departure to "organizational restructuring." Allstate settled the case out of court, setting an interesting precedent.

The trend toward holding companies liable for "negligent misrepresentation" was upheld in December 1995 by the California Court of Appeal. In that case, a vice-principal was accused of molesting a student. Plaintiffs argued that three school districts in which the vice-principal once worked provided him with glowing recommendations in spite of the fact that he had been involved in several "sexual situations" with female students. The Court ruled that district officials did not have an automatic duty of disclosure, but that once they opted to give the vice-principal a positive recommendation, they were obligated to disclose negative information as well.

The upshot of all this is that businesses are increasingly caught between the rock of defamation and the hard place of nondisclosure. Traditionally, companies have given enthusiastic references to even the most undesirable employees in order to avoid expensive defamation suits. Now, however, it appears that a positive recommendation can be even more costly.

To navigate these tricky waters, corporate attorneys advise their clients to give only "name, rank, and serial number" recommendations. But that lets ineffective or dangerous employees off the hook (and into the work place) and penalizes workers who deserve praise. In the future, employers may need to devise some kind of code to deal with these issues.

In the meantime, another recent court decision (Cox v. Nasche, et al.) limits the risk of defamation suits when an employee signs an information release waiving liability against the provider of information about his or her employment. We recommend that employers use these releases.