Furnishing employee references - some cautions to the practitioner.

A sole practitioner from a neighboring town calls to ask for references for a former employee of your firm. You thought the employee was a poor worker and showed little interest in advancement. What should you tell this CPA?

CPAs who want to cooperate with other firms and companies but still protect themselves from liability should know something about the rights of their former employees and about defamation law in their jurisdictions. An earlier Practitioners Forum article ("Reference Checking: A Critical Part of the Hiring Process," by Robert Half, JofA, Aug88, pages 130-134) stressed the need for thorough reference investigations when firms make hiring decisions. It pointed out that today's litigious environment makes employers nervous about offering any comments about former employees, especially negative ones. This article looks at references from the supply side, offering suggestions for dealing with external inquiries about former employees.

DEFAMATION

The common law torts of libel and slander make up defamation law. Slander refers to oral communications while libel applies to written statements. CPAs must exercise caution to avoid both forms of defamation when responding to a request for information on a former employee. Any statements a court might hold to be false and injurious to a former staff member's relationship with a present or future employer could expose a practitioner to a potentially costly defamation claim. Although the burden of proof rests with the plaintiff, it is important that any statements made be defensible as fact. Responding to inquiries--even in strict confidence--does not ensure protection if statements cannot be verified.

PRIVILEGE TO DEFAME 

Under some circumstances, otherwise defamatory statements are protected under an absolute or qualified privilege. For example, if the former employee requests a letter or reference and waives access in writing to its content, the legal theory of consent may afford some protection from liability. In a New Mexico case, an applicant consented to an inquiry about her job qualifications. Her former boss told the potential employer that she lacked professional competence, which lost her the job. In denying her claim, the court ruled that the privilege conferred by consent is absolute. Of course, protected statements must be made within the scope of the consent.

If the court doesn't find consent, a qualified privilege still may exist. Statements that otherwise would be considered defamatory may be protected under a number of womewhat vague criteria. One requirement is that the person making the statement act in good faith and have a legitimate interest in the information. The information must be relevant to the hiring decision and can't be shared with anyone who lacks a legitimate interest. In this context even a false statement may be immune, provided it is made in the belief it is true and without negligence in investigating its truthfulness. Comments on the applicant's character and integrity are normally acceptable for accounting positions because of their importance to the hiring decision. Nevertheless, the use of excessive or improper language can defeat the qualified privilege.

While an employer can't control what the recipient does with a reference letter, he or she is responsible for avoiding negligent dissemination. The employer therefore should control access to company files and take common-sense precautions to limit access elsewhere. For instance, employers shouldn't use postcards, FAX machines, computer networks and answeirng machines to give a reference. Ordinary mail is safe enough; while not absolutely necessary, it is wise to mark the envelope "confidential." Incidental access by a clerical employee processing the communication does not create a problem as long as this person receives proper instruction about maintaining confidentiality.

TELEPHONE REFERENCES

Telephone inquiries have become popular because companies perceive that former employers are reluctant to go on record with their comments. Ironically, the absence of documentation, which gives telephoning its appeal, can come back to haunt the unwary respondent. Unless an employer confirms who is calling and why, he or she risks being accused of negligent dissemination of reference comments. Moreover, lack of documentation can make defending the actual statement extremely difficult.

A "NO COMMENT" POLICY

Some companies refuse to respond to reference requests, but this policy is not always the best one. It must be evaluated not only in the context of legal risk but also in light of the firm's relationship with the business making the inquiry. For example, will it be awkward if a CPA refuses to discuss a former employee with a long-standing client? Even if a no-comment policy is appropriate, it may not protect firms fully from potential legal liability.

In a Minnesota case, a plaintiff sued his former employer for defamation under the doctrine of compelled self-publication, even though the employer issued no comments whatsoever to third parties. Here's how the suit might work at a CPA firm:

Firm 1 fires Smith because he is suspected of falsifying the completion of some audit steps. Smith applies for a position at Firm 2. When Firm 2 asks why he left Firm 1, Smith says he was accused of signing off on uncompleted audit procedures. Under the self-publication doctrine, a court may view Smith's statements as if Firm 1 had given this information to Firm 2. If Smith is not hired by Firm 2, Firm 1 may find itself having to defend the dismissal in a defamation suit without having commented on the dismissal.

PRECAUTIONS

Since defamation law varies from state to state, it is a good idea for a firm to obtain legal help in forming its policy. If it chooses a no-comment policy, it should apply it consistenly. If it decides to issue references, the following suggestions may prove helpful:

* If possible, obtain the former employee's written consent to release information.

* Release only written references in order to have documentation.

* Keep file copies private.

* Communicate only by closed letter, addressed to a specific authorized person by name, rather than "to whom it may concern."

* Release only information the firm can prove reasonably with objective data that the employer personally knows to be correct.

* Furnish only information that is clearly relevant to the employment decision. Answer specific inquiries with specific responses.

* Avoid any comment or wording that could be construed as reflecting personal animosity.

Prudent procedures such as these can protect employees and the firm and help maintain the free flow of information helpful to employment decisions.