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The risks of hiring and firing.

Among the many tasks associated with being a manager, perhaps one of the most difficult is that of hiring and firing employees. But recent legislation and court decisions are ushering in a new environment of expanded liability that will make this task even more problematic. With the implementation of the Americans with Disabilities Act alone, the Equal Employment Opportunity Commission (EEOC) expects to receive some 15,000 to 20,000 additional discrimination complaints this coming year. Employers must select procedures for hiring and firing that best reduce the risk of liability, the possible sources of which include negligent hiring, defamation and invasion of privacy. Whatever methods the employer chooses to reduce this risk of liability, they must be strictly enforced in every employment action.

The importance of selecting the "right" employee cannot be overemphasized. Many states recognize the theory of negligent hiring as a valid cause of action in suits by third parties who are injured by employees. This theory is based upon an employer's negligence in hiring or selecting an employee to occupy a position when the employer had reason to know, or should have known, that the employee is likely to harm another person while carrying out his or her work.

State law varies in the application of the doctrine of negligent hiring. For example, California recognizes a negligent hiring cause of action for injured third parties including customers, patrons or other invitees. Indiana applies the negligent hiring doctrine to third parties who are customers, patrons or invitees, but found that no duty exists in respect to those outside these classes of individuals. At the other end of the spectrum, Kentucky does not apply the negligent hiring theory except in those cases involving injury to other employees.

Plaintiffs must establish five elements in order to succeed in a cause of action for negligent hiring. These elements include: an employer's duty to protect against foreseeable injuries; an employer-employee relationship; an employee's incompetence to perform his or her job; an employer's knowledge of the employee's incompetency; and a causal connection between the negligent selection of the employee and the injury. The duties imposed on employers by state law aid in determining the scope of investigation necessary by an employer. Employees should consult counsel about the law in their state before implementing any hiring procedures.


An employer may reduce the risk of negligent hiring liability by developing a hiring process that gathers as much information as possible concerning an employee. This would allow the employer an opportunity to determine an applicant's competence to safely perform the job for which he or she applies. However, the employer must not improperly use the information gathered during the hiring process. For example, the employer must make certain that any hiring decision is not based upon information that subjects the company to liability under federal and state anti-discrimination laws. The line an employer walks in the hiring process is necessarily a fine one. Too little information subjects an employer to potential liability for making a negligent hiring decision. Too much information, while reducing the negligent hire liability risk, may be used improperly.


After completing a selection process and hiring the "right" employee, the employer hopes that the new employee assimilates into the work force environment. Unfortunately, the "right" employee often turns out to be the "wrong" employee.

In addition to potential liability for wrongful discharge and discrimination, terminating an employee also may give rise to liability in areas such as defamation and invasion of privacy. Several states also provide penalties for violation of service letter and anti-blacklisting statutes.

After an employee is terminated, he or she once again joins the job search. Most employers now utilize an application process where the gathered information is used to reduce the potential for liability for negligent hiring. As a result, when an employee is terminated, voluntarily or involuntarily, the company's personnel director will begin receiving calls from prospective employers. But answers to their questions may be used as the basis for a defamation or invasion of privacy suit against the company.

Elements of a cause of action for defamation include defamatory language about the plaintiff that is published and causes injury to the reputation. Certain statements are considered defamatory per se, among which are those imputing to the plaintiff unfitness to perform duties of office or employment for profit. Defamation requires publication to someone other than the plaintiff. Publication of the reason for an employee's discharge often involves publication to two sets of individuals -- other employees of the company and prospective employers.

Communication between the agents of a corporation is considered a publication between the agent and the principal as long as the communication is within the scope of employment. Such publication within the company is often protected by a qualified privilege. However, certain states limit the protection of the qualified privilege to disclosure only to those employees who have reason to know such information.

In Wirig vs. Kinney Shoe Corp., for example, an employee was discharged in the presence of all coworkers in order to make an example of her to the other employees. The court held that the employer's statements in firing the plaintiff were not protected by the privilege since publication of the statements was not limited to those within the company who had a need to know such information. The individuals who heard these statements were not parties necessary in the firing process.

Other courts, however, consider this qualified privilege in broader terms. Zinda vs. Louisiana Pacific Corp. involved a situation where an employee newsletter contained information concerning the termination of several employees. The newsletter was distributed in the employee cafeteria but eventually made its way outside the workplace. In a defamation action by the employees, the employer relied on the qualified privilege.

In deciding that case, the Wisconsin Supreme Court held that the employer had an interest in maintaining morale and quieting rumors, and the employees had an interest in knowing the reasons a fellow employee was terminated. These interests accorded the newsletter the protection of the qualified privilege. The court recognized that some methods of publication can involve incidental communication to persons not within the scope of the privilege, and held that it was a jury question whether the employer lost the protection of the privilege by excessive publication.

It is in the employer's best interest to contact counsel and determine how a particular state applies this qualified privilege. Once the scope of application is determined, the risk of liability for such publication can best be reduced by developing a method of investigating and terminating employees. Such a method should restrict communications concerning the investigation and termination of employees to only those persons within the company who are a part of the decision-making process. Further dissemination to non-decision-making employees is governed by the state's application of the qualified privilege to such communications.

Giving References

Many states also recognize that communications to prospective employers or their agents regarding the reasons for terminating an employee are publications protected by the qualified privilege. Employment references are conditionally privileged since encouraging accurate assessments of an employee's performance best serves the public interest. Consequently, an employer may communicate the reason for termination to a former employee's prospective employer without incurring liability as long as such disclosure is not motivated by actual malice.

Even though the privilege between past and future employers appears broad, employers may choose to follow a policy of limited disclosure. Such a policy serves to eliminate even the potential for a defamation claim, which, even though without merit, can be extremely costly. Policies of limited disclosure should be structured to direct all reference requests concerning past employees to one particular person in the company. Requests and responses to reference requests, without exception, should be in writing. Companies should consider utilizing a reference request form, which outlines the policy on references and provides only the information that the employer feels comfortable in providing.

Be wary of a prospective employer who says, "John Doe signed a waiver that releases you from all liability for information you provide us. So why was John fired?" This type of waiver is not risk-free. A company may still face potential claims by an employee alleging that he or she waived liability only for "truthful" statements, and that the information disclosed was defamatory. The best method of reducing this risk is to institute and enforce a strict policy of limited disclosure.

Recently, the Florida legislature enacted a statute that immunizes an employer from civil liability where the employer, in good faith, discloses job performance information on a former employee to a prospective employer. The statutory immunity is lost if the employee can show, by clear and convincing evidence, that the information is knowingly false or deliberately misleading and rendered with malicious purpose.

Doctrine of Self-Publication

Even though an employer takes all reasonable precautions in limiting the information provided to prospective employers, the potential for defamation liability still exists in states that recognize the doctrine of self-publication. The doctrine of self-publication is an exception to the general rule that an employee's disclosure of a defamatory publication does not constitute publication by the employer.

In such states as Minnesota, Colorado and Missouri that recognize the doctrine of self-publication, an employee may maintain a defamation action even though he or she personally reveals the reason for termination to a prospective employer. The employee may succeed in this action only if compelled to communicate the statement to a third person, and if it was foreseeable to the previous employer that the employee would be compelled to communicate these reasons. A growing number of states now recognize this cause of action.

In Lewis vs. Equitable Life Assurance, several insurance claims approvers were fired for gross insubordination arising out of failure to follow orders in revising expense records. In the course of seeking new employment, the employees revealed the reason for their discharge. This disclosure became the basis for their defamation suit against the employer. The employees claimed that the employer should be liable for statements that they made in trying to get a new job when the employer could reasonably foresee that they would be compelled to reveal the reason for termination.

But the employer may still enjoy the qualified privilege accorded communications made to prospective employers despite the fact that the employer did not make the communication. The Minnesota Supreme Court noted that the employer should gain the protection of the privilege in self-publication actions because the employer would be entitled to the privilege if it made the statement directly.

The doctrine of self-publication also has been applied in states that require service letters. Service letters, often required by statute, provide information about an employee, including the reason for discharge. in Neighbors vs. Kirksville College of Osteopathic Medicine, an employee claimed that her reputation was injured when prospective employers read the service letter she had requested upon discharge. The Missouri Court of Appeals found the letter could serve as the basis for a libel claim even though the employee herself gave the letter to prospective employers. The court focused on the fact that the employer knew the purpose of the letter. This satisfies the requirement that it be reasonably foreseeable to the employer that the employee will be compelled to communicate the reason for termination. However, the court also applied the qualified privilege to the service letter.

Employers may reduce the potential for defamation liability by limiting the information released to its employees and prospective employers so that the information remains within the scope of the qualified privilege. However, the employer does not have this option when seeking to reduce the potential liability for defamation based on self-publication because the employer usually explains to the employee the reason for the termination. The employer may, however, eliminate confusion on the employee's part by carefully and accurately documenting and explaining the reason for termination. This serves as a means for minimizing hostility and provides the employee with more accurate information to relay to prospective employers.

Furthermore, the employer can structure the process of explaining the reasons for termination in a way that benefits its personnel policies. By using an exit interview or exit evaluation process, the employer may identify potential workplace problems. in addition, the employer can determine what the employee views as the reason for termination and help prepare for any potential defamation claims.

Employers must be attuned to risks that accompany current hiring and terminating practices. It is of utmost importance to determine the current state law and closely monitor any trends or changes. The personnel policies of each company should reflect the current law and be modified as necessary.


EMPLOYMENT APPLICATION: Certain types of information can help the employer to reduce the risk of negligent hiring liability, and the employment application provides the best method of collecting this information. The application must balance the employer's need for information with the employee's privacy rights. An employment application should contain a release that the employee signs independent of signing the application itself. The release should provide that the applicant consents to the employer's investigation of in-formation provided on the application.

In addition to general biographical information, the application should request a fairly extensive employment history (most recent jobs, including the employer's name, address, dates of employment, position held and the reason for leaving) and personal references.

REFERENCE CHECKS: An employer may have difficulty obtaining information from a former employer; for example, they might not release all factors that bear on an employee's termination. When communicating with an applicant's former employer, your personnel manager should seek to learn as much as possible about the applicant's duties and responsibilities in his or her former job. This information, along with the stated reason for termination, may give a prospective employer some indication of the individual's performance. Fully document all conversations or correspondence with those listed as references to support a claim of reasonable investigation if necessary.

ARREST/CONVICTION RECORDS: Prospective employers may inquire into felony or misdemeanor convictions and, in some cases, traffic convictions. However, when an application requests such information it also should state that a conviction will not necessarily bar employment. The employer must make careful and prudent employment decisions when making them on the basis of a conviction record. Since eliminating applicants based on criminal convictions may have an adverse impact on certain minority groups, the improper use of this information poses a serious threat to the employer in the form of a suit under Title VII of the Civil Rights Act.

A business necessity requires careful consideration and balancing of the specific job requirements and factors including the nature, circumstances and frequency of conviction, along with work history and rehabilitation efforts. According to a 1978 EEOC decision, the employer may disqualify an applicant only after examining all factors and determining that the conviction affects the applicant's ability to perform the job consistent with safe operations of the business. Due to this potential liability, an employer should consult with counsel before making an employment decision based on an applicant's conviction record.

INJURY/MEDICAL HISTORY: The ADA severely restricts an employer's right to use job applications or pre-employment interviews as a means of inquiring into the applicant's medical history or physical condition. The ADA's general prohibition against disability-based discrimination also precludes pre-employment medical examinations and pre-employment inquiries into the existence, nature or severity of a disability.

Employers, however, can make pre-employment inquiries about an applicant's ability to perform essential job functions. Such inquiries must be narrowly tailored and should specifically describe job duties. Employers should develop job function sheets for specific jobs that could then be used in combination with a general company-wide application. Although the ADA prohibits pre-employment medical examinations, an employer may condition an offer of employment upon the successful completion of a medical examination so long as all applicants for jobs in the same job category are subjected to such an examination. In addition, information acquired during the examination must be maintained in a separate confidential medical file available only to supervisors, managers, first-aid and safety personnel. EEOC regulations also indicate that the medical examinations allowed under this section do not have to be job related and consistent with business necessity. If, however, certain criteria are used to screen out employees with disabilities, the exclusionary criteria must be job related and consistent with business necessity.

CREDIT CHECKS: Pre-hire investigation also may include a credit check on the job applicant. Employers intending to perform credit checks on applicants must give them written notice within three days of requesting a report as required under the Fair Credit Reporting Act. Furthermore, the employee must be given an opportunity to obtain the report. An employer should consider placing a statement on the application informing the applicant that, in the event of a credit check, he or she will receive a notice as required by the statute. If an applicant for employment is rejected because of an adverse credit report, he or she must also be informed of this fact.
COPYRIGHT 1992 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:includes related article on hiring procedures to avoid lawsuits
Author:Walker, Paula D.
Publication:Risk Management
Date:Oct 1, 1992
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