Until now, former employees suing over a negative reference would go to a state court with a common-law defamation claim. Some former employees have won judgments in such lawsuits if they can show their former employers intentionally damaged their reputations.
However, in these cases, truth is a good defense. If you fired the employee for coming to work drunk and can document the occurrences, it's not defamation to tell a prospective employer the truth--especially because the prospective employer has a "qualified privilege" to know. That is, the prospective employer has a legitimate interest in the employee's behavior.
In a Title VII retaliation case, truth and qualified privilege are irrelevant. "Now it doesn't matter whether the employee was fired for misbehavior; the question is whether saying so was retaliation," Falahee says. The relevant question is whether the employee had previously exercised some right, such as filing a discrimination complaint. If it appears the employer might have been trying to get even by giving a bad reference, the employer might be liable under Title VII.
Making a federal case out of a bad reference is bad news for employers. Bringing the case into federal court entitles the plaintiff to trial by jury, which is more likely to be sympathetic to the employee than to the company. While each party in a state court case pays its own legal fees, a plaintiff who wins in a Title VII case may recover legal fees from the employer. In some cases, the plaintiff is also entitled to punitive damages.
Worse, it's possible for a disgruntled former employee who knows how to work the system to plan the whole thing: get fired for misbehavior, file a discrimination complaint, ask for a reference, and, if it's bad, sue.
Pamela Krivda, an employment attorney with Habash, Reasoner & Frazier in Columbus, Ohio, says many companies were already refusing to provide references out of concern over defamation suits, so this ruling won't change their behavior. For others, it may be the impetus for putting such a policy in place.
The legal safe harbor is simple: When another employer requests a reference, say it's company policy not to give out references. The problem is, such policies make it very difficult to do business, especially when you're hiring.
What's the bottom line? Says Krivda, "You have to decide for yourself: Is giving this reference worth a potential $50,000 lawsuit?"