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Employee References, Quirky Question # 124

Quirky Question # 124:

We have a long-standing policy of providing only job title and dates of employment when a prospective employer seeks information about one of our current or former employees.  Our policy seems to be “the rule” in the healthcare industry in Alaska.

We know that under Alaska law, we have immunity from liability if we disclose information about a former employee to a prospective employer and act in “good faith” in providing that information.  Despite that immunity, we, and virtually everyone else in the industry, continue the policy of supplying only the most basic information about an employee’s work history and avoid any substantive comments, positive or negative, about the employee’s job performance. This situation concerns us for a number of reasons.  First, as an employer, we are not receiving information about potential new hires that could affect our hiring decisions.  As you are well aware, we have unknowingly hired individuals who turn out to have had “checkered pasts” and we have ended up terminating them for the exact same problems they had with their previous employers.  Second, in not sharing substantive information about job performance with a prospective employer, we are potentially passing on a problematic employee to an unsuspecting employer.  This situation is not good for our industry or for the patients we serve.  Third, it also occurs to us that an employer, or even a patient, could argue that because we have immunity in providing truthful information under Alaska law and fail to provide that information, we may be liable for any harm that a former employee may cause.

Do you have any suggestions on how we can address these concerns and reach a balance that protects us and other similarly situated employers?

Dorsey’s Analysis:

For over 25 years, Alaska healthcare employers, as well as almost every other employer in Alaska, have followed a policy of providing only “name, rank and serial number” in response to requests for information about job applicants.  This policy is followed despite the fact that: (1) since 1993, AS 09.65.160 provides an employer with immunity from legal liability for the good faith disclosure of information about the job performance of a current or former employee to a prospective employer; (2) Alaska employers have numerous defenses available under the common law for any defamation claim including the “absolute” defenses of truth and employee consent; and (3) prior to 1993, there were no significant court decisions or jury verdicts finding in favor of an employee on a defamation claim against his or her employer.

Virtually every state with an immunity statute appears to be in the same position as Alaska.  The time has come from employers, employment lawyers, and HR consultants to review and change this policy before either legislatures or courts (or both) force changes that could be very difficult to live with.  While the policy of “name, rank and serial number” developed as a strategy to limit employer liability for defamation claims and reduce the cost of potential litigation, the policy has had far-ranging adverse consequences.  At the end of the day, following that policy may create greater legal liabilities and costs to employers than those it was intended to address.  As two commentators have observed, “As a society, we are all harmed by the on-going reality that employees cannot show how well they are qualified for positions, and that employers cannot quickly identify the right people for the right positions.  The problem…undermines everyone’s standard of living and continuously is a steady drain on our economy.  Like a slow-acting carcinogen, it does much of its damage just beneath our communal consciousness.”  Halbert & Maltby, Reference Check Gridlock: A Proposal for Escape to Employee Rts. and Emp. Pol’y J. 395, 401 (1998)

In the mid-1980’s, a handful of high profile defamation cases brought by former employees against their employers made the headlines.  In those cases, the employer was found liable for making an unprivileged false statement concerning the employee that injured the employee’s reputation.  In one case, Frank B. Hall & Co., Inc. v. Buck, 678 S.W.2d 612, 617 (Tex. App. 1984), cert. denied, 472 U.S. 1009 (1985), an insurance salesman sued his employer, an insurance broker, after the employee was abruptly fired and later was unable to find suitable employment.  The salesman sought damages for defamation, misrepresentation, and breach of contract.  The employer had told a prospective employer that the employee “was horrible in a business sense, irrational, ruthless, disliked by office personnel…a ‘classical sociopath’ who would verbally abuse and embarrass employees.  [He] had stolen records and files and was a ‘zero’, ‘a Jekyll and Hyde person’ who was lacking in compucture [sic] or scruples.”  A Texas jury awarded the former employee $1.9 million in compensatory and punitive damages.  The case went to the U.S. Supreme Court and the jury verdict stood.

In response to client concerns about these cases, employment attorneys and HR consultants advised their clients that the best way to minimize potential exposure for defamation suits was to simply supply “name, rank and serial number” when asked by a potential employer. This approach, while founded on the legal principle that there is no duty to control the conduct of another, absent a special relationship, or to warn those endangered by such conduct, was an overreaction to what was arguably a relatively minor problem.

Starting in the early 1990’s a number of states, including Alaska, enacted legislation providing employers with qualified immunity when responding to requests for information regarding current or former employees.  Now, 37 states have such legislation.

Alaska’s statute was enacted in 1993 and has remained unchanged since then.  The legislative history of the statute shows that the Legislature intended that the statute was to “free up the exchange of information in the workplace, assure reasonable protection to employers, and protect only employers who give honest, well intention reference.”  Testifying in support of the bill, the president of the Alaska State Chamber of Commerce (ASCC) stated, “While ASCC fully recognizes the value of good employees, it is important that employers be able to share all pertinent information without fear of repercussion, while acting in good faith.”

AS 09.65.160 provides that an employer who discloses information about the job performance of employees or former employees to a prospective employer of the employee or former employee, at the request of prospective employer or employee is “presumed to be acting in good faith, unless lack of good faith is shown by a preponderance of the evidence and not be held liable for the disclosure or its consequences.”  (Emphasis added.)  The statute does not define “job performance.”  While the statute provides immunity from liability, it does not bar the filing of defamation lawsuits.  In short, the employer still faces the costs of defending the defamation lawsuit.

While providing immunity from liability, the statute does not provide any protection for employers that was not already in place.  The statute is simply a codification of common law defenses to defamation.  Traditionally, truth, consent of the employee, opinion, and qualified privilege have been defenses to a defamation claim.  Under Alaska law, truth and the consent of the employee are “absolute” defenses to defamation.

It is my opinion that issues such as attendance, attitude, awards, demotions, duties, evaluations, promotion, and disciplinary action all fall within “job performance” as the term is used in the statute.

The failure to share information amongst employers can result in  a number of adverse consequences: (1) the potential employer is denied access to important information that the employer needs to make a fully informed decision on whether or not to hire the applicant; (2) applicants may be denied jobs because of the lack of a good reference; (3) societal goals and purposes may be frustrated; and (4) the former employer is exposing itself to more serious legal claims for negligent hiring, negligent referral and misrepresentation.

While legislative immunity and strong common law defenses have done virtually nothing to dissuade employers from providing “name, rank and serial number” recent developments in tort law may force employers to change.

Tort law is intended to: (1) redress past wrongs and compensate victims for those wrongs; and (2) prevent harmful conduct in the future.  Courts have drifted away from focusing on blame and instead consider which party can best bear responsibility for compensating victims.  Accordingly, the majority of jurisdictions have recognized torts for negligent hiring, supervision, and retention.  The significance of these developments cannot be overlooked.

The tort of negligent hiring (a topic addressed previously in this Blog) greatly expands an employer’s liability and makes the employer liable for all acts of an employee, including acts beyond the scope of employment and those occurring outside of business hours.  This is a dramatic departure from the doctrine of respondeat superior or vicarious liability which is derivative liability.  The tort imposes on employers the duty to exercise reasonable care in hiring employees.  This is an independent duty that can run to fellow employees and to third parties.

When an employee comes in contact with the public, either on or off business premises, the investigation must be sufficient to determine whether there is anything in the applicant’s past that would indicate that the employee poses a potential threat to a patient, customer, or the general public.  In negligent hiring cases, evidence of prior specific acts of the employee, as well as evidence of reputation, are admissible.

The defense of a negligent hiring claim will hinge on the employer’s ability to conduct a reasonable pre-hiring investigation of the employee.  Obviously, past job performance and references documenting that performance are the most helpful information on that subject.  Without that information, the employer’s ability to evaluate the suitability of an applicant for a position is compromised as well as the ability to present a strong defense.

In addition, commentators have been calling for legislatures to pass legislation that would impose an affirmative duty on employers to provide information about former employees to prospective employers.  Some of these commentators have even gone as far as to draft a model of legislation.  The gist of this legislation is that a former employer must disclose any and all information that it may have to warn an inquiring prospective new employer of the current or former employee’s propensity to engage in violent or dangerous conduct that poses a threat of physical injuries to others.  The concern in this regard is presently directed to acts of violence or sexual harassment of which the former employer is aware.

From my perspective, employers in Alaska and in other states with immunity statutes face the prospect of having new statutes pass that impose strict requirements regarding what information must be disclosed to prospective employers and when it must be disclosed.  One can imagine a legislator considering this issue and asking the question, “Since we have provided employers with immunity from legal liability if they provide truthful information about past employees, why are they not providing that information to prospective employers?”  Frankly, there is no satisfactory answer to that question.  The remote prospect of being sued by an employee for defamation and ultimately having to pay a judgment entered in favor of the employee is hardly justification for that policy.  If an employer properly documents an employee’s history and truthfully relates the important aspects of that employee’s job performance, an employer will rarely be found liable for defamation.

It is clear that legislation alone will not result in change.  Employers need to be educated on the risks that they face when withholding information.  Employers must be convinced that the benefits of exchanging information freely with other employers outweighs any potential risk.  Employers need to address this issue head-on and work together to insure that there is a free flow of information.

Dorsey & Whitney

Dorsey is a business law firm, applying a business perspective to clients' needs. We make it our first priority to know the context in which you do business - your market, your competitors, your industry.

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