Because employment references play an important role in hiring decisions, the law usually protects an employer who in good faith discloses information that the employer believes is true to a prospective employer or other person who has a legitimate interest in receiving the information. This protection may be lost, however, if the information is not limited in scope to the inquiry being made, is disclosed at an improper time, or is disclosed in an improper manner. For further details, see guarding against defamatory statements . Accusations that an employee engaged in illegal or improper conduct frequently form the basis for defamation lawsuits. However, don't even state a suspicion unless you can support it with objective evidence.
Employers can also get into trouble by exaggerating an employee's misconduct.
Statements not made in good faith. The general protection extended to employers giving employment references requires that the statements be made in good faith. An employer's statements are not made in good faith if the employer knows they are untrue or if the employer makes no effort to determine if they are untrue. For example, an employer who lied in stating that an employee had admitted falsifying expense records was liable for defamation. Similarly liable was an employer whose manager made negative statements about an employee's work performance solely on the basis of rumors.