Academic journal article Journal of Small Business Management

Employment Reference Checking, Firm Size, and Defamation Liability

Academic journal article Journal of Small Business Management

Employment Reference Checking, Firm Size, and Defamation Liability

Article excerpt

Conducting routine inquiries into a job applicant's background has been a time-honored ritual of employers. In particular, the tool known as the "reference check," has long been a part of the bulwark of pre-employment inquiry. This practice has been further reinforced by courts of law in cases involving alleged negligent hiring and retention (Fenton 1990). The most common employer mistake that leads to liability for negligent hiring and retention is the failure to adequately investigate the background of an applicant when hiring certain types of employees (Usry and Mosier 1991). Further, research has shown that the more frequently an employer checks references, the less likely the employer to experience employee related problems including absenteeism, tardiness, attitude, and work quality and quantity (Bergmann, Decker, and Lorentz 1990). Interestingly, however, in the litigious environment of the 1980s and 1990s, the reference check has become a focal issue in court suits where ex-employee plaintiffs sue defendant ex-employers, alleging defamation of character and breach of privacy rights when the reference has resulted in a job applicant being refused employment (Decker 1988).

Defamation in the context of employment is a common law personal inquiry allegation where the employer is alleged to have given false written or oral statements about a former employee. Libel is a type of defamation that addresses written or printed statements that invade a person's interest in reputation and good name. Slander, on the other hand, is spoken defamation (Keeton 1984). For a plaintiff to prove a claim of defamation in court, it must be proven that: (1) a statement has been made about him or her to another person; (2) the statement is false; (3) the statement must be "published," meaning transmitted to a third party; and, (4) the statement harms the reputation of the plaintiff by lowering his or her esteem or stature in the community or with other persons (Jacobs 1989). The bulk of all defamation court actions today are employment related (Middleton 1987). According to a survey published in 1988, fully one-third of all slander and libel cases were brought against employers for statements made about ex-employees to prospective employers. Verdicts were given to plaintiffs in an astounding 77 percent of these cases with average damages amounting to $166,094.00 (Agnew 1988).(1)

Plaintiffs in defamation cases can typically seek both compensatory and punitive damages. Compensatory damages compensate an injured party only for injuries actually sustained and proved to have arisen directly from the defendant's actions. Punitive, or exemplary, damages are designed to punish a guilty party, making an example of the party in order to deter similar future conduct. Typically, punitive damage requests are significantly greater than basic compensatory requests.

The authors of this study sought through the use of exploratory research to assess the small business manager's understanding of liability when responding to employment reference checks. Specifically, we sought to determine whether small firms are more or less willing than large firms to provide information about past employees? Additional inquiries sought to investigate differences among specific types of businesses (hotel/motel, banking, manufacturing) relative to their willingness to respond to employment reference checks. Considering plaintiff success rates (77 percent) in employment-related defamation suits, small business employers face a high level of risk from this type of court action. As such, this research is viewed as being important to both the small business-person and academic researcher.

METHODOLOGY

Sample

Using the 1990 edition of the South Carolina Manufacturers and Banking Directories, 890 chief executive officers were randomly selected. Table 1 shows the job level of those managers who responded to the survey. Respondents represented a variety of industries including banking and finance, manufacturing and service industries (including food service) and hotel-motel. …

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