The Legal Issues of Reference Checking

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Reference checking may be the most important element of a sound hiring process. Let’s face it: No one is better able predict the future performance of your talent than past colleagues. It’s absolutely critical to get that perspective.

Unfortunately, too often reference checking gets the short end of the stick. It can seem like a huge waste of time. You probably won’t get a call back from the majority of the references you contact. And even if they do respond, their legal concerns usually prevent them from sharing useful or accurate information about a candidate.

But the fact is that a good bit of the risk is only perceived. It’s not real. And the legal risks that are real may surprise you. Let’s look at the difference between perception and reality and how you can reduce your company’s exposure.

Perception: Providing a reference check is legally risky

Reality: Only 2% of companies are targeted by reference-based defamation

Reference Checking CompaniesThis number comes from the 2004 Reference and Background Checking Survey Report compiled by the Society of HR Management. And those numbers haven’t changed significantly since then—very few companies are taken to court for providing a reference.

In fact, the same standard is applied to reference checking as to newspapers with libel suits. A candidate or employer needs to prove not just harm but also malicious and dishonest intent—which is a very high bar.

According to the U.S. Merit Systems Protection Board Report to Congress in 2005,  “As a general rule, actionable legal claims result from poor practice. They are not inherent in reference checking any more than libel is inherent in newspaper publishing.”

Managers should of course avoid being insulting, but they can provide the facts.

Perception: Making positive comments or only providing “name, rank and serial number” eliminates the legal risk of references.

Reality: The real risk is negligent hiring

When you think about it, there could be risk not just in making negative comments, but positive comments as well. If you make positive comments about a candidate and the prospective employer hires him and he does poorly, that company could turn around and sue you as a former employer for not disclosing complete information.

More than 40 states have reference immunity laws. These protect employers from civil liability for giving good-faith references or negative, truthful information. Employers who knowingly disclose information that is false or misleading are not protected under these laws—and they lose 72% of those lawsuits.

So, yes, reference checking can be risky, but consider the risks of a hiring manager going into an ill-prepared interview and closing the door behind him. The whole hiring process is risky.

Fortunately there are ways to reduce the risk inherent in reference checking. With predictive, online reference checking (ORC), you use an online questionnaire, job-validated data and then aggregate those responses into one report. This way, you not only assuage references’ legal concerns—you also make your hiring process more effective and efficient.

Let’s look at some more real legal risks of reference checking and how to avoid them.

Real risk: Unstructured reference checking

When reference checking is unstructured, questions are developed usually by the hiring manager, based on her experience and what she knows about the demands of the job. The problem is, that process of questionnaire development is completely subjective, which means it’s also biased. Bias is exactly what you don’t want in your hiring process if you want to avoid legal risk.

Online reference checking virtually eliminates bias because the tool derives reference checking questions based on data from high performers who have done the job. Questions are close-ended and relevant to the position. You’ve not only taken the subjectivity out of the reference check process, you’ve also made the reference check a dramatically more effective tool for predicting future performance.

Real risk: Reference’s perception of risk generates low response rates

Legal Issues of Reference Checking - Reference Check CompanyIf you hire without getting reasonable response on your reference checks, you’re hiring with only a partial view of your candidate. Without the full picture, you’re risking poor performance and increased turnover.

So how do you help references be more forthcoming about their former colleague?

First of all, you grant them anonymity. With ORC, you can require a minimum number of responses that are all aggregated anonymously into one report. Letting references know this as they begin the survey makes them more comfortable about being completely honest.

Actual reference answers are combined and scored with the answers of the other references. Names, company, job title, contact information and relationship history (to the candidate) are fully disclosed so you know who completed the reference, but how they specifically rated the candidate is combined with the other references’ responses to ensure anonymity.

Second, you let the reference request come from the candidate. Think about the dynamic with phone-based reference checking: an HR representative—a stranger to the reference—is calling on behalf of the reference’s former colleague, who may also be a friend. Most people, if they return the call at all, will tend to want to help out their buddy and this can result in “rosier,” less accurate responses.

But since ORC collects responses via a candidate-sent survey link, references are more inclined to complete the survey. In fact, our data for ChequedReference, our ORC tool, shows better than 80% of references will respond with the needed data, and not just “name, rank and serial number,” despite corporate policies.

Plus, since that survey is formulated to make providing the “right answer” hard to do, responses are more accurate. You’re more likely to elicit responses that reflect the candidate’s true behaviors, traits and skills.

 

Reference checking, like any other component of the hiring process, can have risks. Common sense can aid in the process a great deal. New technology companies such as predictive, online reference checking companies, like Chequed.com, can also provide not only legal protection but a far better, more reliable and more efficient hire.

If you’d like to learn more, you might be interested in reading our new Infographic: Secrets to Reference Checking Success, which looks at how to implement an impactful reference checking program in your company.
Topic: Blog |