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Avoiding Legal Pitfalls Around Employee Referencing

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Employment references are a crucial stage of the hiring process, enabling you to verify an applicant’s competencies, personal attributes and employment history, before hiring them.

Employee referencing used to be a shadowy exercise done in secret behind the applicant’s back, often using undocumented telephone calls. It lacked accountability, reliability and, at times, accuracy. It was the wild west.

All that has changed now. Cultural expectation, employee self-determination, and steadily increasing regulation mean this mission critical employee referencing process needs careful navigation to avoid the many legal and moral pitfalls.

Do I Have to Supply A Reference at All?

Employers in most circumstances, are not legally obliged to supply a reference; therefore, abstention may seem like a good idea when faced with an awkward employee reference request, especially when you are time pressurised.

While legal, this approach applied rigidly could severely damage the employment prospects of former employees and could make your firm seem like an uncaring employer. That’s why most employers supply an employment reference of some sort, often providing the low risk testimonial which confirms name, dates of employment, salary and nothing more. It’s pretty much legally water-tight as long as it is applied consistently to all employees as part of a clear policy. If it’s applied selectively you could be putting yourself at risk of a discrimination claim.

Exceptions when I must supply a reference

There are two exceptional situations where you are legally obliged to supply a reference. The first is where there was a written agreement to provide one, such as what you may find in a ‘settlement agreement’. The second is if the employee works in a regulated sector, like financial services.

It must be fair and accurate

The reference must be fair and accurate in all circumstances, and extra care should be taken when writing about reasons for departure, performance and sickness. Bad references carry risk as it could harm the job prospects of an ex-employee, leading to a withdrawn job offer. While ex-employees have no right to ask their previous employer for a reference, they can request a copy of their reference when they start with their new employer.

Minimising legal risk

If a former employee suspects they have received a misleading reference, that is damaging their job prospects, you could face comeback from the employee. They could attempt to claim damages and could be successful if they can show the reference was misleading and it led to a ‘loss’ e.g. a withdrawn job offer.

That’s why it’s generally good practice in the case of a bad reference or aggravated exit for the employer and departing employee to prepare a mutually agreed reference which will be provided to any future employers who request it. It also makes good business sense to have a global reference policy which explains what information will be provided and by when, and who can give the information. As mentioned earlier, many employers are adopting the low risk testimonial approach of supplying minimum information such as employment dates, job title and salary. These sensible approaches to reference management should minimise the risk of reprisals.


The new data protection regulation has impacted the HR process around supplying references to former employees, because this process requires the transfer and disclosure of personal data, (some of it sensitive). This means that there are a couple of hoops to jump through to ensure that your employee references are GDPR compliant. In particular, you need to be able to show that you have a legal basis for processing data. The consensus is that the GDPR-compliant legal basis, is ‘consent’, despite the employee-employer power imbalance that normally invalidates this reason. This is because in the case of a departing employee’s reference the power imbalance is not relevant, and the employee is thought to have a real choice about whether to consent or not.

To safeguard your business in this area, you’ll need to be able to demonstrate that you have the employee’s consent to provide a reference. There are several ways to do this.

The first approach, recommended by the ICO, is that you have an Exit Interview with the departing employee and request and document their consent to process their reference and disclose it to future employers to verify their skills and employment history.

Another way, recommended by Stronachs, a legal firm is that you transfer the onus to the employer requesting the reference by asking them to supply documentary evidence that the former employee has provided consent for your business to disclose reference information.

Finally, and perhaps the simplest way, is to email the former employee and ask them to confirm back to you in the email their consent for you to supply a reference to the requesting employer.

Sensitive Data

Since health data such as employee sickness and reasons for absence come under the special category of ‘sensitive personal data’ it requires a higher level of diligence. Employers will need, ‘explicit, unambiguous consent’ from the former employee in order to make a GDPR compliant disclosure. So, if you are planning to or have been asked to provide sickness related data, you’ll need to explain what data you have been asked to provide, to the data subject, and ask for their specific consent to disclose it, to be GDPR compliant.

In all instances, this consent should be stored on the employee’s HR file.

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