It's always difficult to let an employee go, but it's something that can't be helped. What you don't want to have happen is an employee suing you over a reference you give a prospective employer. “The best way to prevent problems when giving out references is to have the employee who's going to being sign a waiver agreeing to have you provide a reference,” says Bob Bregman, a senior research analyst for International Risk Management. “It's also a good idea to agree, before the person leaves, on the nature of the information that's going to be provided.” If you and the soon-to-be ex-employee sign off on something in writing then the problem of liability for giving a defamatory reference is mitigated.

Bregman suggests the following when you get a reference call:

  • Poor performer. Agree beforehand only to give out dates of employment and salary. This protects you from saying something negative — and subjective.
  • So-so performer. It's better not to offer employee's performance information. In borderline instances, says Bregman, “It's better to say nothing and get an agreement in which you give out only dates of employment and salary.”
  • Laid off employee. From the employee's standpoint, it's better if you tell a prospective employer about the lay off. If the employee was a so-so or poor performer and you're asked whether you'd hire him or her back, you could say you don't have any work that fits his or her skills right now.
  • Employee is fired for cause. If you let someone go for stealing, for example, you need to be honest. If you fail to talk about this with a prospective employer, you “could be liable,” says Bregman. “The new employer may come back at you.”