If an old boss smears you, hire a detective

After submitting dozens of résumés to potential employers and getting no response, Paul became suspicious about what his former employer was saying about him.

The New Jersey bank manager, who asked that his full name not be used, hired a detective to find out. He soon discovered that the old boss wasn't saying a word.

"I was laid off after a corporate merger, but the bank refused to respond to requests for a reference by potential employers," says Paul, a 25-year industry veteran. "No one in the banking industry would hire me without a reference, so I finally had to get a job as a substitute school teacher to pay the bills."

What Paul experienced was a little-used, yet effective smear tactic, says Michael Rankin, chief service officer for Documented Reference Check Inc. (DRC) of Diamond Bar, Calif., one of the biggest companies in the field.

"Devious ex-employers can blow you out of the job market by refusing to respond," he says. "Potential employers can't hire nonverified applicants without risk of leaving themselves wide open for a negligent hiring suit."

Paul took his former employer to court, eventually settling for an undisclosed sum.

Like Paul, thousands of people are turning to "career detectives" to discover what their ex-bosses are saying - or not saying - about them. And since most states allow people to sue over bad references if they can prove that defamation hindered subsequent employment, reference-checking has become big business.

Several companies including Referencesetc.com, Badreferences.com, and Jobreferences.com report a rise in business. DRC subsidiary Badreferences.com, for one, sees a 5 percent increase in business for every 1 percent increase in the unemployment rate. At $50 to $90 a pop to call former employers for references, that equals big bucks for career detectives. On the flip side, pressure from these companies makes employers even less willing to give references, making it difficult for workers looking for new jobs.

"More than a half a dozen reference-checking companies have sprouted up on the Internet in recent years, and it's a growing industry," says attorney Scott Witlin, partner at Proskauer Rose LLP in Los Angeles. "These opportunistic companies are seemingly fomenting litigation by soliciting references and using court reporters to transcribe everything that is said so it can be used in the courtroom."

Of course, these companies couldn't survive if there weren't a demand for their services. So the rise in reference-checking companies raises the question: Are employees just being paranoid?

Not according to an annual DRC survey that examined 1,000 of its 4,000 average monthly client reports. The company documented negative responses from 38 percent of its investigations - a 3 percent increase over last year's study.

While there is no law against giving subjective references, most attorneys advise firms not to offer anything but title and dates of employment.

"It's not worth the risk of litigation," says Jonathan Wilson, chairman of the labor and employment law section of Haynes and Boone LLP in Dallas. Mr. Wilson says fired workers are winning million-dollar defamation lawsuits against former employers who allegedly gave bad references.

Despite the increase in reference- related defamation suits, 39 percent of employers still provide more than the neutral dates of employment and job title, according to the DRC study. Nine percent had inaccurate records and another 6 percent refused to respond. The study also revealed that businesses in Texas were most likely to defame an employee, followed by companies in California and New York.

Some reference detectives are still surprised at how angry some bosses get at former employees. "People are vindictive," says Heidi Allison, a partner in the reference-checking company Allison & Taylor Inc., the parent company to Jobreferences.com. "Sometimes they let their emotions take over and say things that they shouldn't."

Ms. Allison recalls one client who was dating her boss and decided to break up with him. So he made her worklife miserable until she eventually quit. The old boss spoke in a friendly manner to reference checkers but then ended the calls by saying "It's too bad she's dyslexic" - which was not true.

Allison says other ex-bosses put the reference checker on hold, saying, "let me get the file and see what I can legally say about this case," which gives the impression that the worker sued the former employer - a move that typically scares off potential employers.

Reference-checking companies sometimes send threatening letters to the old bosses demanding that they cease and desist with the libelous comments. Others refer clients to attorneys who use the documented reports as a basis for defamation suits.

Legal experts say fired workers are on a winning streak with lawsuits against former employers and this new wave of defamation suits over bad references is having a chilling effect on human resource departments.

"Unfortunately, most companies won't give references anymore," says attorney Matthew Grabell, principal of Grabell Associates LLP in Hackensack, N.J. "Employers are backed into a corner for fear of these defamation suits and that hurts good employees who need a reference to find their next job."