Imagine you have an employee who is a poor performer, and whose behaviour has failed to win him any friends. When he resigns, to take a new job, you feel relieved … until his new employer asks you for a reference.

If you tell the truth, his job offer might be withdrawn. If you sing his praises, you will mislead his new employer. What should you do?

Generally, you are not legally obliged to provide a reference. But there are exceptions. You must supply a reference, for instance, if there is a contractual commitment to provide one.

Providing references for some employees and not others could lead to discrimination claims. Also, if you refuse a reference for an employee who has alleged or brought a discrimination claim against you, this could amount to victimisation.

If you choose to provide a reference, you have a fine balance to tread. You owe a duty both to the recipient (the new employer) and the subject (the employee) to prepare the reference with “reasonable skill and care”. If the reference is untrue, inaccurate or misleading, you could face negligence claims from the employee or from the prospective employer.

An employee who wins a negligence claim will be awarded compensation for financial loss, which could be significant if the reference has meant he or she is unable to find another job at a similar level.

As long as a reference is a true, accurate and fair picture of the employee, you should avoid a successful negligence claim.

Unfavourable references will not be defamatory as long as everything you have written is true to the best of your knowledge and belief. Remember though that even if the reference is true, the employee could have a negligence claim if it is in any way misleading.

Providing a basic reference has become an increasingly common practice for employers in recent years, as a way of avoiding potential claims. Some employers add a statement that there is no reason to doubt the employee’s honesty and integrity.

It is unlikely that the employee would have a successful claim as a result of a basic reference. However, if by giving this type of reference you omit a serious matter then this is likely to be misleading to a prospective employer who could have a claim for any loss arising as a result.

To avoid negative assumptions by the prospective employer, you should make it clear on the reference that it is your policy only to supply this basic information.

Spoken words are as important as written ones, and careless verbal remarks could lead to a potential claim from the former employee, or from the prospective employer. It is advisable to have a clear internal policy as to who may give references on your behalf. If you do give a verbal reference, whether on behalf of your organisation or in a personal capacity, make sure you keep a detailed note of the conversation in case of any future dispute.

As a general rule, employees and former employees have a right to receive, on request, copies of any personal information you hold about them (under the Data Protection Act). However, special rules apply to references. You do not have to give current or former employees copies of references you have written about them, but they are entitled to receive copies from their prospective new employers on request.

This also means that you would have to disclose, if requested, references that you have received from other organisations about your employees and job applicants.

Anna West is an employment lawyer with City firm, Travers Smith.