I have blogged about the peculiar German practice to provide well-worded references even to underperforming employees and the fact that such misrepresentations are sanctioned by statute. Other jurisdictions consider misleading references as potential grounds for negligence claims, which I think is the correct approach.
Apparently negligent referencing in the Commonwealth jurisdiction was first addressed in a House of Lords decision from 1994, Spring v. Guardian Assurance. In that case, the Law Lords ruled that employers must take reasonable care to avoid giving inaccurate or misleading references, since such references can be damaging to the “future prosperity and happiness” of former employees.
Apart from a negligence claim, there is also the risk of defamation by the former employee if the reference is very negative (which probaly explains why employers are reluctant to give written references in the first place). But this is only a minor risk. More likely is a damages claim by the new employer against the old employer if the reference is clearly misleading, states wrong facts and the employee is hired on that basis. All references are titled ‘To whom it may concern’ and the previous employer is therefore aware that his statement might be relied upon. I havent heard of any such case ever making it to trial, but that is not to say it cant happen. Even if it doesnt result in damages, the reputational damage for a company issuing a clearly wrong reference (which could go viral on the net in seconds) can be enormous.
For the Canadian view, look here: