Britain's bosses have been virtually gagged by a number of laws that prevent them from writing accurate but unflattering job references, a leading employment lawyer claimed last night.

Fear of being dragged before a court or employment tribunal has compelled many to restrict references to factual lists of dates and job titles, with no mention of the employee's performance and ability, according to Ranjit Dhindsa, partner and head of employment law in the Birmingham office of international law firm Reed Smith.

She says employers are often caught on the horns of dilemma – to tell the truth and face a legal claim or keep quiet and risk inflicting a problem worker onto another company.

"Although previous employers are not obliged to provide references, future employers might infer from any refusal – perhaps wrongly – that the applicant has a blot on his or her record," said Ms Dhindsa.

"On the other hand, if a former employer does give a reference they should be careful that the contents don't expose them to possible legal claims under a host of legislation ranging from data protection to discrimination."

The way out of the dilemma for many bosses is simply to provide a reference covering dates of employment and the requirements of the position the individual had held.

"Unfortunately this means that the usefulness of references as a means of ascertaining an employee's suitability is likely to decline, as ex-employers minimise their legal risks," Ms Dhindsa added.

She warns that the whole area of pre-employment checks is very sensitive – made even more difficult by the provisions of the Data Protection Act.

Companies need to delve deep enough into a candidate's employment history to establish whether they might be suitable for a vacancy – but not so far as to be in breach of their human rights.

Checks must be related specifically to the job which the candidate has applied for – fishing for general information is prohibited. Employees must be told that they are being screened, and in which areas the checks will be made.

They should also be asked to give their consent, usually by signing a formal agreement, and any information gathered should not be kept longer than necessary.

She says a lot of the information gathered will be classed as 'sensitive personal information', and subject to strict rules about the way it is handled and used. Information regarding race or ethnicity, religious beliefs, physical or mental health, sexual orientation, and any criminal record fall into this category.

'Spent' criminal convictions don't have to be disclosed, and in most cases it is illegal to discriminate against applicants who have time-lapsed convictions. The exceptions include applicants for jobs in the law, nursing, those working with children and vulnerable adults, and in some areas of the financial services sector.

Applicants for jobs outside the list of excluded sectors can be asked to provide a 'basic disclosure' from the Criminal Records Bureau, but they have the right to refuse. Employers who make any job offer conditional on obtaining a criminal record report could be in breach of the law. Ms Dhindsa believes one of the most sensitive issues facing employers at present is immigration, where the Government is cracking down hard.

"If a company knowingly employs someone who doesn't have permission to work in the UK they may be subject to criminal charges."

In addition, a new civil penalty of up to #2,000 will soon be imposed on any company employing an individual without the right to work – whether or not they are aware of their status.