Can a former employer be sued for defamation over a bad reference in Ontario?

Yes, in principle, but these claims face a significant practical hurdle because employer references are typically protected by qualified privilege, given the legitimate mutual interest a former employer and a prospective new employer both have in accurate information about a former employee. This means a former employer generally is not liable for a reference that turns out to be negative, or even mistaken, as long as it was given honestly and for the legitimate purpose the privilege exists to protect, rather than out of malice toward the former employee.

To succeed, a former employee generally needs to show the reference was not just unflattering but was given with malice, meaning the employer knew the statements were false, was recklessly indifferent to whether they were true, or was using the reference for an improper purpose entirely unrelated to genuinely informing the prospective employer about the person's suitability. Because malice is genuinely hard to prove, and qualified privilege provides substantial protection to honest references, these claims tend to be considerably more difficult to win than defamation claims arising outside an employment reference context.