"you should get the issue onto the table by informing the employee that you have an important business relationship with his existing company and you will have to complete a reference check with the CEO prior to extending the offer" Is that even legal? IANAL but it seems highly unlikely that only hiring someone if they agree to a reference check with someone they didn't list as a reference is kosher in most states. T…
IANAL, but the correct question to ask (the opposite of your question), is: Is that illegal? And I'm pretty darn sure it is not illegal. Why would the even be illegal? You can reference check as much as you want. Be careful not to conflate social custom (it is customary that a company not reference check you with the company you work at) with law. EDIT (reply to below): which has nothing to do with law. Parent claime…
That aside, in the scenario "Fred" is good friends with one of your top engineers in the scenario presented. If you ask "Cathy" and she says yes everything is golden, if she says no and Fred gets canned or Cathy's company goes under one of your top employee's good friends is now unemployed because you put your personal relationships ahead of the buisness. This is not a good situation to be in.
Also from the article: "It is important to note that just about all of these kinds of policies violate the Right to Work laws in California"