Bankrupt,
with all due respect you don't appear to know what you are talking about. You admit to not being a lawyer yet somehow are able to offer the opinion that the OP has a very strong case. I would suggest that it is utter folly to say that on the strength of what the OP has stated.
Whilst I accept that I am not an expert on employment issues, I am a law graduate and also a trainee solicitor. So I dare say that I know a bit more than many of the posters.
KalEl,
Wrote: "As far as I know an employer is prohibited from giving a bad reference."
I am afraid you are incorrect. There is nothing in law stopping an employer from giving a bad reference per se. Indeed, if they choose to provide a reference they are obliged to give a fair and accurate one, the only proviso, is that they are of course bound by the laws of defamation. Indeed, if the ex-employer prepares a reference without due care and skill they could be potentially leaving themselves open to an action by both the ex-employee and new employer. See generally Spring v. Guardian Assurances [1995] 2 AC 296. So for an employer to deliberately or negligently provide an ex-employee with an inaccurate reference the ex employer could potentially be creating legal difficulties for themselves in so doing. What this means is that a reference must be fair, accurate and prepared using due skill and care and if that means a rotten reference for the ex employee then so be it.