I think that a employer cannot give a bad reference, I think they have to refuse to give a reference for that person
There are ways by which a former employer can send a 'sign' to a prospective employer, usually by making some very positive remarks about a barely-relevant aspect of the person's employment.
e.g. if they'd been in a public-facing role where punctuality was crucial, a negative reference may state that they appeared to get on well with their colleagues. If they'd been responsible for hazardous operations, a negative reference may state that they had a smart appearance.
It would be unwise to directly hint at wrongdoing, however. If they'd been responsible for cash handling and suspected of theft, to say that they appeared to enjoy the cash handling element of their work very much could be construed as a direct reference to an unsubstantiated slur.
Usually, the answer to the question "Would you consider employing this person in the future" is quite enough to give out a warning.
But one factor which has to be carefully interpreted is whether the reference was written before or after the previous employment had reached the point where notice had been given (by either party). If the earlier employer wanted rid of the employee and notice had not been given (perhaps there were inadequate grounds for dismissal), then the employer may be very eager for someone else to make an offer of employment, in which case the reference may be misleadingly enthusiastic!