Hi Taco,
 
> My question is, does anyone think I should take this further, i.e. talk to legal aid and get them to rectify
> this situation, or should I not bother?
 
If you want to take it further, then consult a lawyer. If the department manager is telling factual untruths it's defamation. If they're giving their opinion (honest opinion based on truth) then it gets messy. You could always wrap the whole thing in a wrongful-termination claim.
 
As Ayudh stated, it will cost you. And more than just money and time. A friend of mine initiated action against a company (though it was quite a large company) over defamation. Three years later, it was settled in her favour. Those were three heavy years, but she did end up very happy.
 
Having a bad reference isn't the end of your career unless you have a pattern of bad behaviour.
 
Do you have other referees from previous jobs that will provide better references, or is there another person in the organisation that understands your situation and would be appropriate to use as a reference (eg, Managing Director or CEO if they had visibility of your work)?
 
You don't have to use this department manager as a reference, nor mention the one week job.
 
Don't raise any negative issues in your cover letter or resume. Let the interviewer bring it up and if they do, answer it quickly and truthfully. Show them how you attempted to solve the problem, and what you learned from it.
 
You should always counter a negative with a positive, or change the focus (but don't appear evasive or they will certainly dig deeper.)
 
If asked why you left your previous company or if you've ever been fired, be honest but don't elaborate. Focus on your efforts to resolve the situation.
If asked about your previous boss, don't bad-mouth. Be professional and explain there was a personality conflict that interfered with work, how you attempted to resolve this (just don't physically attack the interviewer ;-) then quickly explain the management style that maximises your results and finish with a flourish.
 
You referees will only be contacted if you are a serious contender for the position (at this stage you and a couple of other candidates are The Right Stuff.) If you have enough good referees, then you've nothing to worry about.
 
At worst, the interviewer will receive one bad reference from the department manager. If this happens, the interviewer will most likely contact your other referees and they will offset the bad reference. If the interviewer has interviewed a few times before, they'll understand the whole personality clash issue (maybe even experienced it themselves).
 
If all fails, get Uncle Scotty to be a referee. If you're really lucky, he might even stay on topic ;-)
 
Regards,
 
Ben
 
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