There is generally no requirement to say why you left a previous post when applying for a job. I've seen a few application forms that ask the question (in which case it has to be answered honestly) but most seem not to [or there's no form anyway, with just a c.v. required].
Like anyone else, former employers are free to write or say exactly what they like about anyone, as long as it's not defamatory or a breach of the Data Protection Act. (Unless it's presented in a way whereby statements might be misconstrued, the truth can never be regarded as defamatory in law. I can't see how the Data Protection Act would be relevant here). There may be 'codes', 'conventions' and 'advice' which stop some employers from writing the truth but there's absolutely nothing in law to prevent them from actually doing so. Similarly, there is never any requirement upon a former employer to offer a reference at all; he/she can simply refuse to do so.