What are the laws regarding a potential employer contacting a previous employer? In other words, what are previous employers allowed to disclose regarding someone's employment?

I was once told by a past employer that "Dates of Employment and Position" is the only info allowed to be released. Are employers allowed to say how someone left the company (i.e. voluntary quit, terminated/fired, or specifics, such as, violating company policy, sexual harassment, insubordination)?

A previous employer may provide any information they choose that is either true or represents their supportable opinion. They may not provide any information that is false or misleading. They may not provide any medical information that they may happen to have on you.

Yes, they not only may provide the reason for an employee's having left the company, there are some circumstances in which they can be held legally liable for not doing so.

Your previous employer is wrong. Although a surprising number of people believe that to be the case, no Federal law and no law in any state limits an employer to dates of employment and position. Your company policy may have had such a limit, but it was not imposed by the law.