As a new engineer without a significant work history, how does the poster interview and not have the hiring company contact his current company for a reference?
I really don't understand why there's any drama here at all. As a matter of course, you should have your next opportunity lined up before you inform your employer that you're thinking about leaving.
Regardless, there is no harm in saying no. It's the norm for folks that are exploring other opportunities. The only time it may be questionable is if you've already left (or been let go by) your previous employer.