As noted by others, you can try just saying something such as "Thank you, but I'm not interested at this time." I believe most places will not press you further. However, if they do, you can respond with "Sorry, I really don't want to discuss this." or a similar statement.
If they really press for an explanation of why you don't want to interview with them, and you feel compelled to give some sort of explanation, I recommend telling the truth. It may be that they don't realize their reputation is poor and this will be the wake up call they need to start changing. Or, the person trying to get you to interview may know their employer's reputation, but has been unable to effect improvements, and this may help them start those changes. Admittedly, they may get upset, but remember you're just the messenger here. Also, I wouldn't expect change, but it is possible. In giving an answer such has this, I recommend that you avoid being rude. Say something like: "Unfortunately, your company's reputation as an employer isn't good and I don't believe I would enjoy working there. Thus, I don't want to waste your time in an interview."
Having said all that, I'm going to suggest that you consider interviewing with them anyway. It's possible that their reputation is undeserved (as a flip side to this, the worst place I ever worked was very impressive when I interviewed and advertises themselves as a prestigious and great place to work). They may like you enough to make an unbelievable offer. Both those scenarios may be far-fetched, but are possible. Additionally, practicing your interviewing skills has benefit for future interviews and is usually easier when you're not anxious about getting the job. This other question has more about interviewing when you don't think you'll be interested in the job. However, if that doesn't seem worth the time and effort, feel free to turn them down.