Conducting Employee Misconduct Investigations Becomes More Complicated

June 1, 1999 Advisory

The Federal Trade Commission ("FTC") has recently published an interpretation of the Fair Credit Report Act (the "Act") that may impact the ability of employers to investigate employee misconduct. Until now, the requirements of the Act appeared to be limited in scope and generally of concern only when employers engaged someone to do such things as credit and background checks on employees. According to the FTC, however, the Act is broader than originally thought.

The FTC stated that once an employer uses an outside organization for assistance in investigating claims of sexual harassment, the outside organization becomes a "consumer reporting agency." As a consumer reporting agency, both the outside organization and the employer are subject to all the requirements of the Act. Those requirements include obtaining the consent of any employee who may be the subject of an investigation before conducting the investigation and providing the employee with copies of all reports. Although the opinion letter only addressed sexual harassment investigations, the same reasoning would appear to hold true for other types of employee investigations such as those involving drug use, workplace violence and theft.

Obligations Under the Act.
Prior to having a consumer reporting agency conduct an investigation, an employer must give the affected employee notice of its intent to perform the investigation and receive the employee's consent to go forward with it. Once the investigation has been conducted, but before taking any adverse employment action based on the findings, the employer must give the employee a copy of the report produced by the outside investigator as well as a summary of the employee's rights under the Act.

After the adverse action has been taken, the employer must

  1. notify the employee of the action;
  2. provide the employee with the name, address and phone number of the consumer reporting agency;
  3. inform the employee that the agency did not make the decision and cannot explain it; and
  4. supply the employee with a notice of the right to dispute the accuracy or completeness of the information and to request an additional report.

The Problems.
In addition to the problems that will arise from having to get the consent of the accused before investigating, the reporting requirements under the Act will hamper the employer's ability to satisfy other legal obligations. Title VII, for example, requires employers to thoroughly investigate all claims of sexual harassment. However, witnesses to the harassment may be less likely to speak openly knowing the accused has a right to a copy of their statements. Also, if an employee is thought to be stealing, having to get his consent to investigate would, of course, ruin any investigation.

Complying with the FTC Opinion.
Although the FTC's opinion has yet to be challenged and its ultimate meaning is questionable, employers should respond cautiously. One response may be to have all new employees sign a blanket consent to investigations at the start of employment. Employers may also decide to perform initial investigations themselves, thereby avoiding the Act's disclosure requirements. If outside expertise is needed, the outside organization should be well aware of the disclosure requirements of the Act and be careful about what it includes in any written reports.

Ignoring the FTC opinion would not be wise. The Act permits employees to sue for damages and to collect costs and attorneys fees. Punitive damages may also be awarded. The FTC may also assess civil penalties against non-complying employers.