Misconduct Investigations: When Punting Can Save the Game

The integrity of the investigatory process will be jeopardized if the investigator is perceived (rightly or wrongly) as partial or sympathetic to one view or another. In some situations, the conclusion of an internal investigation and the action it took based on the investigation will be questioned either as a whitewash or as a pretext for firing the individual without breaching his contract. This is just one of the circumstances where it pays to bring in an outsider. However, until March of this year, third-party investigations of employee misconduct were subject to the notice and consent requirements of the Fair Credit Reporting Act of 1970. At the same time, Supreme Court decisions in Ellerth and Faragher [Burlington Industries, Inc. v. Ellerth, 73 Emp. Prac. Dec. (CCH) ¶45,340 and Faragher v. City of Boca Raton, 73 Emp. Prac. Dec. (CCH) ¶45,341] made it imperative for employers to conduct investigations of harassment allegations in order to meet the second prong of the affirmative defense. Employers were in a double bind, attempting to comply with the requirements for a reasonable investigation while also complying with the FCRA requirements.
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Third-party investigations of employee misconduct are no longer subject to the notice and consent requirements of the Fair Credit Reporting Act of 1970 (FCRA). On December 4, the President signed the “Fair and Accurate Credit Transactions Act of 2003,” P.L. 108-159. Section 611 of the new law amends the FCRA’s definition of “consumer report” to exclude communications made to an employer in connection with an investigation of (1) suspected misconduct relating to employment, or (2) compliance with federal, state or local laws and regulations or pre-existing written employer policies.

The 2003 FCRA amendments clarify that communications to an employer by outside third parties hired to investigate employee misconduct or compliance with the employer’s pre existing written policies will not be considered “consumer reports” and will not require advance notice or authorization. If any adverse action is taken based on the communication, however, the employer generally will be required to disclose to the employee a summary containing the nature and substance of the communication.

The Trend Toward Outsourcing

However, even before the FACT Act was signed, many employment attorneys and human resource professionals had begun advising employers to pay more attention to conducting a reasonable investigation than worrying about avoiding the FCRA requirements. There were some court decisions that pretty much dismissed the FTC opinion letter and follow-up opinions of the FTC General Counsel. Recent opinion has shifted toward using third party investigators, with or without full compliance with the FCRA, as interpreted. Part of this advice was EEOC-driven. Chairwoman Castro has repeatedly emphasized the EEOC’s position with respect to the importance of using outside investigators to conduct investigations into suspected discrimination or harassment. Specifically, Chairwoman Castro noted that the use of outside investigators is important:

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