Congress has made life easier for employers who find it necessary to investigate workplace misconduct.
A little-noticed provision of the Fair and Accurate Credit Transactions Act took effect March 31, 2004, freeing employers to commission investigations of workplace misconduct by outside agencies without triggering the fair-notice and paperwork burdens of the Fair Credit Reporting Act.
The Fair and Accurate Credit Transactions Act swept those burdens away by nullifying the Federal Trade Commission’s controversial "Vail letter," issued in 1999, which asserted that the Fair Credit Reporting Act’s definition of "consumer reporting agencies" included outside providers of workplace investigations. The Federal Trade Commission has jurisdiction over the Fair Credit Reporting Act, which prohibits consumer reporting agencies from compiling "consumer reports" for "employment purposes" without first disclosing the nature and scope of the investigation to the individuals involved and obtaining their consent.
In the real world of the workplace, the Vail letter made it virtually impossible for employers to commission outside agencies to undertake undercover investigations of workplace misconduct--and it was only one of three burdens on employers triggered by the letter. The other two required employers to provide the employee under suspicion with a copy of any report generated by the investigation and to wait a reasonable period of time thereafter before taking adverse action against the employee.
In turn, these three requirements:
• Raised the risk that a suspected employee, alerted to the investigation, might flee or conceal or destroy evidence.
• Gave the employee an opportunity to intimidate witnesses named in the report of the investigation.
• Made any effort by employers to impose discipline following workplace misconduct essentially ineffective.
As long as the Vail letter remained in effect, companies had few good choices when faced with workplace misconduct, particularly when it involved sophisticated financial crimes such as embezzlement or bank fraud, which could require the investigative services of a forensic accountant. Read more about workplace investigations at http://www.diversifiedriskmanagement.com.
Many relied on their own resources, often by giving the job to in-house security personnel or to the human resources department. Out of caution, many directed their in-house attorneys to oversee such efforts to avoid violating employee privacy rights. Most hoped to avoid the problem of workplace misconduct altogether, and some may have chosen not to investigate incidents when they did occur, potentially exposing them to other liability.
The Fair and Accurate Credit Transactions Act shifts the balance of power to employers in their efforts to manage the workplace. It specifically excludes "communications" to employers from outside investigative agencies from the restrictions of the Fair Credit Reporting Act.
Such communications, however, must stem from an outside investigation of suspected misconduct involving employment or compliance with:
• Federal, state or local laws and regulations.
• The rules of self-regulating professional or trade organizations to which the employer is subject.
• The written policies of the employer.
In addition, the employer must guard against disclosing information generated by the investigation to outsiders.
Safeguard medical info
Employers must take special care to safeguard employee medical information when investigating workplace misconduct. The Fair and Accurate Credit Transactions Act broadly defines "medical information" as:
… information or data, whether oral or recorded, in any form or medium, created by or derived from a health care provider or the consumer, that relates to (a) the past, present or future physical, mental or behavioral health or condition of an individual; (b) the provision of health care to an individual; or (c) the payment for the provision of health care to an individual.
The Fair and Accurate Credit Transactions Act bans the use of medical information for employment-related purposes unless the employer obtains advance, written consent from the employee. Moreover, the language disclosing to the employee how the information will be used must be clear and conspicuous, and the information must be relevant to the question at hand.
This means that employers cannot escape the Fair and Accurate Credit Transactions Act’s restrictions by asking employees to sign a blanket medical release authorization as part of the employment application process.
Under another new federal statute, the Health Insurance Portability and Accountability Act, employers also cannot "backdoor" their way to medical information they gather on employees as sponsors of group health insurance plans. The Health Insurance Portability and Accountability Act explicitly forbids the use of medical information provided to obtain group medical insurance coverage in an investigation of workplace misconduct.
Thus employers must be circumspect in gathering and using medical information in any investigation of workplace misconduct. Indeed, it might well be that an employer can use such information only in such limited circumstances as when the employee involved takes the initiative by citing a medical condition as exculpatory. One example: An employee who, having subjected a fellow worker to abusive cursing, tells the employer that he suffers from Tourette's syndrome, a nervous disorder sometimes manifesting itself in uncontrolled verbal outbursts.
To avoid liability for Fair Credit Reporting Act violations, employers must step lightly in other matters as well. The Fair and Accurate Credit Transactions Act requires that if an investigative report leads an employer to discipline, demote, terminate or otherwise take adverse action against an employee, the employer must furnish the employee with a summary of the nature and substance of the report.
Although the Fair and Accurate Credit Transactions Act does not require it, employers should put such a summary into writing so that there can be no question as to the information divulged to the employee. Employers need not, however, give employees the original investigative report or disclose the sources of the information it contains. This enables employers to conduct more effective investigations, since they can assure employees who provide evidence against the wrongdoer that their identities will remain confidential.
The Fair and Accurate Credit Transactions Act does not affect the Fair Credit Reporting Act’s limitations on routine pre-employment background and credit checks, which still apply. Thus, employers cannot conduct such checks on job applicants without alerting them and obtaining their authorization in advance--usually done via routine language on the employment application form. In addition, employers must make certain that they comply with state laws regulating workplace misconduct investigations, since they may impose more restrictions than federal law.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
Patricia A. Kotze is president of Diversified Risk Management Inc., Los Angeles, a full-service investigation firm. Eric H. Joss is a partner in the Los Angeles office of Paul Hastings Janofsky & Walker LLP specializing in labor and employment law online at http://www.diversifiedriskmanagement.com.