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Investigating Employee Wrongdoing and Workplace
Misconduct: Navigating the Amended Fair Credit and Reporting
Act
By Kathy
Dent and Sheehan
Sullivan
[Feb. 2004]
With the new Fair and Accurate Credit Transactions Act (FACT)
signed into law on Dec. 4, 2003, Congress amended the Fair Credit
Reporting Act (FCRA) and clarified the FTC’s role in regulating
workplace investigations. Specifically, the amendments exclude
certain workplace investigations from the cumbersome notice
and consent requirements contained in the FCRA. The amendments
also contain new disclosure requirements when a workplace investigation
results in an adverse employment action for an employee.
The FCRA has troubled employers and their counsel since the
Federal Trade Commission (FTC) issued a controversial letter
by a staff attorney in 1999 (known as the “Vail Letter”)
opening the door for the FTC’s regulation of workplace
employee misconduct investigations. The result of the Vail Letter
was to impose burdensome requirements on employers who hired
third parties to investigate employee wrongdoing and workplace
misconduct. Specifically, employers were required to give advance
written notice to and seek advance written consent from the
target employee prior to conducting any workplace investigation.
Not only was this an onerous burden, it compromised the integrity
of the investigation and impeded an employer’s obligation
to conduct an investigation.
This advisory bulletin provides an overview of the FCRA, discusses
the challenges employers have faced since the FTC’s Vail
Letter, explains the implications of the amendments on workplace
investigations conducted by third parties, and provides a basic
roadmap for how to comply with the FCRA.
FCRA Overview
Congress enacted the FCRA in 1970 to promote accuracy, fairness
and the privacy of personal information obtained by credit reporting
agencies (CRAs). Although primarily intended to protect consumer
credit information, the FCRA's relevance and application in
the employment context is now readily accepted.
Employers most often encounter the FCRA when: (1) conducting
pre-employment background checks, (2) investigating claims of
discrimination, harassment or employee wrongdoing in the workplace,
and (3) monitoring potential workers compensation claim abuse.
It is important to remember that the FCRA applies only to investigations
conducted by third parties. When an employer conducts its own
internal investigation, without assistance from an outside third
party, the FCRA does not apply.
The FCRA prohibits consumer reporting agencies from furnishing
consumer reports for employment purposes unless the consumer
is notified of and consents to disclosure of the report, and
is furnished with a copy of the report if it results in an adverse
personnel action.
- “Consumer Reporting Agency”:
The FCRA defines a CRA to include almost any person or organization
hired by an employer to obtain information about an applicant
or employee. It does not, however, cover an employer’s
own efforts to collect background information and it does
not cover an employer’s use of a governmental agency
to obtain public records. If an employer interviews its own
employees or uses a public website to check a prospective
employee’s background, the FCRA does not apply. Conversely,
if an employer hires someone to search a public website, the
FCRA would apply.
- “Consumer Report” & “Investigative
Consumer Reports”: Consumer report is broadly
defined and includes “any communication of information
by a consumer reporting agency bearing on a consumer’s
character, general reputation, personal characteristic, or
mode of living” that serves as a factor in establishing
the consumer’s eligibility for employment. An investigative
consumer report is a more specific consumer report and is
defined as information obtained “through personal interviews
with neighbors, friends, or associates or others with whom
the consumer is acquainted.”
Historically, employers encountered the FCRA only when conducting
pre-employment background or credit checks that affect the employer’s
decision to hire a prospective employee. However, in 1999 the
FTC issued the Vail Letter, which concluded that “reports
prepared by outside organizations performing harassment investigations
for employers are most likely ‘investigative consumer
reports.’” As a result of the Vail Letter, employers
were required to:
- provide the target employee of an investigation with notice
of the investigation;
- request permission of the target employee to investigate
if the investigation was to be conducted by an outside party;
and
- provide the target employee with an unedited copy of the
investigation report along with an opportunity to refute the
investigator’s findings before the employer takes any
adverse action.
The notice and consent requirements undercut employers' ability
to conduct prompt, impartial and thorough investigations of
employee misconduct and placed employers in the untenable position
of balancing the FCRA's notice requirements with their obligations
to investigate complaints under state and federal discrimination
and harassment law.
Effect of the FCRA Amendments on Employers
In Dec. 2003, Congress amended the FCRA to exclude particular
workplace investigations from the FCRA's burdensome notice and
consent requirements. The FCRA now specifically excludes from
the definition of consumer report “communications made
to employers in connection with an investigation of: (i) suspected
misconduct relating to employment, and (ii) compliance with
federal, state, or local laws and regulations, the rules of
a self-regulating organization, or any preexisting written policies
of the employer.” Thus, employers are no longer obligated
to:
- provide notice to and seek consent from the target employee,
or
- provide the target employee with an unedited copy of the
report.
This alleviates a huge burden on employers and protects the
integrity of an investigation into employee misconduct.
The FCRA Imposes an Obligation on Employers to Keep
Investigation Private: Although the amendments give
employers greater leeway in conducting workplace investigations,
they also require employers to take steps to protect the target
employee's privacy. A workplace investigation report may not
be disclosed to anyone except the employer (or its agent), state
and federal agencies, officers, or as otherwise required by
law. Accordingly, it is imperative that employers maintain the
confidentiality of the report.
The FCRA Now Requires Employers to Provide a Summary
to Employee: If the investigation meets the requirements
to be excluded from the definition of a “consumer report,”
the employer is no longer required to provide the target employee
with an unedited copy of the investigation report. However,
if the employer takes adverse action, in part or in whole, as
a result of the investigation, the employer must provide the
target employee with a “summary” of the investigation.
The summary must contain the “nature and substance”
of the communication upon which the adverse action is based.
The following example illustrates the effect of the new amendments.
Company X hires a private HR consultant to investigate allegations
that Employee A has been sexually harassing Employee B. Part
of the investigation involves conducting interviews of the co-workers
of Employee A and Employee B.
- Pre-Amendment: Company X would be required
to give Employee A notice of the investigation and seek his
consent to interview his co-workers. If the investigator found
that Employee B’s allegations were valid and decided
to discipline Employee A, Company X was required to give Employee
A a full, unedited copy of the investigator’s report
and an opportunity to refute the findings before
Company X could take any adverse employment action.
- Post-Amendment: The investigator can conduct
the investigation without giving Employee A notice or seeking
his consent. If Company X finds wrongdoing on the part of
Employee A and decides to discipline him, Company X must provide
him with a “summary” of the investigation. However,
Company X can provide the summary after it has taken the adverse
employment.
The practical implications of these amendments for employers
using third-party investigators are significant. The amendments
take into account the complexities of the modern workplace and
the reality of how a workplace investigation is conducted. The
amendments also eliminate the apparent conflict between the
FCRA's notice and consent requirements and an employer’s
obligation to investigate claims of workplace conduct workplace
investigations into discrimination and harassment allegations.
What can employers do to ensure they comply with the
FCRA?
Given the new requirement that provides a right of privacy
to the target employee, consider whether your current system
provides that protection. Also, make sure to comply with the
disclosure requirements to the target employee if the investigation
leads to adverse employment action.
How can DWT help?
This advisory bulletin is intended to provide you with a brief
overview of the FCRA and its application in the employment context.
Although the recent amendments give employers greater flexibility
in conducting workplace investigations, other types of consumer
reports (e.g., pre-employment background checks by
third parties) are still subject to the FCRA's notice and consent
provisions. Employers, particularly those who rely on third-parties
to screen applicants and investigate instances of misconduct,
should consider the effect the FCRA may have on their current
policies and practices.
Davis Wright Tremaine’s employment attorneys can help
you understand your obligations under the FCRA and assist you
in ensuring that your policies, procedures and investigative
practices comply with the FCRA.
For
further information, please contact the authors or your usual
DWT employment law attorney:
Kathy
Dent, Portland, (503) 778-5338, kathydent@dwt.com
Sheehan
Sullivan, Seattle, (206) 903-3978, sheehansullivan@dwt.com
This Employment Law Advisory is
a publication of the Employment Law Department of Davis Wright
Tremaine LLP. Our purpose in publishing this Advisory is to
inform our clients and friends of recent developments in employment
law. It is not intended, nor should it be used, as a substitute
for specific legal advice as legal counsel may only be given
in response to inquiries regarding particular situations.
Copyright © 2004, Davis Wright
Tremaine LLP.
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