Breathing Easier Over Workplace Misconduct
May 18, 2005
By Patricia A. Kotze and Eric H. Joss
The Fair and Accurate Credit Transactions Act restores some power to employers
in their efforts to manage investigations. Specifically, the act excludes "communications"
to employers from outside investigative agencies from the restrictions of the
Fair Credit Reporting Act.
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.
Triple threat
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.
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.
Caution still advised
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.
About the Author:
Patricia A. Kotze is Managing Partner at 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. To comment
.
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