For several years, employers have struggled with whether they have to comply with the Fair Credit Reporting Act’s (FCRA) detailed notice and disclosure rules when they use outside experts to investigate employee misconduct, such as harassment. The uncertainty stemmed from a now infamous opinion letter from the Fair Trade Commission that stated reports prepared by third-party investigators in connection with investigations of employee misconduct amounted to “investigative consumer reports” covered by the FCRA. Therefore, you had to obtain the employee’s advance consent to the investigation and provide the person with a copy of the final investigative report.
But employers can now breathe a sigh of relief, thanks to the new Fair and Accurate Credit Transactions Act of 2003, which exempts third-party investigations of alleged employee wrongdoing from the FCRA’s detailed notice and disclosure requirements. We’ll take a look at the new law.
Misconduct Investigations Exempted
The new exemption from the FCRA notice and disclosure rules applies to reports prepared for an employer by an outside investigator as part of an investigation of 1) suspected misconduct related to employment; 2) compliance with the employer’s written policies; or 3) compliance with federal, state, or local laws or regulations. California consumer report rules already contain a similar exemption from notice and disclosure requirements when an employer uses an outside investigator to look into employee misconduct allegations.
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The exemption won’t apply if the report is made to investigate a consumer’s credit worthiness, credit standing, or credit capacity. What’s more, the exemption is lost if the report is provided to anyone other than the employer or employer’s agent or a federal, state, or local officer, agency, or department, or is used in some other limited circumstances. Thus, it will be important for employers and investigators to refrain from giving the report to, for example, the complaining party.
Adverse Action Rules
Despite the new exemption from FCRA requirements, you will have to disclose an outside investigator’s information to an employee who is under investigation in one circumstance. If you take adverse action against an employee in response, in whole or in part, to information contained in the investigation report, the new rules require you to provide the person with a summary of the report describing the nature and substance of the investigation. But you don’t have to disclose the sources of information, including interviewees, used in preparing the report.
An adverse action under FCRA is broadly defined as an employment decision that negatively affects an employee. Thus, for example, you would have to provide the employee with a report summary if, because of the investigation, the employee was disciplined (including receiving a written warning), demoted, transferred, suspended, or discharged.
When Should You Use Outside Help?
The new rules will make it more attractive for employers to hire outside investigators to look into suspected workplace misconduct. But how do you evaluate when it’s preferable to use an outsider versus conducting your own investigation?
According to workplace attorney Rebecca Speer, with Speer Associates in San Francisco, hiring an attorney or other third-party investigator to look into charges can be a good idea when your staff lacks adequate investigatory experience or when the accused person holds a high-level position in your company. You may also want to consider outside assistance when the individuals in your organization responsible for investigating have a close working relationship with employees who will have to be interviewed.