Just the FACT Act, please: using outside experts to investigate workplace misconduct just got easier

HR Magazine, April, 2004 by Gregory M. Davis

Misplaced Motives

The FCRA's legislative history and express provisions made it evident that the act was not designed to apply to employment-related misconduct investigations. Rather, the FCRA's protections were drafted to protect consumers from credit-related information transmitted between banks, credit bureaus, other financial institutions and background investigators.

What's more, applying the FCRA to employment-related misconduct investigations arguably was unnecessary because a multitude of laws and regulations already required workplace investigators to be fair with regard to confidentiality, accuracy, relevance and proper use of information.

Applying the FCRA to employment-related misconduct investigations also heightened the risk of litigation. Lawsuits involving employment-related misconduct were prone to include boilerplate FCRA counts in plaintiffs' hope of flushing out employers' inadvertent missteps that might trigger unlimited punitive damages.

More than one court disagreed with the FTC's Vail letter, holding that workplace investigations by attorneys are not covered by the FCRA. And the dilemma employers faced in trying to comply with both the conclusion of the Vail letter as well as with their legal duties to promptly and fairly investigate workplace misconduct dictated that change to the FCRA was needed.

Exciting Denouement

Soon after issuance of the Vail letter, a coalition of interested companies and organizations--including the Society for Human Resource Management--began working to draft and promote an amendment to the FCRA that would address the need for effective and efficient workplace investigations while still respecting employees' privacy rights. The resulting FACT Act balances both interests. The FTC recently issued final rules setting an effective date of March 31, 2004, for the workplace misconduct investigation aspects of the FACT Act.

The amendment is broad enough not only to include investigations regarding suspected violations of the law, but also to cover violations of a company's written policies and procedures. However, if the investigation gathers information related to an individual's creditworthiness, credit standing or credit capacity, the FCRA notice and consent provisions still apply.

The amendment also addresses the privacy rights of both the investigation's target and of potential victims and witnesses. First, any workplace investigation report generated can be disclosed only to the employer; federal, state or local officers, agencies or departments; any organization with regulatory authority over the employer; or as otherwise required by law.

Additionally, if an employer takes adverse action based on the report, it must disclose to the target of the investigation a summary of the communications on which the adverse action is based. The summary must include the nature and substance of the communications, but need not include sources of information--such as the identity of individuals who have been interviewed.

Because the amendment to the FCRA is so new, the exact scope of the exclusion is not yet precisely defined. However, numerous kinds of common workplace investigations will be excluded from the definition of consumer report, and thus are not subject to the FCRA notice and consent requirements. Investigations into (1) complaints of sexual and other types of harassment or employment discrimination; (2) incidents of workplace theft, drug use or violence; (3) violations of workplace safety rules and regulations; and (4) workers' compensation claims most likely will be considered within the scope of the new exclusions.