The Fair Credit Reporting Act (FCRA) and the Investigation of Employee Misconduct


Many laws govern the employer/employee relationship, including pre-hire, hire, promotion, discipline and severing the relationship. They cover areas from discrimination to safety and health, hours worked and wrongful discharge. Employers are required to investigate allegations of harassment, hostile work environment, charges of discrimination by fellow employees and supervisors. This must be done objectively, confidentially and expeditiously.

All of this said, an employer generally would not need to look to a regulation such as the Fair Credit Reporting Act, unless they wanted to verify an individual's credit (such as under a written authorization obtained from an applicant). However, the FCRA regulates more than the credit report generated to determine if people pay their bills on time. FCRA also regulates investigative consumer reports. An investigative consumer report goes beyond the standard credit report and includes any investigation done regarding a consumer.

The Federal Trade Commission has taken the position that, when an employer investigates an employee's conduct on the job, including investigations of employee misconduct, the FCRA governs. So, when an employer uses a third party to investigate an employee, the employee must be notified "clearly and conspicuously" in writing. Employee must give their permission to have the investigative consumer report completed.

If the employer disciplines or adversely treats the employee or applicant based upon the report, the employer must provide the employee or applicant with: 1) notice of the disciplinary action, 2) name, address and phone number of the third party that furnished the report, 3) that the third party had no input into the decision to discipline the employee or not hire the applicant and will not be able to provide any information into why the discipline or non-hire was taken, and 4) the employee or applicant is entitled to a free copy of the report and can request the employer to state why the discipline was taken. All of this must be done within 60 days of the discipline or adverse employment decision. Any copy provided to the employee or applicant cannot have any names redacted. Immediately, concerns come to mind with the disclosure requirement. 1) Witnesses may be more candid and forthcoming in their comments if the employer can assure confidentiality, and 2) an investigation may discover information that could cause animosity in the workplace. The question becomes: Can an employer use a third party to conduct a confidential investigation into employee misconduct and/or conduct pre-employment investigations? The answer is, yes, but compliance with FCRA must be insured by the employer.

The FCRA does not apply to investigations conducted by the employer's in-house personnel. In addition, FCRA does not apply when a third party who is not in the business of providing such reports does the investigation; i.e. people who do such investigations, but not as their principal business.

Anytime an employer uses a third party to investigate applicants or employee misconduct, compliance with the FCRA is required. Doing the investigation in-house under an attorney's direction and confidentiality privileges would minimize the risk of the FCRA law applying. State laws may differ and disclosure may be required.