Introduction
Just as the United States Supreme Court in its Faragher v. City of Boca Roton, 524 U.S. 775 (1998), and Burlington Indus., Inc. v. Ellerth, 524 U.S. 742 (1998), decisions has emphasized the importance of an appropriate response to allegations of sexual harassment, particularly an effective investigation and prompt remedial action, employers are now faced with conflicting obligations under the Fair Credit Reporting Act ("FCRA" or "the Act"), 15 U.S.C. §§ 1681-1681u (1999). The Act's title is misleading, as it encompasses many subjects other than credit reports. Notably, the Federal Trade Commission ("FTC"), which enforces the FCRA, surprised the labor and employment bar when it issued its Keller-Vail Opinion letter stating that if a third party, such as a law firm, conducted an investigation into employee misconduct, such as sexual harassment, the investigation report would be a "consumer report" within the meaning of the FCRA. The end result is that, according to the FTC, a sexual harassment investigation must first be disclosed to and authorized by the accused employee, and then the resulting report, which normally could be treated as confidential and protected by the attorney-client privilege, must be shared with the employee before any adverse action may be taken. At least one court has rejected this conclusion, reasoning that a law firm's report was developed to provide legal advice, not for purposes of evaluating the employee for purposes of taking an adverse action against him. See Robinson v. Time Warner, Inc., 187 F.R.D. 144, 148 & n.2 (S.D.N.Y. 1999).
Employers and counsel on both sides of the bar have expressed concern that applying the requirements of the FCRA to sexual harassment investigations renders them largely ineffective and, therefore, could not have been what Congress intended in enacting the FCRA. Sexual harassment investigations generally are conducted with the highest degree of confidentiality possible, because many investigations involve sensitive issues and many employees reporting sexual harassment fear retribution from the alleged harasser. In the Keller-Vail opinion letter, the FTC took the position that reports of sexual harassment investigations made by third parties must be disclosed to the accused employee before any adverse action may be taken, and that the complete report must be disclosed without any redactions, even on grounds of privilege. Thus, the Act's disclosure requirements run counter to the methods of the typical investigation. The concern is so great that the Chair of the Labor and Employment Law Section of the American Bar Association recently sent a letter to the FTC requesting it revoke the Keller-Vail letter. The Keller-Vail letter, dated April 5, 1999, and a more recent letter on the topic, the Medine-Meisinger letter, dated August 31, 1999, are available on the FTC's website at www.ftc.gov/os/statutes/fcra.
While the FTC's Opinion letters are only advisory in nature, 16 F.C.R. Pt. 600, App. at 510 (1999), prudence suggests that employers conduct their investigations in accordance with the Act unless they intend to litigate the issue. How can an employer reconcile the requirements of the Act with its need to conduct effective investigations of allegations of sexual harassment or other employee misconduct? Advance planning and careful documentation can give an employer the ability to effectively investigate and respond to misconduct with few problems.
The Act's Requirements
The FCRA was enacted to protect consumers from inaccurate reports of their credit history, criminal, motor vehicle and court records, and general reputation in the context of their applications for credit, insurance and for purposes of employment. The Act therefore provides that the applicant or employee (the "consumer") must receive notice and must consent to the preparation of the report. Similarly, the consumer is to receive a copy of the report before any adverse action is taken, based even in part on the report. The consumer also is to be given a summary of his or her rights under the Act, which include rights to dispute inaccurate information and have inaccurate information deleted.
This means that, in the context of a harassment investigation, the employer must:
- disclose to the employee accused of harassment that it is requesting the investigation report;
- obtain the employee's consent before obtaining the report;
- provide a copy of the report to the employee before taking any adverse action against the employee; and
- after adverse action is taken, identify the third party who prepared the report so the employee can dispute any inaccurate information.
In most cases, the employer will be able to meet these requirements and conduct effective investigations through advance planning and documentation. However, as discussed below, an additional requirement that concerns "investigative consumer reports" may be difficult for employers to meet.
Obtaining Authorization
Before a third party may begin an investigation, the employer must give notice to all job applicants and employees that it may obtain consumer reports regarding them during the application process and/or during the tenure of their employment with the company. These disclosures are required by sections 604(b)(2) and 606 of the Act, and may be done at any time. Therefore, they can be done routinely without tipping off the accused. However, note that the 604(b)(2) disclosure cannot simply be part of the employment application. It must be a stand-alone document without other information. Second, the employer should get authorization to obtain consumer reports from all job applicants and employees at the same time it makes these disclosures. See § 604(b)(2) [15 U.S.C. § 1681(b)(2)] .
Doing the above permits the employer to obtain reports regarding its employees or applicants without running afoul of the FCRA because once it has made the required disclosures and obtained the necessary authorizations, it may obtain consumer reports concerning those individuals at any time without further disclosures when it later begins investigations.
However, one wrinkle remains that may interfere with an effective investigation. Some requirements of the Act truly are inconsistent with an effective investigation and a savvy employee may put an employer in a situation where it must choose between conducting an effective investigation and complying with the Act. The FTC's position is that a sexual harassment investigation report prepared by a third party is an "investigative consumer report" because it involves interviews of the employee's co-workers and others. The Act provides some enhanced protections to consumers who are the subject of investigative consumer reports. Upon a written request by the employee, the Act requires the employer to provide the employee with details regarding the nature and scope of the investigation within five days of receiving the request. See § 603(e) [15 U.S.C. § 1681a(e)]. In its guidance regarding the Act, the FTC takes the position that this disclosure "must include a complete and accurate description of the types of questions asked, the number and types of persons interviewed, and the name and address of the investigating agency." See 16 C.F.R. pt. 600, App. at 499 (1999).
If the employer has not made its FCRA disclosures and obtained the necessary authorizations of its employees at an earlier date, the Act's disclosure requirements will alert any employee who is the subject of such an investigation. Even if an employer has made the required disclosures and obtained the necessary authorizations of all employees at some earlier date, it is conceivable that an employee may suspect that an investigation is being conducted regarding him or her, and may make a request regarding the nature and scope of the investigation. In many instances, the investigation will not be complete when this disclosure is required. While the disclosure need not identify the names or the sources of information of the investigation, providing this level of detail to an accused employee before an investigation is completed may impact an employer's ability to get complete and accurate information, may chill future reporting of sexual harassment and other misconduct, and may increase the risks of retaliation on the part of the accused employee. The employer is then in the position of choosing whether to comply with the Act, possibly compromising its investigation, or be prepared to argue at a later date that the Act did not apply.
The Investigation
To avoid application of the FCRA altogether, before beginning an investigation the employer should consider whether it can effectively conduct the needed investigation with internal company employees. If it can, the FCRA falls from the picture, since it governs only investigative reports received from third parties. Some of the factors to consider will be what resources are available within the company, the level of employees involved in the investigation, the type of information to be obtained and whether counsel should be involved.
If the company decides to use a third party to conduct the investigation, it must also make a determination as to whether the third party "regularly" provides such reports for a fee. The Act only covers reports prepared by a third party who "for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties . . ." § 603(f) [15 U.S.C. § 1681a(f)]. The Medine-Meisinger letter, a more recent opinion letter that addresses the difficulties associated with applying the FCRA to sexual harassment investigations, notes that third parties that do not "regularly engage" in providing consumer reports are not covered under the Act.
If the employer concludes it needs to use a third party, or consumer reporting agency ("CRA") to conduct the investigation, it should give the CRA explicit instructions about what to include and not include in the report. Before the employer will be able to take any adverse action against the applicant or employee that is based even in part on the report, it must provide the individual with a copy of the report. See § 604 (b)(3) [15 U.S.C. § 1681b(b)(3)]. Because the FTC takes the position that the report may not be redacted in any way when provided to the consumer, the employer should instruct the CRA not to include information that should not be disclosed to the applicant or employee. For example, in sexual harassment investigations it may not be appropriate to disclose the names and identities of complaining parties and other sources of information to guard against retaliation and to encourage, rather than chill, future reports of harassment. However, in any sexual harassment investigation the employer cannot guarantee confidentiality of the complaining party or other sources of information; the better practice is to state that every effort will be made to keep the source's identity confidential. If the CRA used is outside counsel, the company should instruct counsel to include only factual information resulting from their investigation in the report and provide any legal advice, legal conclusions or credibility assessments of sources in a document separate from the investigation report.
The employer also must certify to the CRA that it will not use the information in the report in violation of federal or state equal employment opportunities laws, and that if any adverse action will be taken based even in part on the report, that it will provide the consumer with a copy of the report and a summary of his or her rights under the Act. See § 604 (b)(1) [15 U.S.C. § 1681b(b)(1)].
Taking Adverse Action
As certified to the CRA, before the employer may take adverse action it must first notify the accused and provide him or her with a copy of the report and summary of his or her rights under the Act. See § 604 (b)(3) [15 U.S.C. § 1681b(b)(3)]. This often is referred to as the pre-adverse action disclosure. The FTC has provided a sample summary of rights to be given to the consumer, which can be found at 16 C.F.R. Ch. 1, Pt. 601, App. A (1999). Good practices would suggest the employee accused of misconduct be confronted with the charges and permitted a chance to respond anyway. However, until now the reports of sexual harassment investigations were usually kept confidential, often under the attorney-client privilege. Thus, employers need to be concerned regarding the content of the investigation report, and should ensure that the CRA has followed its instructions, so that no information regarding sources is identified that would pose a risk of retaliation or chill reporting.
The FCRA requires that some time must lapse between the pre-adverse action disclosure and the taking of any adverse action. Neither the statute nor the FTC has specified how much time should pass, though the FTC has agreed with the suggestion that five days is reasonable. The time will depend on the circumstances of each case. Where it is imperative to remove the accused from the workplace, or the accused disputes the report in a manner that is not frivolous or irrelevant, a brief suspension may be in order.
After an adverse action is taken, the employer must give the applicant or employee information regarding the CRA that provided the report. See § 615(a) [15 U.S.C. § 1681m(a)]. This is designed to allow the individual to dispute the report and have any inaccurate information corrected.
Violations of the Act can result in civil and criminal penalties. Civil liability can include actual damages to the consumer of not less than $100 and not more than $1000, punitive damages for willful violations, costs and attorney's fees. See § 616 -617 [15 U.S.C. § 1681n-1681o]. Obtaining reports from a CRA under false pretenses can result in criminal fines and imprisonment for up to two years. See § 619 [15 U.S.C. § 1681q].
While the Keller-Vail letter has been widely criticized, the FTC's position has some support in the language of the statute. Until Congress or the courts further clarify the issue, employers ignore the Act at their peril. Further information about an employer's obligations under the Act can be obtained from the FTC's website and 16 C.F.R. Ch. 1, Pt. 601, App. C (1999). Sample disclosure and authorization forms are available by contacting the author at (203) 961-7415.