Parts II and III of this article appear in the January 2005 and February 2005 issues of The Metropolitan Corporate Counsel. Part II will focus on planning and conducting the interviews. Part III will address the investigation report, remedial action and special issues implicated by the Sarbanes-Oxley Act.
When employees express an opinion or concern that they were treated unlawfully or that the company's guidelines or policies were not applied to them in an objective and impartial manner, an investigation of the allegations should be conducted. As well as reducing the risk that an employee will be disciplined or terminated for something he or she did not do, an objective and thorough investigation provides a powerful defense against a claim that the company condoned unlawful workplace discrimination. The investigative process also allows the employer to ensure that its management, supervisors, and employees are acting in compliance with internal policies and procedures, as well as federal, state and local law.
Conducting a comprehensive and effective investigation is not easy. Learning how to ask the right questions, extracting information from reluctant witnesses, making credibility assessments, sorting out irrelevant facts, coming to the right conclusion and taking the appropriate corrective measures are acquired skills. Developing and improving investigatory skills are invaluable both in terms of ensuring the fair and objective treatment of employees and defending against a claim of discrimination or harassment.
The Faragher Defense
In Burlington Indus. v. Ellerth, 524 U.S. 742 (1998) and Faragher v. Boca Raton, 524 U.S. 775 (1998), the Supreme Court affirmed that an employer will be strictly liable for sexual harassment that culminates in a "tangible employment action" such as discharge, demotion or an undesirable reassignment. If no tangible employment action is taken, the Court held that the employer will be presumptively liable for a hostile work environment created by a supervisor unless the employer can prove a two-part affirmative defense: "(a) that the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (b) that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise."
In Pennsylvania State Police v. Suders, 124 S. Ct. 2342 (2004), the Supreme Court extended the Faragher defense to employers in situations where an employee alleges that the employment environment was so hostile, that he or she was forced to resign (known as "constructive discharge"). The affirmative defense will not be available to employers if "the plaintiff quits in reasonable response to employer-sanctioned adverse action officially changing her employment status or situation, for example, a humiliating demotion, extreme cut in pay or transfer to a position in which she would face unbearable working conditions."
Translating the Court's rulings in Ellerth, Faragher and Suders into practical terms, steps an employer should take are:
Having accurate facts leads to a sound and just conclusion, thus minimizing an employer's potential liability for discharging or disciplining an employee who engaged in acts of misconduct. A comprehensive and impartial investigation helps the employer show that the employee's termination or discipline was due to a legitimate business reason rather than an illegal or improper motive such as discrimination. Where an employment contract exists, a thorough and impartial investigation will lend support to any determination by the Company that "cause" (as defined in the relevant contract) for the termination existed.
Organizing And Planning An Investigation
The key to conducting an effective investigation is organizing your thoughts and developing a plan before you start interviewing witnesses. Investigations should take place promptly. A private location should be chosen for the interview to avoid distractions, ensure confidentiality, provide the appropriate comfort level, and reflect the required level of formality.
Determining who should conduct the investigation is a crucial part of the process of planning an investigation. In selecting the investigator, consider centralizing overall responsibility for the investigation in one person and having two individuals present at any interview in order to corroborate evidence and provide a better opportunity for taking notes. A good investigator is someone who:
Is perceived as objective (unbiased);
Has good interpersonal skills;
Is a good listener;
Has expertise or knowledge in conducting investigations;
Has knowledge of the company, its policies, and its operations;
Is organized and detail-oriented;
Has the ability to present himself or herself as a credible witness;
Has the ability to maintain confidentiality;
Has a knowledge of discrimination and other laws affecting the workplace;
If an internal employee, has the likelihood of continued employment with the company.
Human Resources professionals often are good investigators because they are generally perceived as more objective and "less threatening" than lawyers. As well as having people skills, the HR professional should have knowledge about the corporation and its policies and practices. In Bennett v. The Progressive Corp., 225 F. Supp. 2d 190 (N.D.N.Y. 2002), the court held that a jury could conclude that a four-day investigation was insufficient or "lacked depth" in light of the alleged "level of harassment" and "the competing versions of the facts" (explaining that the HR professional who conducted the investigation had worked for the company for only four or five months and had no experience investigating sexual harassment claims).
Another choice is having a lawyer conduct the investigation. Because confidential oral or written communications between a lawyer and a client in which a client seeks legal advice are privileged, the client has a right to refuse to disclose any such communication and to prevent his or her lawyer from disclosing them. Moreover, a document that reflects counsel's mental impressions, opinions, and legal analysis formulated with an eye toward litigation may be protected from discovery as "attorney work product."
One disadvantage of having counsel for the employer conduct an investigation is that if the investigation leads to litigation, counsel who conducts the investigation may be disqualified from representing the company. This is because a company may not assert as an affirmative defense that it conducted a proper investigation while claiming that this investigation is privileged.
The Attorney-Client Privilege
The attorney-client privilege only protects communications, not underlying facts. Facts cannot be protected from disclosure by placing them in a memo to an attorney. Nor can you protect a document from disclosure merely because it was given to (as distinguished from "prepared for") counsel. General guidelines for securing the privilege include:
In-house counsel should clearly distinguish when they are acting as legal advisors as opposed to as business decision makers.
Clients should address written communications to the attorney.
Communications should be labeled "Privileged and Confidential."
Privileged and work-product information should not be shared with anyone unless that individual has a need to know that information.
An investigatory report prepared by an outside law firm may not be shielded from discovery based on the attorney-client or work-product privileges if the employer relies on its investigation and subsequent corrective action as a defense to liability for claims asserted. See McGrath v. Nassau Health Care Corp., 204 F.R.D. 240, 248 (E.D.N.Y. 2001) (ordering the employer to produce documents related to its internal investigation where the sufficiency of the employer's investigation was at issue and the investigation constituted part of the company's remedial measures); see also Pray v. New York City Ballet Co., No. 96 Civ. 5723, 1997 WL 266980 (S.D.N.Y. 1997), aff'd in part and rev'd in part, 1998 WL 558796 (S.D.N.Y. 1998) (ordering employer's outside counsel to submit to depositions regarding the investigations which they conducted on behalf of the employer, where the reasonableness and sufficiency of the investigation was at issue).
The Fair Credit Reporting Act ("FCRA")
The FCRA protects consumers from improper credit practices by requiring notice to the employee whose credit is being investigated, written consent from that employee, and disclosure to him or her of an investigative report. The FCRA is activated only if a "consumer reporting agency," as defined by the statute, creates a "consumer report."
A 1999 Federal Trade Commission ("FTC") opinion letter stated that outside counsel investigating a sexual harassment complaint on behalf of an employer is a "consumer reporting agency" and the FCRA applies to its results. Complications resulting from this opinion letter include having to obtain written consent from the accused before conducting the investigation, which could permit the accused to obstruct the investigation. Requiring the employer to provide the employee with an unredacted copy of the consumer report before any adverse employment decision is made could prevent employees from coming forward with information for fear of retaliation from the employee being investigated.
On March 31, 2004, many of the problems that employers faced after the 1999 FTC opinion letter were eliminated with the enactment of the Fair and Accurate Credit Transactions Act (the "FACT Act"). The FACT Act added a provision specifically excluding from the FCRA requirements reports made to an employer in connection with the investigation of suspected misconduct relating to employment. Employers no longer have to obtain prior written consent of an accused employee before having outside counsel initiate an investigation, nor provide the employee with an unredacted copy of the consumer report before any adverse employment decision is made.
However, the FACT Act adds to the FCRA a requirement that after any adverse action is taken as a result of such an investigation, the employer must give the accused employee a summary of the investigation upon which the adverse action is based.