Hire Third-party Organizations

Over the years, there have been many conflicting federal and state statutes governing third-party investigations of employees suspected of misconduct. Several different FAQ and Legislative Updates on the Cisive Web site have addressed such issues at varying times. However, with the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), the answer to this questions has been cleared up — to an extent.

As you know, the FACT Act contains a number of provisions that clarify or address rights under the federal Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681 et seq., that are self-effectuating. One such area of change involved clarifying the duties of employers when they use third parties to investigate possible employee misconduct, e.g., sexual harassment, embezzlement, workplace violence, drug sales and other illegal activities, which were undermined by unintended consequences of the 1996 amendments to the FCRA and a 1999 FTC staff opinion letter now known as the "Vail Opinion Letter."

As a point of historical review, the Vail Opinion Letter stated that the notification and authorization requirements of the FCRA applied whenever employers hired third-party organizations, including law firms, to investigate allegations of workplace misconduct. This created quite a furor in the employer community. At the time, the FTC followed up on this "hot" issue and opined that, where allowed by law, employers could work around the awkward prospect of having to ask a suspected wrongdoer for permission to allow a third party to provide an investigative (or other) consumer report to the employer by routinely obtaining — at the start of employment or while employed — a general or "blanket" authorization from the consumer to obtain consumer reports or investigative consumer reports at any time during the consumer's tenure of employment. Thus the employer would be allowed to conduct its investigation confidentially without alerting the employee until the employer is prepared to confront the employee with its findings.

The FACT Act reauthorized the FCRA with a provision to remove third-party investigations of alleged employee misconduct from the notice and authorization requirements of the FCRA. However, legislation provides only a limited fix to the problem, since employers will still be required to provide some notification but only after an investigation is concluded.

Notwithstanding the provisions of the FACT Act, Cisive recommends to its clients that the authorizations/disclosures obtained from employees and prospective employees continue to include a blanket clause allowing employers to obtain consumer reports and investigative consumer reports at any time during the consumer's employment.

Despite the amendments promulgated by the FACT Act, it is important for employers to realize that the State of New York has legislation in effect that continues to make this an onerous issue for New York employers. Pursuant to G.B.L Article 25, Section 380(c), New York does allow for blanket authorizations for subsequent CONSUMER reports during the consumer's tenure of employment. However, there is no such provision for "investigative" consumer reports, nor is there a provision for waiving the notice/authorization requirement for suspected misconduct.

G.B.L Section 380(d) defines an "investigative" consumer report as follows:

• (d) The term "investigative consumer report" means a consumer report or portion thereof in which information on a consumer's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information. However, such information shall not include specific factual information on a consumer's credit record obtained directly from a creditor of the consumer or from a consumer reporting agency when such information was obtained directly from a creditor of the consumer or from the consumer.

The New York law affecting New York residents with respect to notice/authorization to conduct an investigative consumer report will not be preempted by the federal FACT Act, since it is more protective of consumer rights and was enacted prior to the FACT Act and any amendments recently made to the FCRA.

Generally speaking, a consumer report is more factual in nature. One might ask whether speaking to a school representative or employer to verify items of information stated by the consumer on an application constitutes an interview and thus, an investigative consumer report. At least under federal law, the FTC Has opined that simply verifying "factual" information does not rise to the level of an investigative consumer report (see http://www.ftc.gov/os/statutes/fcra/beaudett.htm).

An investigative consumer report with more intense interviewing questions relating to the character-type factors is, by definition, more subjective in nature, e.g., contains evaluative or performance-rating information.

Bottom line: As you can see, the water is still quite "muddy" on this issue, at least with respect to New York residents. If you are considering investigating an employee for suspected misconduct, and that individual is a New York resident, and you feel the investigation may rise to the level of an investigative consumer report, we suggest you discuss the matter with your legal counsel to ascertain the requirements of the law with respect to proper notice and authorization.

Please realize that no publication can anticipate all individual situations and questions that may arise. If you have questions concerning your legal rights and obligations under state or federal consumer reporting laws, or any local laws or regulations governing the acquisition and use of applicant and employee information, please consult with your experienced employment law counsel.

This information is intended for informational purposes only and is not to be considered legal advice. Please realize that no publication can anticipate all individual situations and questions that may arise. If you have questions concerning your legal rights and obligations under state or federal consumer reporting laws, or any local laws or regulations governing the acquisition and use of applicant and employee information, please consult with your experienced employment law counsel.