Until recently, it was understood by most that the Fair Credit Reporting Act ("FCRA") applied to credit and background checks which employers chose to conduct on applicants or existing employees for reasons other than allegations of misconduct on the part of the person being investigated.
However, in a recent letter opinion, the Federal Trade Commission ruled that FCRA also applies when an employer hires an outside entity to investigate allegations of sexual harassment. The FTC has taken the position that an agency hired to investigate sexual harassment allegations would be considered a "consumer reporting agency" for the purposes of FCRA. Moreover, in all likelihood, any report the agency produces would be considered an "investigative consumer report" because a sexual harassment investigation would necessarily deal with the alleged harasser's "character, general reputation, personal characteristics, or mode of living." Therefore, prior to initiating the investigation, the employer is presumably required by the FCRA to disclose clearly to the alleged harasser that an investigation is planned, and obtain the employee's authorization to proceed. The employer must also certify to the outside agency that it has made the proper disclosures and will follow the procedures outlined in the FCRA. (See our earlier Newsletter on FCRA in November 1998.)
If the employer decides to take appropriate corrective or disciplinary action against the alleged harasser based upon the investigative report, such discipline would be considered an "adverse employment decision" for the purposes of the FCRA. Consequently, the employer would be required to provide the harasser with an unredacted copy of the investigative report upon which the decision was based before the employer takes any disciplinary action. After the adverse action is taken, the employer must then comply with all of FCRA's notice requirements. Thus, it is clear that any third party hired to be an investigator could not make any promises of confidentiality to any of the witnesses the investigator interviews.
The interaction between FCRA, Title VII and NJLAD has far-reaching implications. Many companies hire third parties, such as outside law firms, to investigate sexual harassment allegations; this practice makes sense from the standpoint of controlling liability under the anti-discrimination laws and stopping harassment, but it opens up new issues of compliance with the terms of FCRA if the FTC position is good law. It also appears that some of the requirements of FCRA would seem to be inconsistent with policies recognized by courts for sexual harassment investigations; e.g., need for confidentiality, the duty to investigate regardless of whether the parties agree, and the absence of any duty to prepare a report. As a result, we have serious doubts whether the FTC position on sexual harassment investigations is correct.
