What Companies Need To Know Before Conducting Investigations Into Employee Conduct

Even the best-run companies will inevitably encounter cases where they must conduct internal investigations of employee behavior. There is every reason to initiate these investigations when they are for legitimate business purposes. An investigation can itself become a source of liability, however, if initiated for an improper motive or if the investigative procedures or results are mishandled. To minimize the risk of problems, employers should conduct investigations in a professional manner, through agents of the employer who are trained in techniques and aware of the legal standards involved. The following recent case law illustrates the legal issues to be considered when conducting internal investigations.

Who to Investigate

Employee conduct usually merits investigation when it is against company policy and subject to discipline as defined in employers’ codes of conduct, but it may also be defined in collective bargaining agreements. It may be undefined as well and left to the employer’s discretion at the time the conduct occurs. Obvious types of conduct that might warrant investigation include financial misdeeds or other misuse of company assets; abusive behavior toward supervisors, coworkers, or business contacts; or current drug or alcohol abuse.

Antidiscrimination Laws

Among the laws that apply to investigations are the general federal and state antidiscrimination laws that protect employees from termination of employment because of characteristics that include their race, sex, national origin, religion, age, disability or handicap, sexual preference or orientation, and marital status. The employer’s decision to initiate an investigation may be challenged if it appears to be based on one of these protected characteristics.

For example, in Spikes v. United Parcel Service (U.S. District Court for the Northern District of Illinois, 2003), the court held that a theft investigation was a tangible adverse employment action that was based on and motivated by the plaintiff’s race. The plaintiff had resigned his employment but claimed that the investigation was motivated by the employer’s intent to coerce a confession from him, which would then lead to his resignation.

The employer characterized the investigation as merely a fact-finding device, but the court held that the employer did more than subject the plaintiff to an investigation. As the plaintiff described it, the investigation was an adverse action in the context of this case because from the initial identification of the plaintiff as the theft suspect through the coercion used to extract his confession, the employer seemed intent on terminating his employment.

Collective Bargaining

Collective bargaining agreements can also affect an employer’s right to investigate. The agreement may give the employees’ representative the authority to challenge an investigation that has employed techniques contrary to the provisions of the agreement.

In fact, the National Labor Relations Board (NLRB) has ruled that investigative techniques that a company might use on union members who are employees are a mandatory subject of collective bargaining. In National Steel Corp. v. NLRB (U.S. Court of Appeals for the Seventh Circuit, 2003), the court upheld the NLRB ‘s application of this principle to the sensitive area of hidden camera surveillance. In the case, the employer had, over a period of 15 years, used hidden cameras to investigate suspected theft, vandalism, and other employee wrongdoing. In pursuing the grievance of an employee who was terminated based on evidence from one of these cameras, the union requested information regarding the hidden surveillance cameras. In addition, the union demanded that the employer cease the use of such cameras without first negotiating with the union. The employer refused to provide the requested information, contending that the disclosure of the location of hidden cameras defeats their purpose. The employer also noted that the union had not challenged the use of cameras over the many years they had been in use.

The NLRB supported the union’s right to the information and to bargaining, and the court upheld this ruling. While recognizing that an employer has legitimate confidentiality interests in information about hidden cameras, such as their location, the court found that these interests can be accommodated by bargaining with the union on procedures that give the union information it needs, with protection for the employer’s confidentiality. With regard to the mandatory bargaining over the use of cameras, the court concluded that the NLRB is not prohibiting their use. The outcome, like that of any collective bargaining, will turn on the negotiations of the parties. The fact that the union had said nothing about hidden cameras for years did not mean that it had waived its right to this bargaining.


While some types of internal investigations are prohibited by law, others are mandated. For example, harassment charges must be investigated. When an employee alleges harassment based on a characteristic protected by antidiscrimination laws, the employer’s defense may depend on its ability to prove to the court that it did not condone such harassment, that it had a policy against it, and that it took action to prevent or correct the harassment. The company must investigate claims to later prove it took action to prevent or correct the problem. When there are allegations of sexual harassment by a supervisor, the employer may be liable for the supervisor’s actions if he or she has taken adverse personnel action against the harassed employee. If, however, the supervisor has not taken such action, but has created a hostile work environment through the harassment, the employer may defend itself from liability by proving that it took reasonable action to prevent or correct the harassment as soon as management was made aware of it.

In Walton v. Johnson & Johnson Services Inc. (U.S. Court of Appeals for the Eleventh Circuit, 2003), the court held that interviewing an employee one week after she complained of harassment, then conducting an investigation and suspending the accused supervisor pending termination review within three days was adequate to show prompt action to prevent or correct harassment. When it is alleged that sexual harassment has been committed by a coworker, as opposed to a supervisor, the employer may still be liable if it knew, or should have known, of the harassment and failed to take prompt remedial action. The employer’s compliance with this responsibility is measured both by the speed of the action and its effectiveness in terminating the harassment. Both these elements were challenged in Meriwether v. Caraustar Packaging Co. (U.S. Court of Appeals for the Eighth Circuit, 2003). In the case, the employee was first grabbed by a coworker and then confronted by the same employee, joking about the incident, on the following day. The employee filed a complaint with management. The employer suspended the accused employee, pending investigation, and increased the suspension after the investigation led to the conclusion that the incidents had occurred. The guilty employee was also warned that another harassment complaint or interaction with the complaining employee would result in his being fired. There were no further incidents of harassment.

Because the employer’s investigation was prompt and its disciplinary actions were immediate and effective in terminating the harassment, the court ruled that the company was not liable to the complaining employee, even though she might have occasional subsequent contact with her harasser. As these cases illustrate, once an employee has complained of unlawful harassment, an employer should not let the allegation go unaddressed. Even in cases where the employee who has filed the charge asserts that he or she will resolve the matter personally, follow-up is necessary to ensure that the employee has indeed resolved the matter. Otherwise, the employer may find itself accused of ignoring the complaint when, after a period of time, the complaining employee secures legal representation or files a charge with a fair-employment agency. For example, the author represented an employer who faced allegations that the employee’s supervisor, who received an initial harassment complaint, should have known that the employee filing the charge was psychologically ill-equipped to resolve the harassment issue with the coworker and should have initiated an investigation regardless of the complaining employee’s expressed wishes to the contrary.

How to Investigate

Investigations of employee conduct must be conducted properly to respect the interests of complainants, witnesses, and the accused, as well as to avoid potential liability. When a company is conducting an investigation based on employee harassment complaints, management must recognize the risk that the complaining person, and those interviewed as witnesses, will later assert claims of retaliation for their involvement.

For example, in Abbott v. Crown Motor Co. (U.S. Court of Appeals for the Sixth Circuit, 2003), an African American employee filed with the Equal Employment Opportunity Commission a charge of racial harassment by two supervisors. The complaint was primarily directed toward the abusive language used by the lower-level supervisor, with the higher-level supervisor condoning the behavior by refusing to act on it. Management was informed of the charge and investigated. The higher ranking of the two accused supervisors was responsible for conducting the investigation. An employee responded to the employer’s request for information. He said that he had witnessed the harassment by the lower-ranking supervisor, and the testimony resulted in that accused supervisor’s termination. Eleven months later, however, the employee witness was terminated for complaining about working conditions, and the court concluded that the termination might be unlawful retaliation, even though the terminated employee had not been the one who filed a charge.

Any parties involved in resolving harassment allegations on behalf of the employer may be subject to legal claims if they can reasonably be accused of acting out of ill will toward the accused. For example, in Hill v. Columbia Tristar Television Inc. (California Court of Appeal, 2003), a person accused of same-sex harassment subsequently claimed that he had been defamed and subjected to emotional distress. His claims were based on the fact that information about him was shared in the course of an investigation of the alleged harassment. The problem arose because even though the employer hired an outside investigator, managers began discussing the allegations in the workplace. They passed around rumors of prior sexual misconduct by the accused employee. The managers and consulting investigators involved had a mutual interest in resolving the sexual harassment allegations and, therefore, were free to discuss the accused harasser’s possible misconduct. But the court ruled in favor of the plaintiff because the court found that the rumors of his prior misconduct had been discussed not in an effort to resolve the alleged harassment, but out of personal hatred or ill will.

Off-Hours Behavior

Prior to commencing an investigation of employee conduct, an employer should determine whether the conduct is a legitimate subject of discipline and inquiry under state and federal laws. For example, several state legislatures have determined that conduct that is otherwise lawful or use of products that are likewise lawful may not be the subject of employer scrutiny and discipline if the action occurred off the premises and when on the employee’s own time. Many of these laws are limited to protecting an employee’s off-premises use of tobacco products. Some states, however, protect any off-premises lawful conduct or product use. Colorado, for example, makes it unlawful to terminate an employee because he engages in a lawful activity during nonworking hours unless the restriction relates to a bona fide occupational qualification, is reasonably related to the employment activity or responsibilities of a particular employee, or is necessary to avoid a real or apparent conflict of interest. New York specifically prohibits discrimination because of political activities, lawful use of consumable products such as alcohol, legal recreational activities, and union membership or rights. Given that state legislatures may add to these protections at any time, current local law should be checked before investigating off-duty conduct.

Fair Credit Reporting

rules Further protection for those under investigation is based on the federal regulation of credit reporting agencies. The relationship of state law defamation, invasion of privacy, infliction of emotional distress, and negligence claims related to preemployment background checks, conducted under the provisions of the Fair Credit Reporting Act (FCRA), was addressed in Socorro v. IMI Data Search, Inc. (U.S. District Court for the Northern District of Illinois, 2003). In this case, an investigation firm hired by the employer inaccurately reported that the plaintiff had been convicted of a crime. This information was contrary to the data the plaintiff had supplied on his application for employment, and the employer fired him for falsifying his application. The employer allegedly did not give the plaintiff the information on which it based the termination, as required by the FCRA, and also told others that the plaintiff had been fired for lying on his application. The court allowed the plaintiff to maintain his state law defamation and invasion of privacy claims against the employer, based on the employer’s alleged disclosures to third persons. The remaining claims, regarding failure to disclose the report and the employee’s right to have it corrected, were to be addressed under the rights provided by the federal statute, meaning that the employee would have to file a separate suit in federal court. Recent amendments to FCRA have addressed some concerns about reporting requirements when companies use third-party investigators. In 1999, the Federal Trade Commission (FTC) issued an opinion letter to the effect that employers had to disclose impending third-party investigations to the subject employee, seek his or her permission to conduct such an inquiry, and fully disclose the report of the investigation before taking adverse action against the employee. Employers maintained that the FTC opinion made it too difficult for employers without their own investigative staff to resolve issues such as sexual harassment complaints, embezzlement, or threats of violence. Last year, these FCRA issues were addressed in the Fair and Accurate Credit Transaction Act of 2003. (However, they won’t take effect until late this year.) Among other things, this new law excludes outside investigations of employee conduct from the requirements of disclosure and employee consent. Instead, employers are required to provide the subject employee with only a summary of the report after taking adverse action against the employee. The summary need not disclose the sources for information in the report. This change in disclosure requirements is to take place not more than 10 months after implementing regulations by the FTC and the Board of Governors of the Federal Reserve System. These regulations were released in late February.

The FCRA amendments should be of great benefit to employers who, based on their business circumstances, seek the assistance of law firms or other investigators in dealing with employee misconduct. Both for their own protection and to comply with imposed investigative requirements, employers will now have the freedom to initiate investigations of misconduct without prior disclosure to, or permission from, the accused employee. Note, however, that while the limitation on disclosure of the contents of investigative reports is beneficial, it should not be viewed as an absolute protection. Employees covered by collective bargaining agreements may have the right to file a grievance for adverse personnel actions, and their union may be entitled to some disclosure of investigation results during grievance and arbitration proceedings. Terminated employees may also bring agency or court actions challenging this action. As a result, they may be entitled to discovery of the information on which the employer relied. Malicious accusations. Employers should note that even though employees alleging harassment and those who cooperate in investigations of such allegations are protected by law from retaliation, they may still be subject to discipline or liability for making malicious accusations or statements. For example, in Renner-Wallace v. Cessna Aircraft Co. (U.S. District Court for the District of Kansas, 2003), the employer’s investigation of sexual harassment allegations by two employees against their supervisor resulted in their termination. Three coworkers independently told the employer that the complaining employees were observed studying manuals on sexual harassment and heard discussing a way they had figured out to get rid of the supervisor. The court ruled that, based on the information known to the employer, the company was justified in terminating the complaining employees and could not be guilty of retaliation for their harassment complaint. Employers are strongly encouraged to conduct investigations of suspected employee misconduct to protect their business and provide the type of work environment that employees and government agencies demand. These investigations, however, must be conducted with due care to ensure that any charges are properly resolved and that no new causes of legal action against the company are created by the investigative process itself.