Labor and Employment Law Alert: New Act Eliminates Prior FCRA Requirements for Employer Investigations

On December 4, 2003, President Bush signed into law the Fair and Accurate Credit Transactions Act of 2003 (the "FACT Act"), which amended the Fair Credit Reporting Act (the "FCRA"). The FACT Act is welcome legislation to those frustrated by the awkwardness that the FCRA previously introduced to otherwise routine investigations of alleged employee misconduct. The effective date of the FACT Act is March 31, 2004. The new law clarifies the application of the FCRA to employers' investigations of employee misconduct. Previously, the Federal Trade Commission (the "FTC") took the position that an employer's investigation of employee misconduct, if performed by an outside organization such as a law firm or human resources consultant, could trigger the FCRA's notification and authorization provisions. Under the FTC's view, this meant that in many circumstances an employer that wished to have an outside organization conduct a workplace investigation was required to (1) provide advance notice to the employee who was the subject of the investigation, (2) obtain the employee's consent, and (3) provide a complete copy of any investigative report to the employee before taking any adverse (i.e., disciplinary) action against him or her.

As a remedy, the FACT Act recognizes the right of employers to use outside organizations to investigate alleged employee misconduct without being burdened by the FCRA's onerous notification and authorization provisions. The FACT Act likewise releases employers from the requirement that the full investigative report be disclosed to the affected employee.

Specifically, the FACT Act excludes certain employer investigations conducted by outside organizations from the FCRA's definition of "consumer report," which was the designation that previously triggered the onerous notification and authorization obligations under the FTC's view. The new law explicitly exempts these investigations from FCRA if they concern "suspected misconduct related to employment" and likewise exempts investigations concerning "compliance with Federal, State, or local laws and regulations" and compliance with "the rules of a self-regulatory organization, or any preexisting written policies of the employer."

Unfortunately, the new law does not completely eradicate all FCRA-related obligations. Under the FACT Act, an employer that uses an outside organization to investigate allegations of employee misconduct, legal compliance, or other issues, and that later plans to take adverse action against an employee as a result of information received from such an investigation, must provide the employee with a summary containing the nature and substance of the report after taking the adverse action. Employers are not required to disclose the sources of the information acquired in preparing the report. Civil monetary penalties can be assessed for noncompliance with the FACT Act.

What does this mean for you? Although prior to the enactment of the FACT Act, employers often reasonably rejected the FTC's presumption that the FCRA applied to a particular investigatory situation, this new law will alleviate some nagging concerns. That is, employers may soon enlist an outside entity to investigate concerns of misconduct without having to notify the employee who is under investigation or obtain the employee's consent in advance. In addition, employers may proceed without having to provide a full copy of the ultimate report prior to taking disciplinary action against the investigated employee based on the report. The only remaining (and arguably still intrusive) employer obligation is that employers must still provide an employee with a summary of the investigation report if the employer takes adverse action against the employee. However, this summary need not be provided until after the adverse action takes place. Because employers typically communicate the reasons for disciplinary action to an employee following an investigation, this obligation should not prove too onerous.

Of course, employers should still use caution and consult with counsel as needed regarding internal investigations, and also generally be aware that investigative reports that are not conducted by legal counsel are almost always discoverable in litigation.

Both the Oregon and California legislatures enacted new laws during the last legislative session, granting protected leave to employees who are the victims of certain types of crimes or whose family members are victims of such crimes. Both laws went into effect on January 1, 2004. Generally, this type of leave is unpaid unless the employee elects to use paid time off. Although the laws have slightly different qualification and notification requirements, there is no limit on the amount of leave available, so long as the leave is covered by the statutes.

In Peterson v. Hewlett-Packard, 2004 WL 26580 (Jan. 6, 2004), the Ninth Circuit Court of Appeals upheld summary judgment for an employer in a religious discrimination case and clarified the parameters surrounding an employee's right of religious accommodation. Hewlett-Packard ("HP") had begun a workplace campaign designed to increase tolerance and embrace workplace diversity on issues such as race, age, ethnicity, and sexual orientation. The campaign involved a series of posters, one of which had the caption "gay" above the photo of an HP employee. Peterson, a self-described devout Christian with a deeply held religious belief that homosexuality is immoral, objected to the poster. Viewing himself as charged by his religious beliefs to "expose evil when confronted by sin," Peterson posted several visible anti-homosexual biblical quotations above his workstation. Notably, he admitted that he posted the writings "with the intent to be hurtful."

HP managers directed Peterson to remove his writings, but he refused unless HP likewise agreed to remove the posters. HP managers held a series of meetings with Peterson in which they attempted to discuss the company's stance, but Peterson refused to alter his position. After HP provided Peterson with paid time off to reconsider, Peterson again refused to remove his posted scriptures. HP terminated his employment for insubordination.

Peterson sued HP, claiming disparate treatment on the basis of religion and failure to accommodate his religious beliefs under Title VII. The lower court rejected both of Peterson's claims as a matter of law, and the Ninth Circuit upheld the district court's decision. As to the disparate treatment claim, the Ninth Circuit summarily rejected Peterson's position that the diversity campaign was "a crusade to convert fundamentalist Christians to its values" and affirmed the legitimacy of HP's intent to increase tolerance of diversity. The court also held that Peterson offered no evidence that HP had terminated him based on his religion, as opposed to his conduct, which was plainly inconsistent with HP's harassment policy. Crucial facts in the court's decision were HP's careful development of its workplace diversity campaign, its uniform application of its harassment policy to all employees, HP's repeated and respectful efforts to work with Peterson, and Peterson's repeated insubordination in refusing to remove his anti-gay postings.

On Peterson's claim that he had been denied religious accommodation, the court found that Peterson's first request--the removal of the "gay" posters--would impose more than the de minimis obligation to accommodate religious practices, by interfering with HP's program promoting diversity and good business practices. The court also held that "an employer need not accommodate an employee's religious beliefs if doing so would result in discrimination against [the employee's] co-workers or deprive them of other statutory rights," presumably referring to Peterson's stated intent to hurt his gay co-workers. The court concluded that Peterson's other request--allowing him to post quotations of his own choosing--would require HP to permit actions that were designed to demean or degrade other members of its work force, which Title VII does not require, and that violated HP's own anti-harassment policy, which violation the court held would place an "undue burden" on the company.

What does this mean for you? The Peterson decision illustrates the boundaries of religious accommodation and, in many respects, affirms the right of an employer to dictate the standards by which employees must treat one another in the workplace. The case also underscores the benefits of having a strong and evenly applied anti-harassment policy. Most importantly, the case demonstrates the evidentiary benefits an employer may get through direct, open, and consistent communication with an employee, even if the employee is taking a position that seems extreme or particularly disruptive. The Ninth Circuit appears to have been particularly swayed by HP's anti-harassment policy and the company's well-documented and thorough articulation of the purpose behind its diversity program: attracting and retaining a diverse work force. These factors clearly played a large role in the company's successful undue-burden defense, and thus there was little evidence or discussion of financial cost in the court's analysis.

New Release Date Set for FLSA Regulations: On January 20, 2004, U.S. Department of Labor ("DOL") Secretary Elaine Chao announced that the DOL expects to release its new Fair Labor Standards Act regulations, which will include changes to the "white collar" exemptions, by March 31, 2004. Be on the lookout for Stoel Rives Labor & Employment Law Alerts when the new rules are issued, as well as seminars to help employers understand and comply with the latest regulatory changes.

No Punitive or Compensatory Damages or Jury Trials in ADA Retaliation Claims: In a case of first impression among the federal circuit courts, the Seventh Circuit Court of Appeals held that neither compensatory nor punitive damages are available to a plaintiff who brings a retaliation claim under the Americans with Disabilities Act ("ADA"). The court, whose jurisdiction includes Illinois, Indiana, and Wisconsin, also held that plaintiffs in ADA retaliation cases do not have a right to a jury trial, because only equitable remedies are available. Further appeal in this case is possible, and we will monitor any further developments on this issue in the other circuits.