Why and Where to Conduct Internal Investigations

by Kristi H. Johnson

Human resources investigations have become more important for reasons of personnel management, productivity, and litigation risk avoidance.  The range of matters that are the subject of investigations has become broader.  The benefits of conducting a proper investigation and the potential liability for mistakes during investigations are great.  Investigations help resolve workplace conflict and can be decisive in determining who to discipline or terminate.

Some investigations are required by law. Other investigations can lay the groundwork for a successful defense or can result in liability in employment litigation.  Flawed investigations can make an employer appear callous or retaliatory.  Proper investigations, though, can help portray the company in a favorable light to a jury.  Unfortunately, jury decisions are influenced more by how jurors feel about the employer than the technicalities of whether the employer has violated a law.

Importance of Internal Investigations

Internal investigations have taken on greater importance in recent years with new laws such as the Ledbetter Act and Sarbanes-Oxley.  Courts and administrative agencies are placing a higher premium on employers implementing prompt and effective investigative mechanisms.  Internal investigations may limit punitive damages, serve as an affirmative defense, or cut off liquidated damages in a subsequent lawsuit.

Congress expanded recovery in cases of intentional discrimination in employment to include punitive damages with the passage of the Civil Rights Act of 1991.  Punitive damages may be assessed when an employer/defendant engages in discriminatory practices with “malice or with reckless indifference to the federally protected rights of an aggrieved individual.”

An employer, however, can avoid punitive damages by showing good faith efforts to comply with Title VII.  The U.S. Supreme Court has structured a standard for determining when punitive damages are appropriate, holding that an employer may not be vicariously liable for the discriminatory employment decisions of managerial agents where those decisions are contrary to the employer’s “good-faith efforts” to comply with Title VII. When assessing an employer’s “good-faith efforts,” many lower courts have looked to, among other things, the adequacy of the investigation conducted by the employer in response to workplace complaints of discrimination and harassment.

The Supreme Court also has established an affirmative defense available to an employer accused of sexual harassment. The affirmative defense requires an employer to prove by a preponderance of the evidence the following two elements:  (1) the employer exercised reasonable care to prevent and promptly correct any harassing behavior, and (2) the plaintiff unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.  When analyzing this affirmative defense, courts have often focused on the adequacy of the employer’s workplace investigation.

A type of punitive damage called liquidated damages or double damages are awarded for “willful” violations of the Age Discrimination in Employment Act (“ADEA”), as well as the Fair Labor Standards Act (“FLSA”).  The Supreme Court has held that a willful violation is one in which the employer knew, or showed reckless disregard as to whether, its conduct was prohibited by the pertinent statute.  Accordingly, an employer can minimize the risk of liquidated damages by showing it undertook a prompt and careful investigation of an employee’s complaints.

Common Topics of Investigation

Sexual harassment is probably the area of the law in which conducting investigations is most widely used and most firmly established.  The employer’s ability to avoid liability for an offensive work environment requires that the employer maintain an effective policy against harassment and that the employee failed or unreasonably delayed in utilizing the employer’s effective anti-harassment policy.  A key element of an effective anti-harassment policy, of course, is that an employer promptly and properly investigates allegations of harassment.

Although sexual harassment investigations are the most common, employers’ anti-discrimination and anti-harassment policies should apply to all forms of discrimination, including race, national origin, religion, gender, color, and disability.  Allegations of discrimination or harassment based upon any of those protected classifications are equally unlawful and should trigger prompt investigations.

Retaliation claims can be more dangerous than underlying discrimination claims.  Individuals who have complained of discrimination, harassment, or health and safety concerns frequently assert a claim of illegal retaliation if they are subsequently subject to discipline.  Plaintiffs have a much better track record of success in litigation asserting retaliation claims than they do in litigation of discrimination claims. It is important to have a protocol that assures there will be no retaliation for initiating an investigation.

Other Topics of Investigation

Other subjects for employers’ investigations of employees include:

  • Employee theft, embezzlement or fraud;
  • Compliance with health and safety protocols;
  • Employee blogging or otherwise disparaging the company in external communications;
  • Theft or misuse of company trade secrets or confidential business information;
  • Conspiracy to engage in unfair competition; and
  • Abuse of leave.

Complaints Made to Managers or Supervisors

Written complaints forwarded to management pursuant to an employer’s policies are obvious topics for investigation.  There is no such thing as an informal complaint. Expressions of dissatisfaction, concerns or reports of inappropriate behavior communicated to supervisory level employees must not be ignored simply because formal protocol was not followed.

Sometimes employers receive anonymous complaints about matters that are proper subjects for workplace investigations.  Anonymous complaints can have less credibility.  The accuser is not willing to stand behind the allegations, is not available to provide additional details, nor available to assess his or her credibility and potentially ulterior motives.  Nevertheless, employers should not ignore anonymous complaints.  Employers should initiate an investigation regarding the subject of an anonymous complaint as best as it can, based upon the information available to it.

Employers will sometimes learn of accusations of wrongdoing made by or directed against departed employees.  Employers should investigate those allegations and not treat the subject as irrelevant or moot because the accuser or accused is no longer employed.

Matters with Implications of Criminal Conduct by Employees

Sometimes the allegations may involve conduct that could be criminal law violations by the employees.  Employers may refer those matters to law enforcement for investigation and potential prosecution. Employers, however, should not rely upon law enforcement to conduct the investigation.  Employers have their own independent responsibility to determine if an employee committed improper conduct, regardless of whether the police or prosecutor go forward with an investigation or prosecution.  There have been cases in which employers are found to have negligently retained an employee and have been liable to third parties injured by the employee when the employer referred the matter to law enforcement but failed to conduct its own investigation and corrective action.

Maintaining a Culture that Encourages Complaints and Reporting

A prerequisite to the employer’s ability to conduct a timely investigation is the prompt receipt of information about matters to be investigated.  The ability to remedy inappropriate comments or conduct, harassment, theft, disregard of safety rules, conflict of interest, misuse of trade secrets, and other violations is undermined if those matters are never reported to higher management or Human Resources.  In order to encourage the reporting, employers should create a corporate culture that inspires, indeed, thanks and rewards employees who come forward with complaints.

To promote such a corporate culture, employers should:

  • Conduct periodic training sessions for managers and employees regarding their obligation to report, not overlook or condone or tolerate, improper conduct.
  • Give explicit assurances of non-retaliation.
  • Educate managers and supervisors that their instinctive reaction to a complaint, even if about them, must be “thank you for telling me.”
  • Conduct periodic, documented follow-up checks with those employees who brought complaints to ensure that there has not been retaliation.
  • Maintain open door policies.
  • Provide a hotline or offer anonymous reporting procedures.

Comprehensive Written Policies That Include Standards of Conduct

An employee handbook provides a foundation for successful investigations and successful corrective employment actions following investigations.  The handbook should have a comprehensive and thoughtful set of employment policies that state the employer’s expectations and standards of conduct.  It should encourage employees to communicate their concerns and warn of the disciplinary consequences of violations.

An anti-harassment policy is a cornerstone of such a handbook.  In addition to anti-discrimination and anti-harassment policies, the employer’s handbook should include standards of conduct that deal with a wide range of employee misconduct, including dishonesty, theft, fraud, time reporting violations, abuse of leave, conflicts of interest, misuse of company property, violations of electronic communications policy, and other topics.

The success of employers’ protocol begins long before the investigations are launched.  The prologue for successful investigations includes a variety of workplace policies that set the stage for timely and effective investigations.

Now that we have addressed why and when to conduct an investigation, look for next month’s article on the nuts and bolts of how to conduct an investigation.