My name is Eddy McClain, Chairman of Krout and Schneider, Inc., a 73-year-old private investigative firm in California. I’ve been a licensed private investigator for 44 years. I am appearing today on behalf of the National Council of Investigation and Security Services (NCISS) representing both investigative and protective service companies and their State associations throughout the United States. I previously served as Chairman and President of NCISS and am currently a member of the Board of Directors. We strongly support HR 3408 and commend Representative Sessions and the seventeen co-sponsors for having the courage and common sense to attempt to rectify the unintended consequences of the 1996 amendments to the Fair Credit Reporting Act (FRCA). As time has passed and opinion letters have emanated from the Federal Trade Commission, it has become increasingly apparent that the FCRA is not only a hindrance to employers attempting to abide by the law, but it jeopardizes the safety of employees.

We believe the FCRA was intended to provide consumers a remedy when their credit records contained errors that affected their ability to obtain credit. And, to the extent that credit reports might be used as a yardstick in the hiring process, to allow the applicant an opportunity to correct those errors. We do not believe Congress intended to hamper investigations of lawbreaking in the workplace.

Because employers who do their own investigations are not required to abide by the FCRA, the result is disparate treatment for small businesses. Small and even medium-sized businesses that do not have large security staffs must hire outside experts for employee investigations. Those employers are burdened by the notice and reporting requirements of the FCRA, while big businesses, which can afford their own investigative staff, are not. What justification is there for requiring third party investigations to comply with the FCRA while making no such requirements if the investigation is conducted by the employer?

The FCRA stymies the ability of all employers to engage outside experts to investigate employee misconduct and provide a safe workplace. Even many Fortune 100 firms prefer to hire out employee misconduct investigations to avail themselves of the expertise of specialists and to maintain the integrity and objectivity of an impartial review.

The FCRA thwarts investigations of misconduct by third parties in many ways.

The most egregious require:

1.Notice to employees, including possible suspects, before any investigator or consultant initiates an investigation.

2.Written authorization from the accused or suspect employee before an investigation is undertaken.

3.Providing a complete, unedited copy of an investigative report prior to taking any adverse action against an employee.

The FTC interprets the FCRA as meaning that any investigator, who regularly conducts employment investigations that report on the character or reputation of an employee, is a Consumer Reporting Agency and subject to the FCRA rules. But most of the requirements of the FCRA do not make sense except in the context of credit reports. They should not apply to investigations that have nothing to do with credit and should not be imposed on employers attempting to maintain safe workplaces. We believe that investigators of workplace misconduct should not be designated as Consumer Reporting Agencies and their reports should not be classified as Consumer Reports.

Section 611 is an example of a provision that was designed to correct credit report errors. It requires a re-investigation at any time that a consumer disputes anything in a consumer s file at a Consumer Reporting Agency and requests a re-investigation. That may make sense for a disputed invoice in a credit file, but employee misconduct investigations often involve hundreds of hours of investigation and interviews of witnesses who may become less cooperative when they learn their statements were released to the suspect. This section would require an investigator to go over the same ground and conduct new interviews at no charge within 30 days from the time of the request.

The FTC has said that no portion of a completed Consumer Report may be redacted. Therefore, information that is not relevant to the accused, but is relevant to the safety and privacy of others, would also have to be revealed. While Section 609 of the Act says it is not necessary to divulge sources of information acquired solely to prepare an investigative consumer report, it is in conflict with Section 604 (b)(3)(A) that says the employee must receive a copy of the report. Moreover, even absent the name of a witness, the content and circumstances described in a statement frequently will reveal the identity of a witness.

Harassment and Discrimination

The 1996 amendments to the FCRA have set back progress on sexual harassment and discrimination substantially. The Act provides no explanation or suggestion of what an employer should do if an accused person refuses to give his/her permission to be investigated. In order to provide a prompt, fair and impartial evaluation as mandated by the EEOC and recent Supreme Court decisions, a proper sexual harassment inquiry should include investigation of the accuser as well as the accused to the extent necessary to establish credibility. The chilling effect of having to request reluctant accusers to give permission for themselves to be investigated is obvious. The following case illustrates the necessity for a prompt, thorough, and impartial investigation of the claims of both the accused and the accuser to verify evidence and the credibility of witnesses. The Honolulu Star Bulletin recently reported that Eddie Gonsalves, an auto dealership service manager who was fired after being accused of sexual harassment, won a $2 million award from his employer, Nissan Motor Corporation in Hawaii Ltd. In a statement the employer was quoted as saying, "If this decision is allowed to stand, Hawaii employers receiving complaints of harassment will have to choose whether they want to risk liability for ignoring the complaint or risk liability for doing what the sexual harassment law says they must do." But the FCRA requirement to obtain the written permission of every person who is to be investigated is an obvious roadblock to discovering the truth. Should a prospective witness be terminated for refusing to allow the employer to verify credibility? And if the investigation of the accused produces witness statements which confirm the need for discipline, providing these statements to the accused without the normal protections of a court during the discovery process is tantamount to providing a hit list for retaliation.

Violence

These requirements exacerbate investigations of employee violence even more. When an employee appears to exhibit the symptoms of a deranged individual and is suspected of having the wherewithal to carry out threats to fellow workers or supervisors, the last thing the employer wants to do is ask the employee for permission to investigate her or him. Even in cases where permission was obtained at the time of hire, handing the employee a report containing the details of evidence against him before terminating or suspending his employment is like lighting a fuse. Employers are damned if they do and damned if they don t comply with the FCRA.

Theft

Statistics clearly show that one-third of business failures each year in this country are the result of employee theft. When businesses fail, consumer employees lose their jobs. Of all crimes by employees, perhaps investigation of embezzlement requires the most stealth and expertise. Embezzlers are often in the best position to cover their tracks. Yet, before an employer can hire an outside expert to investigate embezzlement, written permission must be obtained. As the Chairman of a House Committee recently remarked, "That defies common sense."

It is our belief that post-hire investigations of alleged employee misconduct need not fall under the FCRA in order to provide the necessary protections for the consumer employee. There are adequate protections of discovery available to employees who feel they have been wronged and this is accommodated in the final section of HR 3408 titled "Disclosure To Consumer." By keeping these investigations under the FCRA umbrella as suggested by the FTC, the likelihood of unnecessary litigation is increased. The unhappy result is that lawbreakers who are dismissed will recover damages from honest employers who don’t comply with all the provisions of a law Congress itself didn’t know would affect them.

The FTC s opinion letter to Herman Allison on February 23, 1998 is a classic example of these interpretations which seem to go far beyond what we believe Congress intended. In the Allison letter, the FTC cited the United States Court of Appeals for the Fourth Circuit in Hoke v. Retail Credit Corporation, which held that the FCRA must be interpreted broadly and therefore the FTC opined that a homeowner who runs a criminal background check on a contractor he is considering engaging must comply with the FCRA and obtain the independent contractor’s permission to seek the report.

Drug Use

Illicit drugs continue to be a scourge on American society. Ostensibly, we ve been fighting a war on drugs for years yet recent statistics reveal that about seven percent of employees still use drugs in the workplace. This endangers fellow employees and customers, as well as themselves, particularly if they operate forklifts or other hazardous machinery. But the FCRA makes it virtually impossible to ferret out drug dealers from the workplace. The FCRA now requires us to obtain certification from the employer that they have received permission from employees to initiate an investigation. Yet in many instances, we have no idea who the suspects are when we commence an investigation. Since most employers have not obtained the requisite permission in advance, should we wait until we know which ones are dealing drugs to ask for permission to investigate them? The need for confidentiality should be obvious in any investigation of misconduct. In fact, Congress determined this to be the case in other statutes of recent vintage. I understand that the Bank Secrecy Act makes it a violation of law to tell a customer if a bank will file a suspicious transaction report. The Act provides at 31USC 5318(g)(2) "A financial institution, and a director, officer, employee or agent of any financial institution, who voluntarily reports a suspicious transaction pursuant to this section or any other authority, may not notify any person involved in the transaction that the transaction has been reported."

If we conduct any interviews-and even reported conversations with witnesses are considered to be interviews-then our report is considered to be an Investigative Consumer Report and the employer must advise the accused of the nature and scope of the investigation. And, before taking adverse action against an employee, a complete unedited copy of the report must be provided to the employee no matter how felonious their behavior. Holding employee violators to answer for their misdeeds by imposing discipline is often traumatic and unpleasant for employers. But their other employees have a right and expectation of a safe work environment. Many employees are naturally reluctant to come forward and cooperate with an investigation. And, when they learn that the requirements of the FCRA mandate disclosure of their cooperation, the chances of getting to the truth are greatly minimized. Many times in my experience, at the conclusion of such an investigation, honest employees have come forward to say, "Thank goodness you did something about this."

Although the FTC seems to have been painfully aware of the difficulties in administering the changes to the FRCA for some time, to our knowledge they had not admitted to Congress that the law needs revision until Chairman Pitofsky’s letter to Representative Sessions on March 30, 2000. In the time since the 1996 amendments were enacted, the FTC has responded to many inquiries, and those interpretations have had the effect of broadening interpretation of the law. In some of these letters, the FTC has proposed suggestions for compliance to employers that are impractical and unworkable . That they have finally admitted the law needs fixing is a step forward to be sure, but their suggested remedy perpetuates the myth that employee misconduct investigations should be governed by a law that was enacted to protect consumers from errors in their credit reports. For this reason, we believe that HR 3408 is the proper remedy.

The FTC s suggestions to employers do not seem to reflect an understanding of the average honest worker’s attitude about agreeing to be investigated. In a letter to Susan Meisinger dated August 31, 1999, Associate Director David Medine acknowledged the " . . . practical problems that exist in applying the FCRA to investigations by third parties of workplace misconduct . . ." and suggested that employers obtain the employee’s consent " . . . at the start of employment, thereby relieving the employer of 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 . . . ." That was good advice since applicants usually readily agree to such requirements when presented with them up front. But the letter then went on to say, "Another way for an employer to comply with these FCRA requirements without alerting a suspected wrongdoer is to ask all current employees to sign a consent form and provide them any required notice at the same time." Putting aside the obvious difficulty of renegotiating a collective bargaining agreement, it is almost certain that a percentage of otherwise honest employees would refuse to sign such an authorization on general principles. I know I would. And you cannot expect wrongdoers to jump on that bandwagon either. What does the employer do then? Fire good employees because they don’t want to agree to an investigation that does not even pertain to them?

In the same Meisinger letter, regarding having to give a wrongdoer an unredacted copy of the investigation report, Mr. Medine referred to a prior opinion letter, Hahn,7/8/98, and offered, " To assist an employer who will be required by Section 604(b)(3)(A)(I) to provide a copy of a report to an employee prior to an adverse action, an investigative agency may draft its report to the employer to minimize risks attendant to such disclosure, most importantly by not naming parties that provide negative information regarding the employee." We assume the FTC is not suggesting the investigator circumvent the law by having two reports: a sanitized version for the employee and a detailed one for the employer to act on. But this remedy does not hold water because no employer is going to do something as serious as terminate or discipline an employee based on a report that is vague and does not contain the necessary proof of the violation. To be responsible, the employer must be able to judge all of the evidence including the credibility of the accusing witnesses.

The Urgent Need For Action

The Amendments to the FCRA took effect on September 30, 1997. To this day, a large segment of the employer, investigative and legal communities are unaware of the ramifications of these changes. As a result, we believe the law is being unwittingly violated every day. When the Vail letter was issued on April 14, 1999, Lawyer’s Weekly reported that the plaintiff bar was licking its lips in anticipation of entrapping unwary employers in this Catch 22.

The anecdotal evidence has been slow to come forth. But one by one, the cases are surfacing which prove that wrongdoers are using the FCRA not only as a shield against punishment but also as a means of obtaining money judgments against unsuspecting employers who have only tried to maintain a safe workplace.

In 1998, the City of Cleveland, Ohio was criticized in television news reports for not having checked the criminal backgrounds of some 9,200 City employees at the time of hire. So, the Personnel Director hired an outside agency to check driving records and criminal backgrounds of current employees. The city was promptly sued for not obtaining the written permission of the employees to verify the statements made on their earlier applications for employment. The FTC confirmed that the reports were Consumer Reports per the 1996 FCRA amendments and the City had apparently violated the law. The FTC also will probably seek sanctions against the outside agency for failing to obtain the requisite certification from the city/employer.

In 1999, the management of the Golden State Warriors NBA basketball team became concerned about information that their equipment manager was using drugs. Drug use by an employee who has a close relationship with players was understandably alarming. So the team hired a private investigator who followed the equipment manager and filmed him snorting cocaine. He was confronted by team managers and terminated. In a wrongful termination lawsuit, his lawyer doesn’t dispute the use of cocaine but alleges that the Warriors violated the Fair Credit Reporting Act and says he will seek a seven-figure verdict for invasion of privacy, defamation and negligent infliction of severe emotional distress. It is expected that the evidence of cocaine use will be deemed inadmissible because the employee did not give his written permission in advance of the investigation as required by the FCRA.

Does Congress really want us to have the signed permission of a suspect before we can investigate criminal behavior?

In a recent draft of proposed changes, the FTC seems to be suggesting that investigations of illegal misconduct could be partially exempted from some FCRA requirements, but asks that most of the provisions of the FCRA be maintained. The FTC suggested amendment language requires the employer to, among other things, certify in advance that confidentiality of the investigation is necessary to preserve evidence. Further, the employer must certify that there is reason to believe that notifying the suspected employee, obtaining the employees written permission and providing a copy of the complete investigation report will result in the intimidation of a witness or jeopardize the investigation. We submit that this information cannot always be known in advance, but that basic confidentiality precautions are always necessary in these types of investigations. And we believe that enactment of such a statute will open the well-meaning employer up to challenge and be a fertile field for litigation.

Although we disagree with the FTC solution, we feel that it is a positive step towards correcting a serious unintended error and we are willing to work with all interested parties to achieve a mutually satisfactory solution.

But time is of the essence. If Congress does not act quickly to amend the FCRA, invasions of privacy and violations of safety and injustice will continue. Witnesses will be coerced and possibly killed or injured and violations of law will go unchallenged because employers without an employee’s authorization are not permitted to hire a discreet, confidential investigation by an impartial expert or use that investigative report properly. Congress must not let stand regulations that further jeopardize the safety and well being of honest employees.