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H.R. 3408THE FAIR CREDIT REPORTING AMENDMENTS ACT OF 1999
THURSDAY, MAY 4, 2000
U.S. House of Representatives,
Subcommittee on Financial Institutions and Consumer Credit,
Committee on Banking and Financial Services,
The subcommittee met, pursuant to call, at 10:00 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.
Present: Chairwoman Roukema; Representatives Royce, Kelly, Riley, C. Maloney of New York, Watt, Bentsen, Sherman, Sandlin, Inslee, Gonzalez, and Schakowsky.
Chairwoman ROUKEMA. I am going to call this hearing to order, please. There are others that have informed our Banking Committee staff that they are on their way or have every intention of arriving, but given the time limitations that we have, we don't want to begin running into a lot of voting interruptions, so I think what is appropriate now is for us to begin our hearing. I believe everyone here knows, but I will repeat it for the record, that our witnesses are supposed to operate under the five-minute rule. We will try to be flexible about it within limits, but you should know that in order to allow enough time for questioning, we have to be somewhat precise about the time for oral presentations.
Page 2 PREV PAGE TOP OF DOC Witnesses should also know that the hearing record will be open for a two-week period so that you can add additional remarks and materials. At the same time, subcommittee Members will be permitted to submit questions in writing for the witnesses to respond to. The questions and answers will be part of the official record.
Let me introduce this hearing today. It is a very important one on the investigation of alleged employee misconduct, including sexual harassment, employment discrimination, theft, and other serious crimes. The question before us is what statute and standards should apply with these types of investigations. The answer to this question may seem obvious to all of us here, but the issue has arisen in recent years due to the Fair Credit Reporting Act.
As you will hear, the staff of the Federal Trade Commission in 1999 issued an opinion called the so-called Vail Opinion, which concluded that outside consultants who perform investigations of alleged employee misconduct are ''credit reporting agencies'' under the FCRA. This means that outside consultants would be subject to the FCRA's substantive and procedural requirements.
The FTC Vail Opinion and its implications have created a significant concern from a wide variety of interest groups across the spectrum. We have heard from Government agencies, civil rights groups, employers, the American Bar Association, consumer advocates, and others. So it is the left, the right, and all of us in the middle here. And a consensus may be forming that a legislative change is necessary and appropriate. I shouldn't say may be. I should say it is evident that a legislative change is necessary. I believe the FTC will be testifying today that even they would support some legislative changes, and that seems to be a promising development.
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In this legislative context, we have here fortunately today a noted leader on this question. He has exhibited his leadership in the form of H.R. 3408, Congressman Pete Sessions. He is also a Member of this Committee. We are very happy to have you here testifying today on behalf of your legislation which provides an exemption from the FCRA for certain types of investigative reports.
It is specifically designed to address the problems raised by the Vail Opinion. I certainly look forward to working with Congressman Sessions and other interested parties; but we certainly are anticipating with great respect, Pete, your testimony here today.
By way of background, let me go into a little bit of background here. The FCRA was enacted in 1970 to address the collection and use of information concerning consumers that relates to an individual's creditworthiness, credit standing, and credit capacity, or the general reputation of the individual. The Act sets up a statutory scheme for financial institutions, lenders, and others to report credit and payment history information to, again, those credit reporting agencies. The information which credit reporting agencies compilecredit reportsare used by financial institutions and other lenders for making credit decisions for millions of Americans and on a daily basis. The FCRA has significant consumer protections including a right to dispute charges, review and correct entries, notification requirements, as well as civil liability provisions and other enforcement mechanisms.
While the FCRA is primarily focused on information relating to creditworthiness and credit history, it also has a significant application to the employment process. For example, credit reports may be used in connection with establishing a consumer's eligibility for employment. In 1996, FCRA was amended. Now, that is in the very recent past, 1996. It was amended to require among other items consumer consent before a prospective employer may obtain a consumer report as well as require an employer to provide a copy of such report to the consumer and a description of their rights before taking adverse action.
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In 1999, the FTC staff issued an opinion letter, the so-called Vail Opinion, which is rather specific. The Vail Opinion concluded that outside parties who regularly perform, for a fee, investigations into employee misconduct are consumer reporting agencies. That was the identification in that opinion. This result, that outside consultants are consumer reporting agencies, would require compliance with consumer notification prior consent and full disclosure of the consumer report requirements in connection with investigating any employee misconduct.
I won't go into an extended discussion of the problems which the Vail Opinion has created, because I believe that Congressman Sessions will explain to us what directed his attention to this issue. He will be telling us about his opinions on this and what he sees as appropriate corrective action. We will also be hearing from many othersthose on the other panels. I will say in ending my opening remarks that today's hearing is on whether the Fair Credit Reporting Act should apply to outside consultants who perform these investigations into alleged employee misconduct. We will be looking at what statutes and standards should apply to investigations. I think this hearing is going to lay out a very positive case for reform and legislative action. I am not sure whether we can come to the conclusion today on what specific legislative action is necessary; but certainly, we are keeping an open mind. There is an appropriate balance which should be struck that I believe people of good will and good intentions can reach.
I would like to yield to someone on the Democratic side. Our Ranking Democratic Member, Mr. Vento, found it absolutely necessary to be in Minnesota today; but, if Mr. Gonzalez would like to make an opening statement on behalf of the Minority, I would be happy to yield to you. You are not Ranking Member, but I will identify you as such today.
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Mr. GONZALEZ. Thank you very much, Madam Chairwoman. It is strange to be seated up here with no one else, but I would not say that I speak for all the Democrats, of course. I look forward to my colleague's testimony, my fellow Texan, Congressman Sessions. This issue has generated quite a bit of constituent interest regarding some proposed legislation and the implications of its application to investigative agencies, individuals, personnel and their reports. We are here to discuss how that could have a very chilling effect on what would be a very legitimate endeavor, looking into misdeeds in the workplace and so on. So again, I look forward to his testimony.
Madam Chairwoman, like I said, I don't speak for all the other Democrats, but I am here because it has generated quite a bit of interest. I thank you very much.
Chairwoman ROUKEMA. Thank you.
Mrs. KELLY. Thank you, Madam Chairwoman. I want to begin by thanking you for agreeing to hold the hearing on this legislation today. Congressman Sessions has introduced H.R. 3408 to correct what, in my view, is a very poor interpretation of the 1996 Fair Credit Reporting Act. I have joined Congressman Sessions as a co-sponsor of his bill, and I thank him for his leadership on this issue. As we are all aware, in April 1999, the Federal Trade Commission issued an opinion letter which concluded that outside persons who regularly perform for a fee investigations into employee misconduct are consumer reporting agencies under the Fair Credit Reporting Act. This opinion has significantly hampered employers from effectively investigating alleged misconduct that has been reported to them. Because this opinion letter only affects outside investigators, we lose the independence and objectivity that only a third party can bring to an investigation.
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If the subject of an investigation is notified of the investigation, as this opinion letter would mandate, the investigation would be compromised. The accused might be able to exert pressure to subordinates to change their accounts of events, and witnesses would be less likely to tell the full story if their name and account were immediately turned over to the accused. In short, this opinion letter has created a situation which hampers employers from finding the truth when allegations are made of crimes in the workplace. We must act to repair this situation by quick consideration, and I would hope passage, of Congressman Sessions' legislation.
I would like to thank our distinguished panels of witnesses who have taken the time to join us here today to share their considerable knowledge on the subject. I look forward to working with Congressman Sessions and with all of my colleagues to address this problem, and again, I thank you very much for holding this hearing. I yield back the balance of my time.
Chairwoman ROUKEMA. Thank you, Mrs. Kelly.
Are there other opening statements?
Mr. ROYCE. I will submit mine for the record, Madam Chairwoman.
Chairwoman ROUKEMA. Thank you. If there are no other opening statements, I would like to ask unanimous consent to include in the record a statement by Congressman Bruce Vento, the Ranking Member on the subcommittee. Hearing no objections, so moved.
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Congressman Sessions, we are very happy to have you here today. Without further ado, there has been complete acknowledgment of your leadership here, but I would also like to observe that you have a good number of co-sponsors on your legislation. Several are Members of the subcommittee and it is a bipartisan list of both Republicans and Democrats. There seems to be widespread understanding of the problem and the direction in which you are taking us. Without further ado, we will hear from Congressman Sessions.
STATEMENT OF HON. PETE SESSIONS, A MEMBER OF CONGRESS FROM THE STATE OF TEXAS
Mr. SESSIONS. Chairwoman, thank you so very much. It is a great honor and pleasure for me to be back with my colleagues. I served in this Chamber with Mr. Gonzalez' father in the 105th Congress, Chairman Henry B. Gonzalez, from San Antonio; and it is a great honor for me to be back with you today. I would like to thank Chairwoman Roukema, not only for your introducing, but for your holding of these important hearings on an issue that I believe is not only important to me, but is also important to all working Americans. By holding this hearing today, Congress has taken a first step toward making the workplace safer.
Madam Chairwoman, provisions of the Fair Credit Reporting Act as amended in 1996 undermine investigations of sexual harassment, embezzlement, violence, drug sales, and other illegal activities in the workplace. As a result of the 1996 Fair Credit Reporting Act amendments, employers who retain investigators, attorneys, and others to conduct inquiries into unlawful activities subject themselves to provision of the Act and must first of all, number one, provide notice before initiating an investigation; number two, obtain written authorization from the suspect and other employees; number three, request disclosure of the full nature and scope of the investigation; and, four, prior to taking any adverse action against an employee, provide the employee a complete and unedited copy of the investigative report.
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When a constituent brought this matter to my attention, I was flabbergasted to learn that Federal law would require an employer who suspects an employee is dealing in drugs in their business would be required to ask that that employee's permission be made in order to begin an investigation. Furthermore, I was shocked to know that Federal law requires an employer to provide a potentially violent employee a report identifying co-workers who make or corroborate complaints, making those employees targets for violence themself.
Additionally, current law chills witness testimony in investigative reports. What witness would be willing to come forth when they find out that the accused will know exactly who they spoke to and what they said? Even if the employer is able to persuade a suspect employee to consent to an investigation, the investigation would likely be thwarted by the accuser who would then cover their own tracks.
The onerous requirements arose as unintended consequences of the FCRA amendments passed in 1996. In that legislation, Congress did intend to strengthen privacy protections for consumer credit reports, but I do not believe that Congress did intend for burdensome restrictions to be placed on employers who seek to provide safe, crime-free workplaces for their employees.
It becomes more apparent that Congress did not intend for investigations to be subject to FCRA requirements when you consider that as a result of the 1996 legislation employers are forced to choose between FCRA obligations and compliance with conflicting Federal law. For example, the Occupational Safety and Health Act requires safe workplaces and civil rights laws require swift investigations into sexual harassment and discrimination complaints. Yet the FCRA makes this difficult if not impossible. It is important to note that FCRA requirements for investigations not only apply when the third parties conduct them; not all employers choose to use outside counsel to investigate allegations of illegal activities in the workplace.
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But this important optionan option should be available for a number of reasons. More often than not it is the outside investigators who have the experience, the expertise, and the best resources to conduct these kinds of investigations. Furthermore, it is advantageous for employers to use outside investigators when the complaint involves an employee who works in the department that usually investigates complaints or when the complaint involves a high-level employee.
All too often sexual harassment and workplace violence are common in America. At a Xerox warehouse in Hawaii, a repairman killed his supervisor and six coworkers last year. Last year, we saw too many circumstances where an employee was angry or upset about either being fired or having problems in the workplace. They got a gun. They walked back into the workplace, and then they started shooting. This year workplace violence also hit close to home for me. In March, a former employee of a car wash in Dallas killed five of his fellow co-workers. The National Institute for Occupational Safety and Health reported that in 1997 employees killed more than 100 supervisors and co-workers.
Violence is the leading cause of death of women in the workplace. According to a study by the Society for Human Resource Management, workplace violence increased from 1996 to 1999. Yet in a time when we are all concerned about the rise in workplace violence, the FCRA is tying the hands of employers who are attempting to protect their employees and to make the workplace safer. Many times employers recognize signs of illegal activity in the workplace or signs of potential violence; yet under current law, the FCRA impairs employers from taking appropriate action.
Page 10 PREV PAGE TOP OF DOC This is the problem and I believe it is unwise. The legislation before this subcommittee today, the Fair Credit Reporting amendments of 1999 removes requirements of the Fair Credit Reporting Act solely for the purpose of investigating illegal or unsafe activities in the workplace. And I would like to repeat that. It removes the requirements of the Federal Credit Reporting Act solely for the purpose of investigating illegal or unsafe activities in the workplace. These limited activities include drug use or sale of drugs, violence, sexual harassment, employee discrimination, job safety or health violations and criminal activities including theft, embezzlement, sabotage, arson, patient or elderly abuse, and child abuse.
It is critical that Congress pass this legislation in order to make workplaces safer, to stop illegal activities such as drug dealing and identify dangerous employees and would give them the treatment before violence occurs. This legislation offers Congress the opportunity to replace illegal and dangerous activities in the workplace with investigation and remediation.
Finally, I would like to make a special appeal to each one of my colleagues on the subcommittee to join me in addressing this important issue and to share their concerns with me concerning the current draft H.R. 3408. I am open to suggestions to improve the bill so that we may come up with a product that can pass on the House floor with strong support. I would like to work on this problem. I would like to fix the problem. I appreciate your attention to the matter today and would like to thank the Chairwoman for her indulgence in this matter.
Chairwoman ROUKEMA. I thank you, Congressman. Clearly you have set a very good stage putting us on sound ground for a substantive and in-depth understanding of the problems that are out there that will undoubtedly direct us to reforms. I am particularly impressed with the data you have presented on the violence in the workplace. That should be of great concern to all of us. We thank you very much. I appreciate your testimony.
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Mr. SESSIONS. Thank you. I thank the subcommittee also.
Chairwoman ROUKEMA. We will look forward to working with you as we move in the days ahead to come to a strong piece of corrective legislation. Thank you.
Mr. SESSIONS. Thank you.
Chairwoman ROUKEMA. Will the first panel come forward, please. While you are coming forward, I might say I neglected to point out initially that the Department of Justice has submitted testimony on behalf of the Administration. They are not here to testify today, but their full testimony will be included in the record. They have expressed serious concerns regarding the FTC's Vail Opinion and its impact on law enforcement. That testimony will be made available to all Members of the subcommittee.
I should also note that the AFL-CIO also has submitted views. Members will find that the AFL-CIO written testimony an exhibit to the National Consumer Law Centers' testimony. We will hear that testimony on the third panel.
Welcome panel number two. We are pleased to have you here today. Our first witness is Ms. Ida Castro. She is the Chairwoman of the U.S. Equal Employment Opportunity Commission. She was confirmed to this post by the Senate in 1998. Prior to that position, she had the great distinction of being connected with Rutgers University in the State of New Jersey. She has also served at the Department of Labor as a lawyer. It is most important for me as a Congresswoman from New Jersey to recognize her New Jersey roots. Indeed, she was the first Hispanic appointed to the New Jersey Commission on the Status of Women. Ida, we welcome you here today.
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Also on panel two is Ms. Debra Valentine. Ms. Valentine serves as the Federal Trade Commission's General Counsel. She has been in that position for almost three years and previously served as Deputy Director for Policy Planning. As General Counsel, Ms. Valentine oversees the commission's enforcement and administrative responsibility under 46 laws, including this one that we are going to be discussing today.
With that, I recognize Ida Castro.
STATEMENT OF HON. IDA L. CASTRO, CHAIRWOMAN, U.S. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
Ms. CASTRO. Thank you very much, Madam Chairwoman, for those kind words of introduction and certainly for recognizing our common roots in the great State of New Jersey. It is indeed a pleasure, Madam Chairwoman and Members of the subcommittee. Good morning. I am Ida Castro. I am the Chairwoman of the Equal Employment Opportunity Commission; and although it is quite unusual for the EEOC to appear before the Subcommittee on Financial Institutions and Consumer Credit, I must extend my gratitude and appreciate the fact that we were invited to speak on this very important issue before you today.
As stated before, the policy concerns raised by the Federal Trade Commission's conclusion that the Fair Credit Reporting Act applies to investigations by third parties of workplace harassment and other discriminatory conduct is of great concern to the EEOC. This is an important issue, and the EEOC certainly welcomes the opportunity to participate in what will be a constructive dialogue with you today.
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Let me state at the outset that the FCRA provides important consumer protections in an area which is properly the subject of Federal legislation and enforcement. However, without substituting our judgment for that of the enforcing agency, we believe that the FTC's conclusion that the FCRA's numerous and highly specific requirements controlling third-party discrimination investigations has serious unintended consequences for the enforcement of the civil rights laws.
By significantly burdening the ability of employers to use outside entities to conduct timely and effective investigations of discriminatory conduct in appropriate cases, the FCRA will make it more difficult for them to comply with the civil rights laws. Of most concern is the real risk that this will contribute to an increased incidence of workplace discrimination as employers are constrained in their compliance efforts. In turn, EEOC and the judicial system will be burdened with additional discrimination charges and court filings. I think we can all agree that these results are not in anyone's interest.
We are pleased that the FTC has acknowledged that there are unintended consequences to their interpretation and has supported certain amendments to the FCRA. While their proposal does not address all of our concerns, we certainly look forward to working on this important matter with all interested parties. We commend again the subcommittee for holding this hearing to explore whether legislation is an appropriate response to the issues that have and will be raised. The questions presented by the appropriate regulation of third-party employment discrimination investigations have a significant bearing on the effective enforcement of civil rights laws. These laws are expressly designed to encourage employers to prevent and promptly correct employment discrimination.
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As a result, they put a premium on prompt and effective employer investigation and disposition of discrimination complaints. As the Supreme Court made very clear in Faragher v. City of Boca Raton and Burlington Industries v. Ellerth, employers are required to establish effective policies and complaint procedures to prevent, investigate, and promptly correct workplace harassment. The Supreme Court cogently explained that these requirements affect Congress's intention to promote conciliation rather than litigation and the EEOC's policy of encouraging the development of grievance procedures.
Similarly, in Kolstad v. American Dental Association, the Supreme Court ruled that an employer has a defense against an award of punitive damages based on the discriminatory actions by its managers when the employer has taken good faith efforts to comply with the Federal EEO statutes. Good faith efforts include prompt and fair investigations of complaints of harassment and other forms of workplace discrimination.
Outside investigations are, in fact, an important tool for employers that seek to comply with civil rights laws. Small businesses, for example, often do not have the in-house capacity to conduct thorough and credible investigations and therefore frequently rely on outside entities for these services. The EEOC is particularly committed to working with small businesses in order to assist them with their obligations under the laws that we enforce.
We have launched just this past year a major new initiative to reach out to small businesses, created a webpage that addresses their specific concerns, and we have also produced written publications which focus on their particular needs. Thus I am particularly concerned about the burden that the FCRA imposes on these entities in their efforts to investigate and correct workplace discrimination.
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Small businesses, however, are not the only employers that use outside counsel and consultants to conduct discrimination and harassment investigations. Large companies often turn to outside firms to enhance the objectivity and credibility of their investigations. Federal agencies, both for resource reasons as well as to assure impartial investigations also frequently contract with outside entities to conduct EEO investigations. In any workplace, an outside investigation may be at times the only appropriate option where, for example, the person accused of wrongdoing is a high-ranking official or perhaps there are other conflicts of interest.
In addition, EEOC along with other civil rights enforcement agencies recognizes the value of outside monitoring and investigation in effectively resolving workplace discrimination cases. Quite simply, an employer that has tolerated discrimination in the past often needs external controls and support to assure that it does not tolerate discrimination in the future.
Accordingly, in settling cases we at the EEOC often and frequently seek commitments from employers to use outside entities to monitor and investigate claims of harassment and other forms of discrimination. Application of the FCRA requirements to civil rights enforcement is already making it less likely for employers to use outside investigations even in the many instances when it would be prudent and fully consistent with the civil rights laws to do so. EEOC has, in fact, received numerous inquiries regarding the FTC's opinion letters including inquiries from Federal agencies who are reconsidering their use of outside investigators.
Anecdotal evidence also suggests that a chilling effect has begun to be felt in a variety of areas, particularly in connection with governmental civil rights enforcement efforts. In examining the appropriateness of the applicability of FCRA requirements to civil rights investigations, it is important to keep in mind that the civil rights laws already incorporate the goal of assuring fair, objective, and careful investigations. These laws and related doctrines provide meaningful protections to persons accused of civil rights violations. They recognize that civil rights enforcement cannot and must not be accomplished by denying fair and impartial treatment to persons accused of harassment or other discriminatory behavior. Indeed, in Faragher and Ellerth, the Supreme Court created a strong incentive for employers to conduct fair and thorough inquiries. It did so by providing an extremely valuable affirmative defense in harassment claims only to employers who have exercised reasonable care to prevent and correct harassment. Is my time up?
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Chairwoman ROUKEMA. Well, it is over, but if you could summarize.
Ms. CASTRO. Could I read my conclusions, if I may?
Chairwoman ROUKEMA. Yes.
Ms. CASTRO. Let me turn now to the specific problems raised by the application of FCRA requirements to civil rights investigations. To begin with, the requirements that employers must provide notice to and obtain the written consent of the target of investigation give the employee accused of harassment or other discriminatory activities the ability to control whether the investigation will, in fact, occur. At the very least, by strategically withholding consent, the employee can delay an investigation or otherwise control its timing. Clearly the consequences are to disturb the careful balance that has been developed and prevent employers from moving aggressively and assertively in this area, and needless to say that would affect the victims themselves in the very rights that we are intended to protect.
When considering legislation, when considering the issues that the subcommittee would want to pursue and the principles it would want to have in mind, we would recommend first that employers should not be required to obtain the prior consent of an employee suspected of discrimination, nor should an employer be required to provide prior notice to the target of an investigation. Second, discrimination investigations should not be limited by technical rules regarding the nature or quantum of evidence which may be considered. Third, persons who are targets of discrimination investigations should be entitled only to a summary of the report and not to the full report or investigative file. Fourth, because some employers unfortunately do conduct investigations to intimidate, retaliate on a variety of reasons, we must assure that any legislation considered balances these important concerns as well. Any exception to the FCRA should be limited so that it will not create a loophole by which employers may circumvent the underlying purposes of the Act. And lastly, accused harassers and others accused of engaging in discriminatory practices should not have access to greater remedies than those available to their victims, which the FCRA would offer, since it has no caps.
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And I am sorry that I took too much time, Madam Chairwoman, but thank you.
Chairwoman ROUKEMA. Thank you.
Ms. Valentine, again, we hope you are mindful of the time, but we will be generous to you as well.
STATEMENT OF DEBRA VALENTINE, GENERAL COUNSEL, FEDERAL TRADE COMMISSION
Ms. VALENTINE. I will try to be very mindful. Madam Chairwoman and Members of the subcommittee, as kindly noted I am Debra Valentine, the General Counsel of the Federal Trade Commission. The Commission is charged with principal enforcement responsibility for enforcing the Fair Credit Reporting Act. That law governs the use of very sensitive personal information collected for credit, insurance and employment decisions. I am very pleased to have this opportunity to present the Commission's views on ways to reconcile the tensions between the FCRA and other Federal policy goals in the area of workplace investigations.
I believe that virtually everyone here agrees that the FCRA does apply to many third-party investigations of workplace misconduct. I think there is also consensus that the FCRA should not unduly interfere with or hinder workplace investigations that advance important non-discrimination, compliance and law enforcement goals. Therefore, we fully support the subcommittee's efforts to craft legislation to amend the Fair Credit Reporting Act; and we welcome your offer, Chairwoman Roukema, and Representative Sessions' and Chairwoman Castro's offers to participate in a constructive dialogue in doing this.
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Specifically, we endorse targeted amendments to the FCRA to remove those requirements that actually interfere with workplace investigations by outside entities. But it is equally important that Congress retain the fundamental privacy and procedural rights that the FCRA offers to individuals who are accused, possibly falsely, of misconduct. Since its inception in 1970, the FCRA has guaranteed employees safeguards for the sensitive information used in employment decisions that affect them. H.R. 3408, however, would effectively exempt from the FCRA's coverage all investigations of alleged illegal conduct by an employee. The effect of such a broad exclusion is not only to free workplace investigations from those FCRA provisions that are widely agreed to be problematic. It also eliminates a significant number of long-standing procedural protections that the Act has provided without any objection or difficulty to accused employees for over thirty yearsfor thirty years exactly, actually.
These basic FCRA provisions require consumer reporting agencies to use reasonable procedures in preparing consumer reports, to employ safeguards for accuracy, and to observe procedures for disclosure and dispute resolution after taking adverse action, not before. Given the grave consequences of employment decisions for the individual employee, these basic protections are as important as the need for expeditious investigations of alleged workplace misconduct, especially for those workers who may be the target of unfounded or erroneous accusations. Therefore, the Commission respectfully urges Congress not to exempt workplace investigations from all coverage of the FCRA. Instead, we recommend crafting an amendment that carefully eliminates those FCRA provisions that potentially hamper timely investigations and arguably chill the willingness both of employees to complain about possible illegal activities and of coworkers to cooperate in the investigation of colleagues.
Page 19 PREV PAGE TOP OF DOC Our suggested way of achieving the desired goal would be to add a new FCRA provision that applies to investigations of alleged or suspected workplace illegality, and that removes certain requirements of notice, disclosure, and prior employee authorization. Thus, before procuring a consumer report, the employer would no longer have to disclose that it is obtaining a report to the very employee who is under investigation nor would the employer be required to obtain the written authorization of the employee to procure that report. With these changes, targeted employees would no longer be in a position to prevent good-faith investigations and would be less likely to intimidate witnesses or tamper with or destroy evidence.
Similarly, we recommend eliminating the requirement that before taking adverse action based on a consumer report, the employer must provide the employee with a copy of the report. Eliminating this requirement will enable employers to address illegal conduct appropriately, to protect those who participate and cooperate in investigations, and allow law enforcers to investigate effectively. The Commission also endorses removing certain other provisions that apply specifically to investigative consumer reports.
Here we suggest eliminating the obligation to notify an employee that the investigative report is being prepared and that he or she has a right to disclosure of the nature and the scope of the investigation, exactly what Representative Sessions and Chairwoman Castro noted. We likewise recommend that Congress not require reporting agencies or outside investigators to disclose, when requested, all information in the consumers' or the employers' files. It would suffice to provide simply a summary of the nature and substance of the information in the file. This would address the concern that coworkers who do offer evidence in the investigation should be protected fairly whenever possible from identification and possible intimidation or retaliation.
Page 20 PREV PAGE TOP OF DOC One last change we would like to suggest to further law enforcement objectivesand I think this furthers some of the concerns of the Department of Justice, in encouraging companies to cooperate with the Government to detect and prosecute possible wrongdoing. Now, in certain cases of possible illegal workplace misconduct, what happens is the employer will refer the matter to a law enforcement agency for investigation. The Commission believes that when a consumer report has figured both in that employer's decision to take adverse action with respect to the employee and to refer a matter for investigation by law enforcers, then the FCRA should allow for deferring the adverse action notice that the FCRA would otherwise require. And in those cases where delayed notice is warranted, the Government enforcement agency conducting the relevant investigation would simply certify that the delay is being sought in good faith.
In sum, the Commission agrees that the 1996 amendments to the Fair Credit Reporting Act have resulted in unanticipated conflicts between the aims of the Act and the public policy favoring prompt, objective investigations of workplace misconduct. We recommend a targeted amendment tailored to those specific procedural provisions of the Act that may genuinely impede workplace investigations by third parties. However, because accused employees should still be protected by the FCRA's reasonable procedures and accuracy safeguards, we also firmly believe that a more measured approach strikes the appropriate balance. Thank you very much.
Chairwoman ROUKEMA. Thank you.
This is an issue of great legal complication. I acknowledge that. I will be looking very carefully at all the legal nuances. However, it sounds as though we have a fair degree of agreement here as to the unintended consequences of the Vail Opinion and the chilling effect the FCRA has actually had on the intended enforcement of the law. But I am not quite sure and, Ms. Valentine, you can come back with this, but I am going to address my question to Ida Castro.
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I am not quite sure that the FTC, although it sounds as though there are some recommendations for reforms, has gone nearly far enough in addressing the issues. If I understand it correctly, at least from my preliminary review, not only the EEOC, but Justice, SEC, and the business community do not feel that the FTC recommendations go nearly far enough. But having heard from Mr. Sessions, Congressman Sessions and having heard Ida Castro's comments, explain to me in explicit terms why we can't go along with what Congressman Sessions proposes in terms of exempting certain types of third-party investigations of alleged employee misconduct from the FCRA? Please give me your perspective on that in specificity.
Ms. CASTRO. Specificity will be slightly difficult at this time from our perspective. The Administration has not fully reviewed or formed an opinion on this particular bill as written, but let me say to the subcommittee that we would be eager to provide technical assistance and work with you on the development of language that would address these concerns. We are very happy that FTC has put forward some amendments and has recognized the unintended consequences.
From our perspective at the EEOC, though, we still believe that the recommendations of FTC do not go far enough, particularly in the area of employment discrimination. There is a concern in terms of the onerous requirements and the burdens placed on the investigators themselves. The requirement of certifications, the requirement, for example, of corroboration of testimony by other individuals and/or being able to demonstrate that this is the individual with most knowledge and other such requirements place burdens that right now are not required by the Court and that in many instances thwart the investigation itself.
Page 22 PREV PAGE TOP OF DOC In issues such as, for example, sexual harassment, there may not be corroborating individuals or statements and what would we do in that instance? Then not be able to proceed? I think that the main issue here is not whether or not the accused have a right to redress or have protections. The real core question is under which set of laws are those rights more appropriately protected. For thirty-five years
Chairwoman ROUKEMA. May I interrupt you there, because now exactly we are all in agreement that people need this protection and the privacy questions, but it seems to me that before the Vail Opinion interpreting the FCRA and FTC responsibility here under the law, it seemed to me that existing civil rights laws should have been able to cover it. That is what I am trying to get at. Can you comment on that?
Ms. CASTRO. Throughout the thirty-five years of our existence, both EEOC and the courts have been addressing these issues, these concerns. The accused have rights to follow both under the employment discrimination laws as well as State and local laws which have remedies that are truly available to them. The extension, the unfettered extension of FCRA would, in fact, create an anomaly. Under employment discrimination laws, the victims of discrimination rights and remedies are capped absolutely. However, under FCRA, they are not, and they are entitled to actual and punitive damages without any capping. So one could actually see how it would be reversed in the sense that the accused may have actually greater remedies than the actual victims of discrimination, and I don't think that that was the intention of either law.
Chairwoman ROUKEMA. Thank you. That is helpful to me. We will go over this in more detail at another time and certainly in reviewing the testimony today. I am out of time, but I will give you a short period to respond.
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Ms. VALENTINE. I appreciate that very much, because I actually think that we are all really very quite close. When I heard Representative Sessions say this morning it is not right, this does not help workplace investigations to have to give prior notice, to have the employee authorize that in fact a report can be obtained, to have to disclose the entire fileand he had one other aspect, to provide the sources which in fact the law has never providedI thought, ''Yes, yes, yes, yes, and those are exactly the sections of the Act that concern us.'' It is not worth your time to go through whether 604-B
Chairwoman ROUKEMA. We don't have the time now, but it can be submitted for the record.
Ms. VALENTINE. I think we all agree that is what needs to go. Then I think where you are hearing disagreements are actually in areas where we can both be reasonable if we think about what the law really says. I mean, I have heard described as highly technical the FCRA provisions that are inconsistent with the legal requirements of the EEOC. In fact, what the law says is that the agency simply has to follow reasonable procedures to obtain confirmation of information. You do not absolutely need to confirm the information. Now, that is exactly what I also read in the EEOC's handbook here. They recommend also seeking to corroborate evidence if someone is party to an exchange; they ask one to also look for documents and other evidentiary material. I think the laws are very complementary and whether that needs to be reflected in the committee report or legislative history somehow, I don't think there is really that big a difference here.
Chairwoman ROUKEMA. I thank you. I am going to recognize my colleagues in the order in which they appeared.
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Mr. Gonzalez, are you ready?
Mr. GONZALEZ. Yes, Madam Chairwoman. Thank you very much. I guess there is a lot of room for agreement here. In general principle I think everybody agrees that we can go ahead with legitimate investigations. I don't think that is the real issue. Unfortunately, people that are getting hold of me really look at it in more simplistic terms. I think as Chairwoman Castro has pointed out, there are really greater consequences when we are talking about remedies, procedure, burdens, standards, and that is a great concern to me.
I am not here to tell you I really understand the true implications of that. I guess I would address this. I want to make something perfectly clear, that if one Act provides greater remedies, and I think it was presented in the terms that there is greater rights for the one that is accused than for the victim, the way I look at itand my background is the lawis simply, those that are wrongly accused may have greater rights. It is not going to be someone who is just simply accused. In most instances, I would hope that is the way the system would work. That is the way it is intended to work.
Getting back to my basic premise, that would be, Chairwoman Castro, I think we had Ms. Valentine, basically put out there for consideration what they believe should be some fundamental changes, and that is really the timeliness question of not having to get consent, the notification, the complete disclosure of the reports and so on. Do you disagree with any of the recommendations as made here today by Ms. Valentine?
Ms. CASTRO. No, I don't. We have been working with the FTC in terms of staff sharing concerns, and I am very pleased that they have submitted these amendments. All I stated was that we thought they didn't go far enough, that there are other issues that may fall off the table, if you will, if we don't carefully work with them. I am basically here to offer my staff's technical assistance and continue to work with you as we tease out these important concerns.
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Mr. GONZALEZ. I appreciate it.
Ms. Valentine, quickly, I guess you are looking at the proposed legislation as just going too far, exempting whole classes or areas which, obviously some of the things that you would like to see still apply would not impede, or have a chilling effect, but would allow for full investigation, reasonable process, not an undue burden. Basically, is that what I am hearing from you?
Ms. VALENTINE. That is absolutely correct. I think it is important to remember, since the Act was enacted in 1970, and until 1996, when some of these more detailed amendments were passed, everyone went along just fine, and during those twenty-six years many requirements existed: that these reports can only be used for permissible purposes; that they have to be accurate; that you have to allow employees to challenge the accuracy of the information, which can happen after you have taken the adverse action; and that you have to ensure that the information isn't obsolescent. If it is older than seven years, you need to check it. If you have compiled a report, you can't simply pass that report on later to be used again if within the intervening year or two that information has gotten obsolescent.
There are provisions which explicitly say that when public records are used against employees, let's say a prior criminal conviction, you are actually required to go back and make sure that that record is still accurate. That was always there. It should always be there. It is not right to suddenly yank those sorts of basic, fundamental procedural rights away from persons who may bewe don't always know unjustly accused. Some of these things I think worked perfectly well for twenty-six years, and there is no reason to throw out the baby with the bath water, I guess, even if we admit that some of the bath water is dirty.
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Then on the liability rights, I think you are also absolutely right, there are actually very limited provisions for liability. It is only when there is willful non-compliance with some of the provisions of this Act that one would get to resortand that would mean that you are truly maliciously relying on false informationthat someone who was unfairly, unjustly accused would have the ability to obtain actual damages and possibly punitive damages. It is not as if people who have been wronged in one context are being less fairly treated than those who are wronged in another context.
Mr. GONZALEZ. Thank you very much.
Chairwoman ROUKEMA. Thank you, Mr. Gonzalez.
Mr. RILEY. Thank you Madam Chairwoman.
Ms. Valentine, you just said something that was very interesting to me. When you talk about ''some of the bath water is dirty,'' how, in a case that is going forward, will we be able to distinguish between what is dirty in the bath water and what is not?
Ms. VALENTINE. I think that there are certain procedures that all investigators would follow. We are acknowledging it is not useful to always have to give prior notice to the accused, the targeted wrong-doer. I am actually personally most concerned about things like the SEC or the Defense Department being able to investigate fraud. There can be rather pervasive and terrible fraud in an organization. An employer will need to investigate, and he or she will want to interview all sorts of people before you go to the one who is the accused or the targeted employee.
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Now, I think it is absolutely right not to have to notify that person in advance, not to have to provide that person with your entire file, not to have to disclose the sources of your information to that person. I think we all agree on that. On the other hand, if, after you have taken adverse action against that person, or if in relying on an outside investigator to get a report like this, you then aren't able to prove that this information isprove is the wrong wordyou are not able to either explain that you are using this for a legitimate purposeand in that case it would be a very legitimate purpose, let's say suspected securities fraud, you don't wantI have never been in the position of having someone accuse me unjustly, but you don't want employers to be going around and seeking out all sorts of information that is not
Mr. RILEY. I guess that is my main concern. I intend to agree with everything that Ms. Castro and Congressman Sessions said this morning with the exception of an unscrupulous employer who could always at least have the possibility or there is an implication of fraud, of wrongdoing, of criminal activity that would taint the whole investigation that would not allow the employee to be notified when the bulk of the charges do not rely on that specific fact of criminal activity. It seems like you can taint every case that could ever be investigated with just the possibility that a criminal activity might have occurred.
Ms. VALENTINE. I am not sure thatI may not be understanding you. I am not sure I disagree with you. Could you try once again?
Mr. RILEY. Assume you had an employee that was accused of various differing complaints, one of which was a criminal activity. Does that then remove his rights for the remaining investigation of notification; and if it does, how could you ever keep an employer from just the implication that there might have been criminal activity removing all of his rights in every investigation?
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Ms. VALENTINE. I think what we are trying to do here is strike a balance and if an employer has a reasonable suspicionI think all we can ask is that the employer be acting in good faith. If the employer has a reasonable suspicion or there is a specific allegation of wrongdoing, I think it is fair to allow the employer to investigate without providing prior notice and without having the requirement that would in fact allow the employee to literally veto the investigation. Those are, I think, the sorts of things that Chairwoman Castro and Representative Sessions are worried about.
Mr. RILEY. Which I totally agree with.
Ms. VALENTINE. I do, too.
Mr. RILEY. And I think most reasonable people would agree with it, but I also think just the accusation should not allow an employee to have his rights removed.
Ms. VALENTINE. That is why I think you do have to ask that the employer be acting in good faith; and what our proposed amendment tries to do is establish a standard that we would hope would be acceptable to both employers and employees, that is, if there is a reasonable suspicion, a good faith belief that there is actual wrongdoing going on, that this prior notification would not be required.
Now, at the end of the day if you take adverse action, that person does have a right to information about the investigation; does have a right to seek to determine whether that information is accurate or not. And so this is going to turn on do we think we can fairly define what is a good-faith investigation, what is a reasonable suspicion. Also, this would not governat least as our amendments are proposedprospective employees. So with prospective employees, if you are not worried about wrongdoing in your workplace, when you are simply trying to determine whether you are going to hire them or not, then the whole panoply of rights that does currently exist would continue.
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Mr. RILEY. You also said just a moment ago that most of the laws between the EEOC and FTC seem to be complementary. Ms. Castro, it seems just from listening this morning they don't seem to be as complementary as they are redundant.
Ms. CASTRO. Well, that may be part of the reason why I am testifying here. What I am saying is for thirty-five years in the employment discrimination arena, there are already a series of procedures that protect the rights of individuals that are either accused or victims of discrimination in the workplace. And that the overlay of the interpretation, the current interpretation that we are dealing with here today, in fact, complicates and upsets this balance. To the extent that we believe it is not at all all that necessary, we are willing to work with all interested parties so that we can tailor it in a more appropriate way and not begin to clutter the courts again with duplicative, if you will, legislation or litigation on matters that have been well settled under the employment discrimination laws.
Mr. RILEY. In your own opinion, do you have any reason that the FTC should be involved in this? Can you think of any legitimate reason?
Ms. CASTRO. I think there are important consumer protections that the FTC is appropriately considering. I just think
Mr. RILEY. As far as this legislation is concerned.
Ms. CASTRO. As far as the Sessions legislation, perhaps there might be further things that we would need to work on. The terms of the Sessions legislation are rather broad, and I think they cover a series of other issues that perhaps merit some further discussion at staff level before I can give you an honest and clear opinion.
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Mr. RILEY. Thank you.
Chairwoman ROUKEMA. Thank you, Mr. Riley. Your line of questioning was consistent with the same questions that have arisen in my mind and that we have to further explore.
Mr. BENTSEN. Thank you, Madam Chairwoman.
To respond to my colleague from Alabama, I think the FTC very much has to be involved in this, regardless of whether you have the Sessions bill or not, because you are still talking about credit reports. I don't think there would be any case where the FTC would not be involved in this, even if there is an existing overlay or conundrum.
Ms. Valentine, I have looked very closely at this bill over the last year and have held off co-sponsoring it, because while there are some strong arguments in giving the regulators and employers the tools to combat things such as sexual harassment or racial harassment or theft or fraud, there is a concern that the FTC continues to bring up which I think has merit that this bill is overly broad and its exemption from the Fair Credit Reporting Act. I gather from your testimony that, of course, is still your opinion.
It seems to me that we don't want to go so far as to give employers and their third-party investigators the ability to useto preempt the Fair Credit Reporting Act and use consumer reports as a vehicle with which to consistently or constantly investigate their employees. Is that part of your opposition? And the second thing is you all are proposing a more narrow approach which, if I understand it, would give exemption for the use of credit reports without having to advise the employee in advance to apply to most if not all of these instances, would that apply to current employees as well as potential hires? At one point I think last year you all thought they should only apply to potential hires. Now would it apply to current employees in your proposal and how would it apply to issues of litigation?
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Ms. VALENTINE. There are a lot of questions here. I hope I answer all of them. I thank you also for endorsing the concept that the FTC should be involved here, because we are operating across all industries and with respect to all sorts of workplace misconduct, not just discrimination or harassment. We could be talking here about investigations of securities fraud or defense fraud or just simple theft; and then of course we are talking about the use of very, very sensitive information in credit decisions, in insurance decisions, and in employment decisions. So to return to the questions, as I keep coming back to the thought that, for twenty-six years, we were all very happy with this system governing these sensitive reports compiled by outside third parties, credit reporting agencies, which are reports bearing on your character, on your reputation. Reporting entities are subject to special protections to ensure that the information collected and used there was accurate and used for permissible purposes, and we do firmly believe that these requirements that ensure that when an outside entity that has serious resources goes about collecting lots of very personal and sensitive information about you, it should be required to use and sell those reports only for legitimate purposes. It should be required to ensure that the information in those reports is accurate. You should be provided the right to check the accuracy of that information, to request that it be reinvestigated if you believe that it is wrong. Those reports will stay in your life and follow you; and they may well be the basis of very serious decisions with respect to you.
And so the fundamental provisionsfor reasonable procedures for ensuring accuracy, for checking and verifying informationI think are ones that are important to retain and that I think it would be at a time when we as a country are more and more worried about privacy issues and about people getting information about usit would be rather ironic to be throwing it all out here. I don't think, however, that the Act is creating specific rules of evidence that would be used in court so thator that should get in the way with reasonable concepts of what is objective and accurate information that any outside investigator or that the EEOC rules recommend following or that
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Mr. BENTSEN. If I might, specifically the FTC proposes certain exemptions for investigative use by an employer and their third party if they have one. Do you agree in allowing a limited exemption for existing employees as well as new hires and for non-credit-related allegations?
Ms. VALENTINE. What the exemption would cover would be when employers go to use third parties, outside third parties for investigations of a reasonable suspicion of alleged workplace misconduct. So that would be with respect to current employees. Therefore, if you are a prospective employee and you may well hear this from the later panelactually the AFL-CIO is not appearing today, but they talk about problems when you are an employee applying for a job and people get these reports on you. All the existing provisions would still be there for prospective employees. What we are trying to do is acknowledge the needs of employers when they are investigating workplace misconduct which has to do with current employees that they not have to disclose everything and anything that every colleague might have said about a superior, and things like that.
Chairwoman ROUKEMA. Thank you. I appreciate that. I hate to limit my Members, but I am concerned about when we will be called away for votes. I believe now that Mr. Sandlin is next.
Mr. SANDLIN. Thank you, Madam Chairwoman. I am looking at the FTC's proposal. I have three concerns. It seems to me that based somewhat on what our colleague from Alabama was speaking about in an attempt to ease or speed an investigation, there are three concerns: one, I think we are trampling on constitutional rights of the accused; and, second, I think, because of the lack of specificity in the amendments, that it will not protect people in the workplace from allegations such as sexual harassment. I think any lawyer two weeks out of law school could render this totally infective; and then, third, as a result of that, I think that you are opening employers to serious potential liability by people trying to go alongfollow these proposals in your amendments. Particularly, you have reasonable suspicion, as you have talked about, as a guideline, but there is no definition of reasonable suspicion or what should be usedis that correctto determine reasonable suspicion?
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Ms. VALENTINE. I think that eitherif one wanted to address that in a committee report or the legislative history, one certainly could do that. A reasonable suspicion actually is a standard that agencies like the FTC often use simply as a basis as to when we can legitimately investigate. The reason why we didn't want to limit thisand this is obviously something that I think all parties should be discussingto specific allegations of misconduct is that you well could be runningyou could be General Electric, you could be Morgan Stanley, you could be an operation where there is a unit where there is securities fraud going on, let's say. Now, no one may report to you about that. Everyone in the particular unit may be involved, and you may see very, very funny numbers coming up when people do audits of that particular unit. The employer shouldn't have to wait until the SEC comes down on him. The employer should be encouraged
Mr. SANDLIN. The employer can investigate himself without a third party. Then you furthernot only do you talk about racial suspicion, but you say allegations alone are enough. Allegation may not be true. Correct? Allegation may be false?
Ms. VALENTINE. That is correct.
Mr. SANDLIN. So based on an allegation, a false allegation, someone would be subjected to an investigation which, in fact, may turn out to be nothing.
Ms. VALENTINE. But this is going to happen anyway.
Mr. SANDLIN. It may not happen, because I don't agree with your position here. I think it is ridiculous not to give someone prior notice of allegations such as this being made against them. In criminal law, you get notice. You confront your accusers. Here you have an opportunity to lose your job and, as you mentioned, have very serious ramifications for the rest of your life based on an allegation made by an unknown person that turns out to not be true.
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Ms. VALENTINE. I think maybe we are talking at cross purposes. Whenever anyone, regardless of whether this law appliesand pretend that it didn't, because let's say that is the situation that some people would wantwhenever anyone does an investigation, if she accuses me of harassing her, you would want to probably interview her first and not have to notify me that you are going to do it so that I can go and intimidate her and retaliate against her if I am her superior or tamper with evidence.
Mr. SANDLIN. I think there are certain rights that the accused have and you have got in here illegal misconduct. Any lawyer can tear that up, illegal misconduct. Illegally normally under the law means a violation of the penal statute, a violation of the law, not a violation of civil statutes or civil law. While sexual harassment for example may give rise to illegal conduct such as rape or assault or some other thing, sexual misconduct alone or sexual harassment is not illegal. It is improper. It is misconduct, but it is not illegal misconduct. I think if you are going to pin your hopes on illegal misconduct, you are out on sexual harassment and you can't enforce this. You didn't protect the victim. You accuse someone wrongly with bad allegations. It follows them for the rest of their life. Everybody loses, because someone couldn't draft their amendments properly.
Ms. VALENTINE. This is just the beginning of a process. It is the beginning of a process of drafting the amendments. It is also the beginning of an investigation process. If someone reports sexual harassment activity to me, I do have an obligation as an employer to do something about it. I will first go talk to the victim. I will eventually talk to the harasser, and of course I will give the alleged harasser
Page 35 PREV PAGE TOP OF DOC Mr. SANDLIN. Alleged. There we go.
Ms. VALENTINE. Alleged harasser all his or her rights. The only question here is how do we be sufficiently flexible so that in situations where the alleged harasser, or alleged wrong-doer, could tamper with or destroy evidence, could intimidate witnesses, they are not given sort of advance warning so that all that happens. Those are the situations we are trying to
Mr. SANDLIN. My time is up. I would like to say that happens in every legal case and you don't trample on people's rights just by sayingyou know, ''we are going to run over you so you can't destroy some evidence,'' when, in fact, the legislation itself doesn't even protect the victim. Thank you.
Chairwoman ROUKEMA. Thank you.
Mr. Watt, please.
Mr. WATT. Madam Chairwoman, I think I will be brief. I just wanted to get one thing clear. Ms. Castro, what kind of information would be in a credit report that would bear on sexual discrimination?
Ms. CASTRO. Oh, probably none. The issue is not the credit report. The issue is that the opinion of the FTC extended all of its protections for any investigation conducted by a third party. So that if an employer, for example, retains an outside party or if
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Mr. WATT. I am just trying to get an understanding what this has to do with sexual harassment. I understand the larger issue.
Ms. CASTRO. Credit reports are not the issue that I testified upon. Generally speaking credit reports would not bear much relevance in employment discrimination cases unless it is a peculiar fact pattern I guess may arise. The issue is if an employer has a responsibility to take immediate action and investigate employment discrimination. This is precisely what we would want the employer to do so that the employer can resolve this matter without need to refer the issue to a Federal agency, because I am not looking necessarily to burden our workload. Neither is the court. And Congress, in its wisdom, basically set up a statutory scheme that promoted voluntary resolution or promoted employer participation in the process to prevent and stop discrimination when it occurred.
In this situation basically if an employer wants to engage a third party to have a fair impartial investigation on any employment discrimination matter, then the regulations and the principles of FTC would extend to those third-party investigations.
Mr. WATT. I understand that. I still don't understand why it would be necessary to go and look at somebody's credit files for the employer to investigate an employment discrimination.
Ms. CASTRO. I believe the FTC is not saying that the third-party investigation would be of the credit file. FTC is saying any third-party
Page 37 PREV PAGE TOP OF DOC Mr. WATT. I thought that is what the hearing was about today. Am I just mistaken?
Ms. CASTRO. Maybe she can clarify the FTC position, but I think I am not here to argue about the credit report.
Mr. WATT. Maybe you can help me, Ms. Valentine.
Ms. VALENTINE. I will try to help you. It is true that in some investigations I keep bringing up securities fraud, but in something like securities fraud you may well look at a credit report, because you may find that people suddenly have lots of income and/or have lots of debts and they are trying to make lots of money.
But the reason why we are all here is that, in fact, Fair Credit Reporting Act is really something of a misnomer. What the Act covers are things called consumer reports and consumer reports are, in Congress' wisdom, very broadly defined. They are any communication that bears on creditworthiness, but also character, personal reputation, personal characteristics, mode of living. And when that communication which is usually written is used or collected and serves in whole or in part as a factor in a credit decision, an employment decision or an insurance decision, even other purposes, but we won't get into all of that, that is the kind of report that is covered by this Act.
Mr. WATT. Now, if I were an employerI thought this was going to be simple. If I was an employer and I was investigating an employment discrimination case, sexual harassment, differing rates, whatever, why would I want to go and get a consumer report on the employee? I understand that I could, but why would I want to do that if I were trying to do a reasonable investigation?
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Ms. VALENTINE. It might be that you are a small employer and the alleged harasser was a superior and you were afraid that if your business itself investigated it, that that person would be able to unduly influence the nature of the investigation. So you would go outside.
Mr. WATT. I can understand I might go outside, but why would I go to a consumer report?
Ms. VALENTINE. Because that outside party that collects information that bears on the harassers, the investigated person's mode of living or general reputation or characterthese are the words I am literally reading from the statutewhen the information they are collecting bear on character, general reputation, personal characteristics, or mode of living, which could well be the case in an investigation of sexual harassment, and when that is used, when it serves as a factor in establishing that person's eligibility for employment purposes, and when employment purposes is then defined as evaluating whether that person is eligible for employment, promotion, reassignment, or retention, and you may well not be retaining that person, what you are doing is having a third person collect information that is sensitive. It goes to your reputation and your character. And that report, the information that they have collected is serving as a factor in a decision that has to do with employment purposes, that has to do with whether they are retaining the alleged harasser or not. I am not saying it is simple. It is what the statute says.
Mr. WATT. I understand what the statute says. I am just trying to resolve a practical issue. I understand what the statute says, but I guess I am just having trouble understanding why as a practical matter somebody would use this process to investigate any kind of employment discrimination claim and then say I would like to go out and get unsubstantiated opinions on somebody's character as a basis for making an employment decision. That I don't understand, and that is why I tried to direct the issue to Ms. Castro initially. I don't understand.
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Ms. CASTRO. I directed the question to Ms. Valentine, because I think what you are highlighting is really why it is that we are here. We are here because, throughout thirty-five years, questions of employment discrimination, good faith investigation, and what is required to prove these allegations under the civil rights enforcement laws have been basically within our jurisdiction, that of the Department of Justice and the civil rights enforcement agencies.
The opinion letter issued by FTC basically now changes the rules of the game only with respect to third-party investigations. So an employer internally can proceed to investigate and not adhere to any of the requirements set out by FTC with impunity and that would not protect the accused. It wouldn't protect the victim other than enforcing our laws and getting direct intervention from us.
It is only in the instance of third-party investigations which is a process that we encourage if it is going to promote prevention and resolution of workplace discrimination without need of Government intervention. And that is really the core issue that has brought us to this testimony and I don't know if I was responsive, but you have hit the nail precisely on the head.
Mr. WATT. Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. Congressman Watt, a number of those issues were raised especially because those same questions are the motivating force behind Congressman Sessions' legislation which was the basis for my initiating these hearings today. They are the relevant substantive questions and really the question of the 1999 Vail Opinion by the FTC really has opened up many of these questions.
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I am going to conclude this panel now, because we must get on to the second panel. I just cannot resist observing that some people have referenced the wisdom of the legislation of 1970. That legislation has had well documented unintended consequences and particularly following the more recent decisions of 1999, the Vail Opinion. We have a number of very legitimate questions here that we have to honestly evaluate and discuss. This has been helpful. I do thank you for your testimony and again, under the rules, if you have further materials to amplify certain points that you want to submit for the record, we would be pleased to have that information. Thank you.
Ms. VALENTINE. Thank you very much.
Ms. CASTRO. Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. With that, we will call forward the third panel. I am going to introduce you individually as you speak. It is a large panel. I don't know how I let staff get away with inviting so many witnesses. They are all very well qualified and very important to our understanding the entire picture. I will introduce each of you as you are ready to speak.
Mr. Eddy McClain is the Chairman of Krout and Schneider, a private investigative firm located in California. He is appearing here today before the subcommittee on behalf of the National Council of Investigation and Security Services. Mr. McClain.
Mr. MCCLAIN. Thank you, Chairwoman Roukema.
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Chairwoman ROUKEMA. Excuse me. I must say in the interest of time and the proper conduct of this panel, I will have to be very precise about adhering to the five-minute rule. You will find in front of you a clock. The green light on the clock indicates you may speak. When the light turns yellow, it is a warning that your time is almost up. When it turns red, I will have to bang the gavel. Thank you.
STATEMENT OF EDDY McCLAIN, CHAIRMAN, KROUT & SCHNEIDER, INC., LEGISLATIVE COUNSEL, NATIONAL COUNCIL OF INVESTIGATION AND SECURITY SERVICES
Mr. MCCLAIN. Thank you. I am also appearing on behalf of investigative and protective service companies throughout the United States. We strongly support H.R. 3408 and commend Representative Sessions and the seventeen co-sponsors for attempting to rectify the flaws in the 1996 Fair Credit Reporting Act. 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.
Internal investigations are not covered by the FCRA. Only investigations by third parties. Small and even medium-size businesses that do not have large security staffs must hire outside experts for employee investigations. Even many Fortune 100 firms prefer to hire out investigations to avail themselves of the expertise of specialists and to maintain the integrity and objectivity of an impartial review.
The FCRA stymies the ability of all employers to provide a safe workplace. The FCRA requirement to obtain the written permission of every person who is to be investigated is a roadblock to discovering the truth. Providing a verbatim copy of the report in a sexual harassment investigation without the protections of a court in the discovery process can only lead to witness intimidation and worse. Asking a deranged individual for permission to investigate him and handing him a report detailing the evidence against him is like lighting a fuse.
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In complying with the FCRA, employers are damned if they do and damned if they don't. We have been fighting a war on drugs for years yet recent statistics reveal that about 7 percent of employees still use drugs in the workplace. This endangers fellow employees as well as themselves, particularly if they are operating hazardous machinery. But the FCRA makes it virtually impossible to ferret out drug dealers from the workplace.
We are encouraged to see Chairman Pitofsky's letter to Representative Sessions admitting that the FCRA is flawed. Suggestions for compliance previously proposed by the FTC in their opinion letters are impractical and unworkable. The FTC suggested remedy perpetuates the myth that employee misconduct investigations should be governed by a law that was constructed to protect consumers from errors in their credit reports. This is what you were speaking of, Congressman Watt.
For this reason, we believe Representative Sessions' legislation is the proper remedy. The amendments to the FCRA took effect on September 30 of 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, Lawyers Weekly reported that the plaintiff bar was licking its lips in anticipation of entrapping unwary employers in this Catch-22. One by one, 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.
Page 43 PREV PAGE TOP OF DOC We doubt Congress really wants us to have the signed permission of a suspect before we can investigate criminal behavior. In a recent draft of proposed changes, the FTC suggests that investigations of illegal misconduct be partially exempted, but asked that most of the provisions of the FCRA be maintained. For instance, the FTC suggests that the employer certify in advance that confidentiality is necessary or certify in advance that providing a copy of the investigation report will result in the intimidation of witnesses. This requirement is an invitation to litigation. The circumstances cannot always be known in advance, but basic confidentiality precautions are always necessary in such investigations.
Time is of the essence. If Congress does not act quickly to amend the FCRA, violations will continue, witnesses will be cocerced, and possibly killed or injured. Violations of law will go unchallenged, because employers are not permitted to hire a confidential impartial investigation. Congress must not let stand regulations that further jeopardize the safety and well-being of honest employees. I thank you. That is about four-minutes-plus, and I would be very happy to answer any questions.
There are really a number of things I would like to respond to regarding the previous testimony
Mrs. ROUKEMA. Thank you very much for your cooperation. We appreciate it.
Mr. Richard Seymour is Director of Employment Discrimination Project of the Lawyers' Committee for Civil Rights Under the Law. I believe that your group, the Lawyers' Committee, has been in existence since 1963, and it was founded by the American Bar Association. Are you still a subsidiary, so to speak, of the American Bar Association?
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Mr. SEYMOUR. No formal connection, although many of the leaders of the American Bar Association were its founders.
Mrs. ROUKEMA. You are recognized civil rights law leaders. Thank you.
STATEMENT OF RICHARD T. SEYMOUR, DIRECTOR OF EMPLOYMENT DISCRIMINATION PROJECT, LAWYERS' COMMITTEE FOR CIVIL RIGHTS UNDER LAW
Mr. SEYMOUR. As stated by Chairwoman Castro of the EEOC, it is clear from the Supreme Court's decisions of the last few years that the Court is trying to get a lot of employment discrimination disputes resolved inside the workplace through the tool of requiring adequate investigations of complaints of discrimination or harassment where they occur. And they are requiring complainants to take advantage of these procedures.
It has conditioned, in very real respect, the availability of punitive damages on the employer's good faith efforts to comply with the civil rights laws. This often will require investigations. In many situations, an investigation, to be credible, must be done by an outside investigator. Those are situations where the employer is too small to have its own personnel department, where the accused wrongdoer is too highly placed or too powerful for an inside investigation to have any credibility, or where the employer, because of the nature of the allegations, is anxious to have the greatest possible credibility as to the result of the investigation. I should say that we have, in the past, declined to take cases and have advised people not to pursue rights in court, because we were persuaded by the quality of an investigation that this is not something that should be carried forward into the court. So these investigations are important.
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The FTC has suggested that some of the problems caused by the 1996 amendments could be cured by using outside investigators who are not used to doing these investigations, who do not do them regularly. We do not think the purposes of the civil rights laws are going to be served by having inexperienced investigations, which we think are much more likely to result in mistakes.
What we have as a major concern can be put in a nutshell. Suppose we have an employer that is a small employer. It has 100 employees. There is a sexual harassment or racial harassment complaint that has been filed. If it does not do an investigation, it is liable with capped liability at $50,000. If it does do an investigation and fails to cross all the ''t's'' or dot all the ''i's,'' it is potentially betting the survival of the firm upon whether this person is going to become aware of rights under the Fair Credit Reporting Act where unlimited punitive damages may be available. In that sort of situation with that kind of tension, we think that many employers will simply decide to ignore the Title VII rights and not to proceed with the investigation.
We have stated in the testimony that we also have a concern with false claims of harassment or of discrimination. In particular, when you have a non-traditional manager selected, perhaps a woman selected where only men have managed this particular department or someone who is black, Hispanic, or Asian selected where only whites have previously managed the department, one means of employees striking at them may be the filing of bogus complaints. That and ordinary human decency require an adequate opportunity to respond. A summary of the information without providing the details that could lead to retaliation and would chill witness participation should be adequate for that purpose.
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We have been meeting with a large array of other organizations involved with privacy interests, unions, civil rights groups, civil liberties groups, and employer representatives to try to reach common ground. I think there is a great deal of common ground in this area. It will take further meetings in order to come to the greatest possible resolution that we can, but I think that those are meetings that are proceeding in good faith and that do hold out the prospect of a consensus that will adequately protect the rights of employees, the interests that are safeguarded by the civil rights laws, and the interest of employers. Thank you.
Chairwoman ROUKEMA. Thank you.
Now we have Mr. Bokat. Mr. Bokat is a Senior Vice President and General Counsel for the U.S. Chamber of Commerce. He also serves as Executive Vice President of the National Chamber Litigation Center. Aside from his Chamber of Commerce experience, he worked at the U.S. Labor Department up until, I believe, 1977. We welcome you here today.
STATEMENT OF STEPHEN A. BOKAT, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, U.S. CHAMBER OF COMMERCE
Mr. BOKAT. Thank you very much, Madam Chairwoman. Thank you, Members of the subcommittee. The FTC's interpretation of the Fair Credit Reporting Act announced in the Vail letter makes it exceedingly difficult for employers to adequately address employee misconduct, misconduct that adversely affects, potentially, other employees. This interpretation puts employers between the proverbial rock and the hard place by exposing them to great liability for either violating the discrimination, securities or other laws, or for violating the Fair Credit Reporting Act. Civil and punitive damages can be imposed for violations of any of these laws.
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It is because of this unique problem, that is, the literal application of the Fair Credit Reporting Act to the employment setting, an application I don't believe Congress considered at the time of the Act's passage, that such a diverse group of interests is here supporting amendment of this statute.
In my twenty-eight years practicing regulatory law, I cannot recall a situation where business, labor, civil rights, consumer communities, and an assortment of Government agencies have all agreed that a statute needed to be amended. As Mr. Seymour indicated, we are meeting with him and the other groups to try and reach common ground on the precise scope of the amendments we would recommend for your consideration.
I would like to describe for you this morning an actual employee misconduct investigation I was involved in as the Chamber's chief legal officer, one that I think demonstrates the problems that the current interpretation raises. I might add that I am unaware of any labor and employment practitioners at that time who counseled compliance with the Fair Credit Reporting Act in these kinds of investigations which did not implicate an employee's credit.
Several years ago, I received a phone call that shocked me and would have set off alarm bells for any lawyer. The Chamber maintaines several regional offices including, at that time, one in northern California. The substance of the call was that a young girl of 6 or 7 had gone with her mother to the office to visit her grandmother who was a Chamber employee. The grandmother was employed as an administrative assistant. While waiting for grandma, the girl was invited into the office of a male employee to see his collection of stuffed animals he had in his office. Shortly thereafter, after leaving the building for lunch, the girl told her grandmother that the male employee had touched her inappropriately. I was notified, as were the local police.
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Having considerable experience conducting employment investigations as does our head of human resources, there was no one on-site in northern California competent to conduct such an investigation. We hired a sophisticated female labor and employment lawyer, as well as a human relations consultant, that would be sensitive to these kinds of issues to assist us in this investigation. As I indicated, we didn't comply with the Fair Credit Reporting Act, because like most employers, we did not understand that it had application to such an investigation. But this situation demonstrates the absurdity of applying it to these kinds of investigations. Had we complied pursuant to the Fair Credit Reporting Act, we would have been first required to obtain the consent of the alleged molester and what should we have done had he refused to give consent?
Section 605 of the Act prohibits consideration of evidence more than seven years old. But in conducting our investigation, shouldn't we have been able to ask if the male employee had committed such acts more than seven years ago? Obviously it would have been relevant to our investigation and determining who was truthful. What about the requirement in the Act requiring employees to use only the best available source? Clearly the little girl was the best available source, but what about her parents and other employees who may have observed activity on these days? And then there are the disclosure requirements of the statute. Would it be reasonable to require us to disclose to the employee what the little girl had said? And what about the observations of other employees?
My experience has demonstrated doing sexual harassment investigations the first thing witnesses and complaining employees ask is that information be held confidential. Then the Act requires reverification of information more than three months old. Should we have reconductedspeak to the little girl who had already been through a traumatic experience? I think you get my point.
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And our potential for violation of the Fair Credit Reporting Act was unlimited civil and punitive damages. That makes no sense here. And as Chairwoman Castro I believe, Chairwoman Castro indicated, the real problem here is the small business person. We have internal lawyers. We have a human resources department that can conduct these kinds of investigations. Small employers don't have these resources. They have to go outside in these kind of circumstances. Thank you very much.
Chairwoman ROUKEMA. Thank you, Mr. Bokat.
As you see, we do have votes coming up, but fortunately there are only two votes. That means we will have at least twenty minutes, so let's give ourselves a half-hour recess and return no later than 12:30 to begin hearing the other four members of the panel. Thank you very much.
Chairwoman ROUKEMA. I said 12:30 and it is 12:31. Without further delay, we will resume. Now we have Mr. Michael Lotito who is testifying on behalf of the Society for Human Resource Management. I believe Mr. Lotito serves as Chairman of the Board and is certainly a leading advocate of the human resources profession. I welcome you here today.
STATEMENT OF MICHAEL J. LOTITO, CHAIRMAN, SOCIETY FOR HUMAN RESOURCE MANAGEMENT
Page 50 PREV PAGE TOP OF DOC Mr. LOTITO. Thank you Madam Chairwoman. Members of the subcommittee, perhaps I can begin this way.
A gentleman named Shane Salazar was the equipment manager for the basketball team Golden State Warriors. According to a complaint that was filed on his behalf in the United States District Court for the Northern District of California in November of 1999, Mr. Salazar became the subject of an investigation by a private investigator at the request of his employer.
The private investigator videotaped Mr. Salazar snorting cocaine. And based upon this incident, Mr. Salazar was terminated. Without contesting the substance of the charge that the plaintiff was indeed snorting cocaine, Mr. Salazar filed a seven count clause of action against the Warriors. The first count alleges that the team was in violation of the FCRA in seven specific ways including failure to take reasonable procedures which were undefined in conducting the investigation and failing to obtain the accused written consent before the investigation began.
As a remedy, Mr. Salazar seeks among other things, compensatory, consequential, and unlimited uncapped punitive damages as well as payment of attorney's fees. This case is a specific example of the unintended consequences being unleashed as a result of the FTC's interpretation of the FCRA and the Vail Opinion.
SHRM is here today to try to ensure that this case does not become a trend. We are in the midst of an employment revolution in the United States. Based upon an SHRM/Jackson Lewis survey on employment litigation, over half of the respondents, 53 percent, had been named in an employment related lawsuit in the last five years. And many commentators attribute this increase to the passage of the Civil Rights Act of 1991 which, as you know, for the first time imposed potential punitive damage liability upon employers who violate Title VII.
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You have heard here today in the testimony about Faragher and Ellerth as well as Kolstad, the Supreme Court decisions that have carved out, over the last couple of years, what in essence is a safe harbor for employers against punitive damage liability when they engage in proactive preventive employment practices.
In the Kolstad case, the Court said, ''Title VII is designed to encourage the creation of antiharassment policies and effective grievance mechanisms.'' This position is completely compatible with the one taken by the EEOC, its rules and regulations, in cases that have been decided in other jurisdictions over the last thirty-six years. Moreover, from SHRM's standpoint, an excellent HR practice is to conduct these kinds of impartial investigations regardless of what the law provides.
For an employer to distinguish itself as an employer of choice, people must know that their employer is committed to basic human dignity. Employees must feel that they can be heard objectively with effective problem solving procedures and that their complaints will be taken seriously without any fear of retaliation or impediment to basic human dignity.
As we assert in our written testimony, there are many situations where in-house investigations which are immune, of course from the FTC's interpretation of consumer reports, are not appropriate for the circumstances. You have heard about the smaller employer that does not have a human resource department at all. If the responsible party is accused of inappropriate behavior, it is absurd, of course, to ask him or herself to investigate him or herself.
Page 52 PREV PAGE TOP OF DOC I personally in my legal practice have conducted investigations when the individual who has been accused of inappropriate behavior is of such a high level within the company that no one within the organization was comfortable in confronting him. So third parties' civil rights and employment investigations whether done by an H.R. consultant, a private investigator should be encouraged to help accomplish our national goal of achieving safe workplaces and equal opportunity under the law.
The question then is not whether these investigations should be exempted from the FCRA, but how. We offer proposed language in our written testimony which exempts these investigations from the definition of a consumer report, but at the same time our language mandates that such investigations must be done in good faith with the summary of the conclusions provided to the individual and that if a credit report is pulled, of course the regular provisions of the FCRA would stay in effect.
We fundamentally disagree with the position of the FTC that third-party employment investigations should be defined as consumer reports. As the Golden State Warriors case illustrates, it is simple to allege a complaint that an employer has engaged in multiple violations of the statute. If employment investigations are considered consumer reports for purposes of this statute, FCRA boilerplate language will be included in virtually every employment lawsuit filed in this country.
This is why these investigations need to be fundamentally exempted from the FCRA and enforced as they have effectively been done for the last thirty-six years, as Chairwoman Castro testified earlier this morning. The reason why the FCRA has not been a problem for the last thirty-six years in employment investigations is because up until the time of the Vail Opinion, nobody could have possibly imagined that an employment investigation would be defined as a consumer report within the meaning of the statute.
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So we really begin with a new baseline, Madam Chairwoman, and that baseline is from the Vail Opinion forth, and the Salazar case is a specific consequence of what the future lies ahead for us unless we fundamentally change this statute as we recommend.
Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. I thank you very much.
Now we have Janet Bashen. Ms. Bashen founded the S.J. Bashen Corporation in 1994, a consulting firm based in Houston, Texas, and serves customers by, as I understand it, investigating allegations of civil rights violations and employee misconduct. Ms. Bashen is the President and CEO of the firm and has a lot of extensive on-the-ground experience so to speak. Ms. Bashen. Again, I want to remind everyone about the five-minute rule. Mr. Lotito did very well, exceptionally well.
STATEMENT OF JANET E. BASHEN, PRESIDENT AND CEO, S.J. BASHEN CORPORATION
Mr. LOTITO. Thank you, Madam Chairwoman. I would like to extend my gratitude to Chairwoman Roukema and to the subcommittee Members for this opportunity to testify. Again, my name is Janet Bashen. I am Founder and President of S.J. Bashen Corporation, the most prominent human resource consulting firm in the country that specializes in investigating allegations of civil rights violations and employee misconduct. S.J. Bashen consultants collectively have investigated thousands of these claims, probably more than any third party in the country.
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We have never requested a credit report. The FTC interpretation of the FCRA has ignited tremendous controversy and debate. To resolve this issue it is imperative to analyze the FCRA and civil rights laws collectively rather than evaluating these complex issues only in the FCRA context. After such an analysis, the subcommittee will undoubtedly conclude that third-party investigations regarding civil rights violations and employee misconduct must be exempt from the FCRA's required procedures.
It is acknowledged that FCRA was enacted by Congress in response to the increasing public concerns about the rights of consumers and expanding use of credit in our society. Consumer reports are completely discretionary and have been historically designed to garner credit history. The FCRA was not enacted to prevent, identify, and remedy workplace discrimination. None of the FTC standard literature reference workplace discrimination or employee misconduct.
Nonetheless, the FTC Vail Opinion letter has expanded the FCRA's purview to include claims of discrimination and harassment in the workplace. As a result, civil rights laws that have protected employees for thirty-five years are in jeopardy. Under civil rights laws, employers risk liability for the acts of employees, vendors, and customers who discriminate against employees. The Supreme Court and the EEOC affirm the duty to investigate complaints of harassment establishing an affirmative defense to liability only when employees exercise reasonable care to correct promptly any harassing behavior.
The FTC Vail Opinion letter potentially undermines the preventive and remedial essence of all civil rights laws by discouraging employees from complaining of harassment, by inhibiting employee witnesses from participating in harassment investigations, and by stifling witness candor. Impartial investigations are more readily obtained by a third party who does not have personal or a professional relationship with the complainant, witnesses, and the accused.
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Further, a third party does not have a vested interest in a favorable outcome and is often perceived as detached and neutral by the employee.
Case study: A recent investigation was conducted by my company, a large national corporation asked us to investigate a racial harassment investigation. The complaining employee was recently promoted, African-American female came to work and found a noose hung in her office doorway. This employee was skeptical of the internal investigation and feared further retaliation when she complained. When the company told her that an outside consultant was hired to investigate, her fear subsided. In fact she said ''Oh, Lord, I am so glad to see you.'' After guarantee of confidentiality, three co-workers came forward and named the same employee who hung the noose. Armed with this independent and credible evidence garnered by the employer, the employer took swift and appropriate action and terminated the employee.
Under the FCRA's requirement, we would at first request permission of the accused to conduct the investigation. We would have to ask permission from the person who hung the noose. This is ludicrous. We would be required to show a copy of the report to the accused which would include witness names and information.
Third, the employer would be required to wait a period of time before terminating this employee. During this waiting period, a fear of retaliation against witnesses is heightened. We could then be required to reinvestigate these allegations given these and other FCRA requirements and an employer would be forced to choose between a qualified, neutral third-party investigator, and using internal personnel who may be biased or may not have the expertise.
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Third-party investigations of civil rights violations protect employees and employers. Therefore, civil rights and employee misconduct investigation must be exempt from the FCRA. We respectfully implore the subcommittee to amend the FCRA accordingly.
Chairwoman ROUKEMA. Thank you very much, Ms. Bashen.
Now we have Mr. Mark Dichter. Mr. Dichter is a partner in the law firm of Morgan, Lewis & Bockius LLP; and for the past thirty years, he has counseled and represented employers in all aspects of labor and employment law. He is also Chairman-Elect of the American Bar Association Section on Labor and Employment Law. You bring expert expertise to this table today. Thank you very much for being here.
STATEMENT OF MARK S. DICHTER, PARTNER, MORGAN, LEWIS & BOCKIUS LLP, CHAIRMAN-ELECT, AMERICAN BAR ASSOCIATION SECTION ON LABOR AND EMPLOYMENT LAW
Mr. DICHTER. Thank you Madam Chairwoman and Members of the subcommittee and thank you for this opportunity to testify on this very important issue. I am testifying here as a private practitioner not on behalf of the ABA or its labor employment law section although I will address in part the position of that section which is attached to my written testimony.
We are very pleased that the subcommittee is addressing this very important issue which concerns employers as you have already heard, employees and Government agencies alike. Word of the FTC staff opinion applying the Fair Credit Reporting Act to law firms investigating sexual harassment allegations sent shock waves through the employment community. No one, I respectfully submit, even Congress, ever imagined that a law firm investigating sexual harassment or investigating alleged securities fraud would be considered a consumer reporting agency preparing a credit or consumer report subject to the Fair Credit Reporting Act. That simply wasn't, I submit to you, in anybody's scope prior to the Vail Opinion.
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Employers were aware that they are regulated by the EEOC, by the Department of Labor, by the NLRB, but now we have the Federal Trade Commission issues to deal with in terms of the employment context. Clearly there would not be such broad scale agreement as there is here today of the need at least in part to amend the law had there been the intent with the amendments to cover such investigations in their full nature. So clearly that could not have been the intent, because everybody seems to agree that we should not have the full application.
The major concerns with this interpretation of the Fair Credit Reporting Act to employment investigations applies not only of course to sexual harassment, but all sorts of other areas and we have outlined some of those in our written testimony. Securities fraud is a perfect example of that kind of issue. Safety and health issues are another perfect example of those.
These issues led the governing council of the ABA Labor and Employment Law Section, which consists of 21,000 attorneys who represent all aspects of employment law: plaintiffs, unions, employers, Government agencies, and neutrals, by consensus, with all of the diverse interests, to express their concerns in their letter to the FTC.
Because the ABA is comprised of attorneys who come from this diverse background, we are also very committed to arriving at agreements by consensus, and we hope that the kinds of discussion today, through these hearings, will lead to a solution that can reach a consensus with all of the interested parties. And we have an ABA task force, and Rick Seymour, who already testified, is part of that task force which is working on a consensus solution.
Page 58 PREV PAGE TOP OF DOC The provisions of the Fair Credit Reporting Act, which may make sense when applied to a traditional credit report, simply don't make sense when they are applied to the kinds of investigations you have heard about todaythe outside investigations of employer misconduct. Obviously, provisions to get advance approval; provisions to provide the full details of the report; verifying information that may be more than three months old; not relying on information more than seven years old; requirements about how the investigation should be conducted in terms of best possible of sourcesmaximum possible accuracythose all are kind of like wonderful things to aspire to, but in the context of reality they are simply prescriptions for increased litigation over employment investigations.
You have already heard about the need for outside organizations such as law firms or experienced organizations like Ms. Bashen's to investigate these kinds of complaints because of their special expertise; because they provide an impartial objective, non-biased view particularly required in many different circumstances; sometimes the need for special counsel when you are talking about securities investigations.
Many employers simply don't have the staff or the expertise to do these in-house. Employees themselves may prefer to have these done by outside organizations; and as you heard from Chairwoman Castro, it is quite common to have Government agencies seek to have outside organizations conduct such investigations. As a management attorney I think one of the things that employers don't need is another Federal agency to regulate the employer/employee relationshipwe already have numerous agencies regulating that.
Employers do recognize the need to protect employee rights, and I think we would all have been better off had the clock been where it was a year ago before the Vail Opinion with our proceeding as if the Fair Credit Reporting Act did not apply to such investigations. That was the world that existed prior to that opinion. No one ever suggested prior to that opinion that we should change the law or apply the law. There wasn't some outcry that we need to have the Fair Credit Reporting Act apply to investigations of sexual harassment. That wasn't what was coming before Congress. It wasn't what was coming before the Federal Trade Commission even.
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But nonetheless, we are here today. We have that opinion and therefore I think we are in a position to find the best possible resolution to that and to do that in the promptest way possible so we can clear the air and return to a more sensible approach to such investigations. And there appears to be widespread support for that, and therefore I personally support the idea of reaching some consensus resolution to enable such investigations to go forward. Thank you for this opportunity to testify.
Chairwoman ROUKEMA. Thank you, Mr. Dichter.
Margot Saunders. Ms. Saunders is a Managing Attorney for the National Consumer Law Center and her testimony presented here today is officially on behalf of the U.S. Public Interest Research Group. We welcome you here today and welcome your insights based on your experience through the National Consumer Law Center.
STATEMENT OF MARGOT SAUNDERS, MANAGING ATTORNEY, NATIONAL CONSUMER LAW CENTER, ON BEHALF OF THE U.S. PUBLIC INTEREST RESEARCH GROUP (PIRG)
Ms. SAUNDERS. Thank you, Madam Chairwoman. I also appreciate the opportunity to testify today on behalf of our own low-income clients and the U.S. PIRG. I would like to point out that attached to our testimony are comments filed by the AFL-CIO, and I will be reading from those comments partly.
The first and most important point that we want to emphasize today is that the privacy protections of the Fair Credit Reporting Act were applied to the employment area deliberately and appropriately because of serious abuses of employees. The investigated employee may be the wrongdoer or the victim. We cannot proceed to carve out broad exemptions to this important law on the assumption that every investigated employee is guilty. If not guilty, the employee may be more than just mistakenly accused. The accusation may be malicious or vindictive, because the employee is a woman in a male environment, a union organizer, a minority person, or simply disliked. Any introduction of increased secrecy in the employer's use of third-party investigations must be balanced by the understanding that secrecy can foster injustice as well as help ferret out injustice.
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There has been a lot of discussion today about the unintended consequences of covering third-party investigations, but I would point to the Congressional Record from 1971, where Senator Proxmire, who was the original sponsor of the Fair Credit Reporting Act, specifically spoke to the problems that can result from third-party investigations in the employment context.
It is quite clear from this thirty-year-old record that the application of this law to these types of investigations was deliberate. There are also FTC letters going back to 1971 that specifically apply the FCRA to employment-related investigations. What was new about the Vail letter was its interpretation of the new requirement in the 1996 legislation that the employee must receive notice, and must give consent, before the third-party investigation in the employer context goes forward.
The 1996 amendments resulted from bills that were introduced in 1991. If you look at the news media from that time, there were numerous stories of third-party employer investigations of employees and the problems that those investigations were causing. There was clear legislative history that shows that the originally proposed 1991 amendments requiring notice and consent of those employees were a reaction to these news stories.
Having said all that, we do agree that some amendments are appropriate in this context. We agree that it would be appropriate to remove the up-front requirement for notice and consent. However, we think if there is no adverse reaction after the investigation, there should be some notice to the employee that there was an investigation.
Page 61 PREV PAGE TOP OF DOC We also want to further limit the types of illegal activity that are specifically investigated. In my 1 1/2 minutes, I want to quickly read to you some information provided by the AFL-CIO as to why it is so important that the protections of the FCRA apply to third-party investigations of employees. Some employers use investigations as a surveillance tool to deter employees from exercising their rights in the workplace, including enforcing laws such as the Fair Labor Standards Acts, and from exercising their rights under the National Labor Relations Act to organize unions.
Investigations themselves can contribute to workplace discrimination against non-traditional supervisors or they can be a means by which employers pursue personal vendettas or seek to obtain personal information about their employees in general. Under the pretext of investigating allegations of suspicions of theft, product tampering, drug use, racial or sexual harassment and other illegal conduct, the third party investigators gain access to a wide range of information about workers.
We do agree that there should be some changes, but we urge those changes to be narrow and limited and focused to the specific problems caused by the Act. Thank you.
Chairwoman ROUKEMA. I thank you. I have a specific question that I am not going to take an oral response on. I want something more in writing and I believe that at least the Chamber of Commerce and perhaps Mr. McClain addressed this in some form or another. I want the witnesses to give me, with some specificity, in writing directed for my attention, but you will understand it will be included in the record, but with some specificity how you would agree with Mr. Sessions' proposed legislation and how that addresses positively the concerns that you have expressed here today or if not then what area you think needs to be moderated.
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I do hear that there is broad-scale agreement. I am confident we can reach a consensus. But I think that Mr. Sessions has laid down a marker here and his efforts are to be commended and they have impressed me. I want to know from your experience in the field particularly Mr. McClain and Mr. Bokat, but anyone else who wants to address the question how you wouldhow you evaluate the Sessions' proposal.
Mr. MCCLAIN. Be happy to.
Chairwoman ROUKEMA. Thank you very much. Again, send it to the subcommittee here to my attention, my personal attention. Thank you. I do want to acknowledge now my colleague, Mrs. Maloney, who has taken a deep interest in this; and I am sure that we welcome her here for this panel.
Mrs. MALONEY. Thank you very much, Madam Chairwoman. I would just like to ask a question following up on what Mrs. Saunders raised that it should be narrower and more focused. It has been suggested that a precise list of statutes in addition to, say, Title VII of the Civil Rights Act could be used to carve out exceptions to the disclosure and consent provisions of FCRA. Is that feasible in your views? Would you support that kind of effort? I am directing the question to Ms. Saunders actually in response to your testimony, but I also would like Mr. Lotito from Human Resources Management to comment if he would and just anyone else on the panel who would like more focused statutes.
Ms. SAUNDERS. Were you directing the question to me?
Page 63 PREV PAGE TOP OF DOC Mrs. MALONEY. Yes. Because you said it should be more narrow and more focused and one way to do it would be a precise list of statutes.
Ms. SAUNDERS. Specifically, we agree that the up-front notice and consent provision should be waived for a specific narrow delineation of statutes. The reason we think that the type of illegal activity should be specifically delineated is to ensure that third-party investigators are not sent out on ''fishing expeditions'' which can have the unintended consequences that I just described.
Mrs. MALONEY. Mr. Lotito.
Mr. LOTITO. We don't think it would be successful, because not only do you have to give consideration to all of the statutes at the Federal level, but then you also have to give consideration to all of the various State statutes, which are sometimes consistentwhich are sometimes more restrictive. You would also have to take into account investigations that would not necessarily be done under statutory requirements, but also under common law provisions whether the covenant of good faith in fair dealing, for example, has been violated. So it would be a laundry list that I don't know could ever be inclusive enough. In addition, you would still have problems with some of the other definitional issues, such as, you know, reasonable procedures and the like. So I think that all you are really asking for is for us to reconvene here in another couple of years to figure out the other unintended consequences of such an approach.
Mrs. MALONEY. Would anybody else like to comment?
Page 64 PREV PAGE TOP OF DOC Mr. BOKAT. I couldn't agree more with Mr. Lotito. I think it will be an impossible task. There is also the question of very legitimate employerand employer's own rules of conduct in the workplace. For example, many employers have rules dealing with sexual harassment issues that go beyond the statutory requirements. The statutes have been interpreted to say usually you need repeated violations of bad behavior, sexually bad behavior, whether it is use of obscene language and so on; but many employers have policies that go beyond that to try and stop it in its incipient stages. It is those kinds of things where you may have a very legitimate reason to do an investigation that wouldn't reach the statutory level.
Mr. SEYMOUR. It would be true, however, that the conflict between the requirements of the Fair Credit Reporting Act and the requirements of the fair employment laws would be completely addressed by a limited exemption covering the fair employment laws, State analogues and employer efforts to comply with those by having zero-tolerance policies. However, the thing is worded, it is possible to take care of the head-on nature of the present collision of statutory policy by a more narrowly crafted exemption.
Mrs. MALONEY. Such as? What is the more narrowly crafted exemption?
Mr. SEYMOUR. That's the one I was trying to give. I am not very good at trying to write language in my head and deliver it orally simultaneously, but the idea is the exemption would be for investigations conducted to ensure compliance with Federal laws, regulating employment relationship with Federal antidiscrimination laws, their State analogues and to ensure compliance with employer policies that are designed to fulfill compliance, and zero-tolerance policies would be a policy that is designed to make sure that they don't go over the line. The employer may choose to draw the line considerably closer in order to avoid a statutory violation. One can craft language that takes care of that. That is the most immediate and most pressing reason that we are here today. At least that can be done. Perhaps it could be done similarly for some of these other provisions. I am not sure that it is impossible to have a list of laws that more narrowly confines it.
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Chairwoman ROUKEMA. Time is almost up. Mr. McClain was waiting patiently.
Mrs. MALONEY. If we could just hear, Madam Chairwoman, the comments from the two gentlemen.
Mrs. ROUKEMA. Time is running out. Go ahead, Mr. McClain.
Mr. MCCLAIN. I would just like to remind the panel that spying on the union is an unfair labor practice and the National Labor Relations Board frowns on that. If I rendered a report for an employer that contained information it was spying on the union, I would have to give a copy of it to the union as well. And the problemthe difference in the fixes here, most of the people at this table agree with the remedy that we should have and that is to change section 603. The FTC suggestion is to change section 604. They want to keep investigators and any other persons involved with these investigations as consumer reporting agencies. Yet when you pick up the Fair Credit Reporting Act and read this whole thing, it is nothing but information about how to correct credit errors. There is a little bit about employment, but I don't believe that thirty years ago it was ever intended that it should be handled this way.
Therefore, it is very important that when the corrections are made, that we remove these investigations from section 603 and not do it like section 604. As a result of what the FTC is attempting to do, they are only going to complicate it. It is only going to bethere is going to be more litigation and it is tinkering with baling wire to fix your car when you need a new engine.
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Chairwoman ROUKEMA. Mr. Dichter, go ahead.
Mr. DICHTER. Just briefly, we attached an appendix to my written testimony a list of a number of statutes. Beyond the written statutes, you have problemsan employer may have a code of ethics that it wants to apply in the business contextvery appropriately so. It may not be a specific statute that requires that, but in terms of its dealings, there may be allegations of this nature. We already have many protections against improper investigations. Trying to apply the Act and fix it with exemptions is the wrong way to go about it.
Mrs. MALONEY. Thank you very much, Madam Chairwoman. My time is up and I would like to submit questions for the panel to come back to the subcommittee since time is of the essence.
Chairwoman ROUKEMA. Thank you. We will have to go over for a vote. I hope we can get Ms. Schakowsky's questions in. She is intensely interested in this subject.
Ms. SCHAKOWSKY. First of all, Madam Chairwoman, I really want to thank you for allowing me to participate in this hearing. I am a Member of the Full Committee, but not the subcommittee so I appreciate that and the fact you are taking up this issue as well as Mr. Sessions taking up this important issue. I do have an opening statement I would like to submit for the record with your consent.
Page 67 PREV PAGE TOP OF DOC Chairwoman ROUKEMA. Yes.
Ms. SCHAKOWSKY. Just do say that while I agree that we must do something after conferring with some union and consumer groups that I work closely with, I have introduced H.R. 4373 which is a narrower definition and does address these issues. I understand how complex it is, and I look forward to working with the Chairwoman and Mr. Sessions to come up with the best solution.
Let me just ask two quick questions. Mr. Dichter, in your testimony you not only refer to, but include the ABA letter and I just wanted to ask you if it is your understanding that this letter today represents the current consensus of the ABA?
Mr. DICHTER. That letter is the only official position taken by the governing council of the ABA. So there is no other position that the governing council has taken other than that. However, certainly efforts of compromise in reaching consensus are consistent with the way we operate and to the extent the various organizations that our members represent can reach a consensus, that is clearly desirable; but the only official position is that one.
Ms. SCHAKOWSKY. I understand that is the only written one, but is there not reconsideration and a dialogue continuing about this right now?
Mr. DICHTER. There is no official action taken by the section beyond the letter. There is a task force that we have that is working to try to reach a consensus, yes.
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Ms. SCHAKOWSKY. Would you say that this reflects the current consensus right now at the ABA? I understand it is the only letter right now, but is this reflective of a current consensus at the ABA?
Mr. DICHTER. I can't speak to that, because the only way we take action is through a governing council vote. No one of us can reflect what is the present consensus beyond
Ms. SCHAKOWSKY. I am not asking you what is the current consensus. I am asking you if this letter now reflects the current consensus or if you are aware of a process under way that may result in another?
Mr. DICHTER. As I said, I thought before that there is a task force from the ABA which is working on reaching a consensus, and I think reaching a consensus would be consistent with the objectives and the structure of our subcommittee. But to say anything beyond that, I don't think I am empowered to say.
Ms. SCHAKOWSKY. But I do then want to leave with the point that this letter is not the final word from the ABA and though it is included in the testimony that there may be a different final word, because there is ongoing dialogue. That is a statement and not a question. Thank you.
I wanted to ask Margot Saunders. There has been a suggestion that violations of the FCRA will subject employees to unlimited punitive damages and consequently we should strip all worker protections from the FCRA, because employers won't investigate any wrongdoing including sexual harassment for fear of incurring this liability. I wanted you to comment on that, if it is truly that high a risk.
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Ms. SAUNDERS. I appreciate the opportunity. I would like to point out that the Act does indeed have unlimited punitive damages. However, the standards articulated by the courts for proving punitive damage awards under the FCRA is very high. Punitive damages require a knowing and intentional act in conscious disregard of the rights of others with willful misrepresentation or concealment to yield punitive damages under the FCRA.
Moreover, I would like to briefly respond to the case that was brought up by one of the previous witnesses. This is the case of the guy who was fired for snorting cocaine and then filed a lawsuit. If he cannot prove damages under the FCRA, he will not prevail; and it is hard to imagine what his actual damages in that circumstance would be. In fact, the law already has a provision for allowing the court to award attorney's fees against a plaintiff who brings an action for harassment without justifiable reason. So I would say the punitive damages argument is really a red herring in this situation.
Ms. SCHAKOWSKY. Thank you very much.
Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. Thank you. You had the answer to your question?
Ms. SCHAKOWSKY. Yes.
Chairwoman ROUKEMA. Thank you very much.
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I think we have come under the gun here. We have to leave now for a vote, but your testimony has been very valuable. I think we have clearly seen the road to the future here today with this panel and the previous panels. I would just hold out the offer to continue to work with us and submit further information, because I am quite confident that this issue is going to really take hold and be worked on this year. There are going to be a good number of people in the industry as well as among the human rights groups and the legal profession that are going to want to see a conclusion. So we look forward to working with all of you and thank you again for your testimony.
[Whereupon, at 1:10 p.m., the hearing was adjourned.]