The “Vail Letter”, FTC, FRCA, and Background Checks

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The “Vail Letter”, FTC, FRCA, and Background Checks

Attorney Judy Vail wrote to the Federal Trade Commission in April 1999 asking whether the recent amendments to the Fair Credit Reporting Act applied to sexual harassment investigations by outside organizations such as law firms. The surprising answer by FTC staff attorney Christopher Keller was “yes.” Suddenly, according to the FTC, employers retaining outside organizations to conduct workplace investigations must notify the employees involved that a report was being obtained, give the employees a copy of the report before taking any adverse employment action, and provide the employees with adequate time to challenge the report’s accuracy. These requirements did not apply if the company used its own employees to conduct the investigation.

When personnel directors are asked, their leading candidate for the administrative policy that should be consigned to legal oblivion, their collective response will likely be the “Vail Letter.”

The FTC did not and has not retreated from this position. However, every court that has addressed the issues has strongly disagreed with the FTC. To date, five district courts have each held the FTC’s rationale for the application of the FCRA to workplace investigations by third parties is “unpersuasive.” Employers anticipate that the courts of appeal will similarly join this legal mutiny and consign the Vail letter to the dead letter office.

The FTC position produces absurd results. This was dramatically shown by the Rebecca Johnson v. Federal Express Corp., 147 F. Supp. 2d 1268 (M.D.Ala.,May 18, 2001). Rebecca was a consumer service agent in Federal Express’Montgomery,Alabama, office. After she returned from a two-day suspension, Rebecca’s supervisors and managers began to receive frightening “apocalyptic messages.” Pager messages were received with the telephone numbers of local funeral homes and the Satanist number 666. Then, a chilling letter complaining about two of Rebecca’s supervisors arrived, only one month after the World Trade Center tragedies. It stated: “Someone is going to come in here one day and shoot up this place.”

Federal Express hired a forensic examiner and gave him samples of Rebecca’s handwriting. He reported there was a “high degree of probability” that Rebecca wrote the threatening letter. Federal Express then completed its investigation and fired Rebecca. She sued, arguing the company violated the FCRA by collecting her handwriting samples and commissioning the forensic examiner’s report. Rebecca claimed the FCRA entitled her to notice that the forensic examiner was preparing his report, a copy of his report, and an opportunity for rebuttal before she could be fired.

District Judge Ira DeMent rejected Rebecca’s reliance on the FCRA finding the Vail letter “not binding and not persuasive.” He decried the “false analogy” drawn by the Commission between employment decisions based on a consumer’s “general status” (such as credit histories and prior criminal convictions) and employment decisions based on a consumer’s “particular workplace conduct,” such as sexual harassment allegations or, in Rebecca’s case, threats of violence. As with earlier decisions, Judge DeMent noted the FCRA definition of “consumer report” did not cover reports “containing information solely as to transactions or experiences between the consumer and the person making the report.” This statutory exception has been held to exclude reports of drug tests and polygraph examinations from the FCRA. The forensic examiner’s handwriting analysis report was based entirely on information (i.e., handwriting samples) supplied by the consumer herself, namely Rebecca.

Judge DeMent, also in agreement with earlier courts, held the forensic examiner was not a “consumer reporting agency” under FCRA since he did not “regularly engage” in assembling consumer credit information. The examiner submitted an affidavit stating he usually worked for prosecutors and police departments in criminal matters and “less than ten percent” of his work related to “employment matters.”

Hazel Hartman v. Lisle Park District, 158 F. Supp. 2d 869 (N.D. Ill.,August 16, 2001), returned to the typical fact pattern of an outside law firm retained to conduct an investigation of workplace allegations. Judge Kennelly squarely stated “we reject [the Commission’s] construction of the statute.” Judge Kennelly went even further. He saw no difference between an in house investigator and an outside investigator. That last point strikes at the heart of the FTC position, since the Commission seeks to perpetuate this artificial distinction between allowable in-house investigations and disallowed outside investigations.

The unanimity of the district courts rejecting the FTC’s position is encouraging. Should the appellate courts similarly debunk the FTC, the emperor-has-no-clothes chorus will become deafening. If the Vail letter finally ends up in the dead letter office, the only mourners will be plaintiffs’ lawyers. Each year administrative agencies issue numerous guidelines and opinion letters. Employers must then decide, with the assistance of counsel, whether they must follow these pronouncements. Guidelines are simply the law as the agency would like it to be. They become accepted rules only if courts adopt them. If they remain un-adopted they disappear from the legal landscape.

For those interested here are three additional cases for your reference.

District Judge Robert Sweet held it had “doubtful application” to a report prepared by an outside law firm retained by Time Warner following an investigation of racial discrimination allegations, J. Edward Robinson v. Time Warner Inc., 187 F.R.D. 144 (S.D.N.Y. 1999).

Friend v. Ancillia Systems Incorporated, 68 F. Supp. 2d 969 (N.D.Ill.,September 22, 1999), similarly parted company with the FTC.

Tiffany McIntyre and Deneane Hibbits v. Main Street, 2000 U.S.Dist. LEXIS 19617 (N.D.Calif.,September 29, 2000)

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