February 2004

On December 4, 2003, President Bush signed into law the Fair and Accurate Credit Transactions Act of 2003 (FACT), which amends the Fair Credit Reporting Act (FCRA) to exclude third party investigations of employee misconduct from the definition of a consumer report under the FCRA. Specifically, FACT exempts from the FCRA's definition of a "consumer report" communications to an employer in connection with an investigation of "suspected misconduct relating to employment" or "compliance with Federal, State, or local laws or regulations, the rules of a self-regulatory organization, or any preexisting written policies of the employer.”

This is a positive change for employers because it removes significant obstacles to using outside attorneys or consultants to conduct employee misconduct investigations, including employment discrimination and workplace harassment investigations. Under FACT, employers no longer need to obtain an employee's consent before conducting an investigation and no longer need to provide notice to an employee before taking adverse action against him/her based on the results of the investigation.

Nevertheless, if an employer does take adverse/disciplinary action against an employee based in any part on the results of an investigation by an outside attorney or consultant, the employer must disclose to the employee a summary containing the nature and substance of the investigative report upon which the adverse action was based, but the employer need not reveal the sources of information. Thus, the names of witnesses, and the details of each witness statement need not be disclosed. FACT took effect on January 1, 2004.