Mishandling Investigations of Employee Misconduct – That’s What She Said

Steve Carell stars in The Office. His character, Michael Scott, generally delivers laughs as he bungles his way through managing Dunder Mifflin. But in real life, his management “approach” is exactly the sort of thing that can turn into big and increasingly expensive headaches for employers. In fact, according to the Manpower Employment Blog (citing to a 2008 study from Jury Verdict Research) employment discrimination verdicts rose 70%, from $147,500 in 2006 to $252,000 in 2007. Then there are attorneys’ fees. A reasonable estimate puts such fees in the ballpark of $95,000 for a single plaintiff lawsuit that settles just short of trial.

But it is not just the money that employers need to consider: There is also the time and aggravation spent involved in litigation, which includes the time to respond to written discovery requests, gather responsive documents, prepare for depositions, etc. And this business interruption generally falls upon owners and management, who already are working 25 hours/day, 8 days a week trying to “do more with less.” These costs and business interruption will continue to grow as litigation increasingly takes place in the context of digital “documents,” i.e., e-mail, backup tapes, databases, and the like. Such information must be specifically addressed under federal and state court rules, including the 2009 Amendments to the Michigan Court Rules. By way of illustration as to costs, in a 2007 employment related lawsuit, the cost for retrieving and reviewing a sampling of e-mails for seven former employees and two managers totaled $42,892.42 in an employment claim. See Henry v Quicken Loans, Inc, Case No. 4:04-cv-40346-PVG-SDP, Dkt. No. 384 (ED Mich Feb 20, 2007). I’m told that the e-discovery costs just for this sampling more than doubled when all was said and done.

Fortunately, most employers do not have a Michael Scott on their payroll, or if they do, they also have a counterbalancing voice of reason like The Office’s HR character “Toby” to properly address employment matters. And when it comes to these matters, employers and HR are generally well-prepared to respond to the “usual suspects,” i.e., sexual harassment, discrimination, and disabilities under state and federal law. But it is also important for employers to exercise caution in responding to these claims in the investigation phase. Otherwise, employers may inadvertently expand the litigation buffet  a plaintiff’s’ attorneys may choose from in filing litigation.

Take for example, defamation. Under Michigan law, a defamation claim requires a showing of (1) a false and defamatory statement concerning the plaintiff, (2) an unprivileged publication to a third party, (3) fault amounting to at least negligence on the part of the publisher, and (4) either actionability of the statements irrespective of special harm, or the existence of special harm caused by the publication. Hawkins v. Mercy Health Services, Inc, (1998). It is true that a Michigan employer has a qualified privilege regarding employee defamation when it comes to making statements to other employees whose duties interest them in the subject matter. Patillo v. Equitable Life Assurance Society of the United States (1993). A plaintiff, however, may overcome this qualified privilege by showing that the statement was made with actual malice, i.e., with knowledge of its falsity or reckless disregard of the truth. Gonyea v. Motor Parts Federal Credit Union, (1991). An employer may also lose the privilege.

For example, in Sias v. General Motors Corp., the Michigan Supreme Court held that no privilege extended to the defendant corporation when it called in fellow employees to explain the circumstances of the plaintiff’s separation. A corporate representative explained to employees that the plaintiff had been released for misappropriation of company property. These individuals, however, were not supervisors, personnel department representatives, or company officials, but employees in identical work. The Court even noted that, the employer was motivated by the seemingly legitimate business concern of restoring morale and quieting rumors. But despite this legitimate motivation, the Court still ruled against the employer.

While the  standards for overcoming an employer’s qualified privilege are high, it does create another hurdle that an employer must jump over in defending against litigation. And there is always the risk that a court may second guess an employer or find a question of fact as to whether the statements extended beyond those with an interest in the subject matter of the investigation.

In regard to investigating employee misconduct, there are no hard and fast rules for how to conduct an investigation, with the exception of doing it right the first time. In this regard, the following, while certainly not an exhaustive list, should be considered in consultation with counsel:

• If you haven’t already done so, develop a written policy outlining what steps will be taken in response to allegations of employee misconduct. This investigation policy should also be a component of a company’s overall policy for reporting workplace misconduct. Make sure, however, your company is committed to follow the investigation steps outlined in your  policy. Thus, do not commit to more than your company is willing to do in investigating matters;
• The question most often asked is whether the investigation should be conducted by an attorney. As a general rule, an attorney should conduct or — at a minimum — supervise the investigation. Aside from the author’s concern for job security, an attorney will likely be more independent and objective in assessing the facts. Further, the attorney-client privilege will be available to protect communications critical to the investigation and the attorney work-product doctrine will protect materials generated through the investigation;
• If counsel will not be used, it is especially critical for employers to give careful consideration in organizing and planning the investigation. This assessment includes determining who will conduct it, the likely key witnesses to interview, and how the investigation will be supervised; and
• Part of the investigation should include identifying likely sources of relevant documents and digital information. This point needs to be carefully considered because a party has an obligation to suspend any automatic deletion procedures and to otherwise preserve information once litigation is commenced or a party reasonably anticipates litigation, i.e.,  possibly investigating misconduct. In this regard and out of an abundance of caution, immediately enlist your IT professionals to make sure such information is preserved. If an employee’s company e-mail will be monitored, make sure it is done consistent with your company’s policy and applicable law.

Certainly navigating state and federal employment law is the first line of defense in avoiding employment litigation. But if when an employer must investigate an alleged violation under these laws, (or any misconduct for that matter) it is important to respond in a well-reasoned manner because an investigation is not risk free. Accordingly, employers need to look long and hard (in tribute to Michael Scott, “that’s what she said“) when it comes to investigating such matters because of the need to get the facts right, to minimizing any stigma that could follow an employee accused of misconduct, and – adding injury to insult – no employer wants to investigate one potential lawsuit only to create another.