Internal investigations are not new in human resources. Employee complaints of sexual harassment or discrimination, or of retaliation for making these complaints, have provided healthy fodder for internal workplace investigations for many years.
In the era of the whistleblower, however, things have gotten much more complicated. Complaints of sexual harassment and discrimination are being replaced by, or perhaps coupled with, complaints of retaliation for blowing the whistle on alleged illegal conduct, such as financial fraud or violations of complex regulatory schemes to which the employer is subject.
For example, an employee may claim that her financial services employer discriminated against her because of her national origin, and retaliated against her for blowing the whistle on violations of anti-money laundering (AML) laws, or laws surrounding prohibited transactions, or environmental laws, or accounting or shareholder fraud.
We will call these "hybrid" claims.
Assessing the legitimacy of a claim that an individual was retaliated against for complaining that a financial services company was not properly monitoring for or reporting money-laundering may require knowledge that goes beyond what's taught at a human resources refresher course.
Internal investigations of hybrid claims will encompass, and require, an understanding of issues that go well beyond complaints of discrimination or harassment. Companies in industries as varied as financial services, energy, pharmaceuticals, health care, mining, and manufacturing, for example, are regulated by overlapping federal and state agencies with responsibility for enforcing highly complex federal and state laws, a violation of which may carry significant criminal penalties.
Publicly traded companies (as well as companies with contractual relationships with those companies) are additionally subject to the Sarbanes-Oxley Act and the Dodd-Frank Act, which provide their own overlapping body of laws and regulations.
The Role of Human Resources
It would be unusual and unwise, when presented with a hybrid retaliation claim, for only Human Resources, or for that matter any one department of a company, to be solely responsible for the investigation. Instead, it is likely that three or more interests, or departments, in the company—Human Resources, Compliance, and Legal—may, or should, have joint responsibility for carrying out these investigations.
These different departments will necessarily focus on different activities and inquiries in any investigation. And these different teams need to understand that their own activities, if not carefully coordinated, can increase their client's legal risk.
For example, a human resources executive investigating a whistleblower claim may find herself focusing on whether the whistleblower in fact suffered retaliation for making the complaint. To bring such a claim successfully, the whistleblower normally needs to demonstrate that she had a reasonable basis for believing that the employer was engaging in wrongful or perhaps illegal conduct. The Human Resources executive therefore may explore whether the company's conduct could give rise to a reasonable basis for believing that there was a violation of law.
A swirl of acronyms in the financial services industry alone illustrates the scope of required knowledge—human resources employees in that world must have some familiarity with AML (anti-money laundering), BSA (Bank Secrecy Act), CDD (customer due diligence), FinCEN (the U.S. Department of Treasury's Financial Crimes Enforcement Network, KYC (know your customer), ROE (Report of Examination), SAR (Suspicious Activity Report), and many more issues.
But if Human Resources concludes that the individual in fact did have a reasonable basis for believing that wrongdoing occurred, and then reports this conclusion in writing, this may be quite unhelpful to counsel who are assessing the risk of criminal prosecution against the company—indeed, it could constitute an admission by the Company, and hence have a significant impact on the employer's ability to defend a government prosecution resulting from the alleged violation.
Roles of Compliance and Legal
Compliance's focus will likely be less on whether retaliation against the whistleblower occurred, and more on whether the alleged wrongdoing about which the whistleblower complained actually occurred. Compliance may feel the need to retain a third party with particular expertise in the regulatory subject matter of the complaint (e.g., for a financial services company, anti-money laundering and the various laws that surround that activity), in order to be sure that the investigation can be presented as unbiased.
The general counsel or legal department will have their own series of issues and concerns. These may include keeping the board informed; considering shareholder interests and related risks; considering the possibility that individual employees or the company may be accused of criminal conduct; thinking about whether individuals should have their own counsel; considering the possibility of making an appropriate disclosure to third parties, including, quite possibly, enforcement agencies; notifying the company's media experts about any reputational risk, and putting in place or activating a crisis management team; dealing with social media issues; and notifying appropriate insurance carriers.
HR, Compliance and Legal need to coordinate any such investigation with those who understand the underlying issues, and even more importantly, with those who will be responsible for investigating and defending those claims, and to work together cooperatively in carrying out the investigation.
Outside Counsel: Conflicts
The process of retaining outside counsel, if not carefully considered in advance, may give rise to additional difficulties.
In many companies, Human Resources, Compliance, and Legal may traditionally have had leeway to engage counsel of their choice. Those firms may or may not communicate effectively with each other. Indeed, they may not know each other well, they may not have worked together in the past, and, given their relationships with different key employees at the company, they may have different and competing personal agendas that can interfere with their clients' best interests.
Thus, it is not only essential for these internal teams to collaborate; the counsel they retain must also establish effective working relationships. This collaboration may or may not come from the client itself. Outside counsel who perceives a lack of collaboration is hindering the investigation or interfering with the client's best interests should diplomatically raise the issue with their in-house contact, making as clear as possible that their interest is in protecting the client from conflicting agendas, and not seeking to dominate in their particular role.
Employers should put in place well considered protocols for investigating claims of alleged internal wrongdoing, that anticipate and provide guidance for avoiding the issues identified above.
These protocols should provide guidelines that assign investigation roles and responsibilities among interested stakeholders, from the general counsel, to the chief compliance officer, chief risk officer, head of human resources, and the audit committee.
The policies should identify "intake channels" for complaints, whether they are raised through supervisors, or managers, or human resources, or a hotline, via external auditors, or the legal or compliance departments.
They should provide "triage" guidelines for analyzing the nature of the claim and to develop a response plan based on numerous factors, such as the nature and complexity of the allegations, the level of personnel involved, the potential of financial, legal, reputational, business, contractual, or customer risk, or the potential impact on compliance obligations or controls.
The policies should identify methods to preserve internal evidence, and provide guidance on distributing litigation holds.
The policies should identify individuals or groups with primary responsibility for carrying out the investigation, based on an assessment of these factors. They should provide guidelines for escalating particular issues to an oversight body such as an audit committee, based on, again, issues of whether the alleged activity involves illegal or fraudulent activity, material violations of law, commission of crimes, whether physical harm has occurred, and the level of financial risk.
These protocols should also address other key questions: When should the company retain an independent investigator? How should the company document the investigation, if at all? To what extent should the company report back to the complaining employee?
When, if ever, should the company permit the employee's counsel to be present during a witness interview, and what role, if any, should the employee's counsel play?
Of course, issues relating to application of the attorney-client privilege are often paramount: Should the investigation be carried out in a manner designed to maintain the privilege? How can the privilege be maintained? Should the company waive the privilege?
Of course, the protocols should identify best practices for consulting outside counsel, most likely by forming an initial team and coordinating among outside counsel team members. In some circumstances, this may require executing joint interest or joint defense agreements.
Finally, the protocols must be pushed out to key stakeholders. Advance training in implementing these and carrying out an investigation is essential.
Companies of every size should anticipate and be ready to carry out a multidisciplinary investigation. These investigations require coordination of internal resources and key external advisors, and an ability of all of those stakeholders to work cooperatively and in a manner that is in the best interests of their client.
Philip M. Berkowitz is a shareholder and U.S. co-chair of Littler’s International Law Practice Group and co-chair of the Financial Services Industry Group. He is based in the firm’s New York City office. This article is reprinted with permission from the May 12, 2016 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.