In a recent advisory opinion letter, the Federal Trade Commission (FTC) declared that a sexual harassment investigation report furnished by an outside third party could be a consumer report under the Fair Credit Reporting Act (FCRA) and, therefore, subject to the law’s extensive notice and disclosure requirements. The letter was issued in response to an attorney’s questions about the application of the FCRA to sexual harassment investigations performed by third parties such as law firms.

The FTC attorney who authored the letter determined that a third party investigator fits the definition of a “consumer reporting agency” since it assembles or evaluates information on consumers for the purpose of providing a “consumer report” regarding incidents of harassment to the employer. The FTC attorney also indicated that the report about the sexual harassment investigation could be either a consumer report or an investigative consumer report covered by the FCRA because the report contains information about employees’ character, general reputation, personal characteristics, or mode of living; and the information would be used to make an employment decision about the employees.

Under the FCRA, an employer that requests a “consumer report” from an outside “consumer reporting agency” must comply with the FCRA’s comprehensive notice, authorization, and disclosure provisions. This means that an employer would have to notify involved employees about the sexual harassment investigation, obtain the written authorization of these employees before ordering the investigative report, provide notice before taking adverse action, and furnish a copy of the report to any employee who is terminated or otherwise disciplined as a result of the report.

This advisory letter is disturbing to many employment law experts. First, if any outside organization conducts a sexual harassment investigation, employers are now in the awkward position of having to provide the resulting report to an employee before the employee can be disciplined. Typically, these reports are considered confidential documents by employers and contain information about the complaining employee that an alleged harasser is not given. In addition, the report could be used against the employer in a future lawsuit. Further, because employers that use outside investigators must notify any involved employees prior to beginning a sexual harassment investigation and get their express consent to investigate, they may compromise the investigation by tipping off employees and allowing them to cover their tracks. As a result of this opinion letter, many employer advocates are calling for a revision to the FCRA to exempt sexual harassment investigations. A copy of the opinion letter is available on the FTC’s web site at www.ftc.gov/os/statutes/fcra/vail.htm