Fire Proof

Rumors are flying. Everyone in the office is talking about a fellow employee stealing supplies, taking drugs or using office computers to run a porn Web site. Time to check it out and take action.

But not too fast. "Before disciplining anyone for misconduct, conduct a full and fair investigation," says Jeff Pasek, an attorney specializing in employment law with Cozen O'Connor in Philadelphia. That way, you'll have an excellent defense if you end up in court. The opposite is also true: A jury hearing that you fired someone after false accusations and a slapdash investigation may be more sympathetic to the ex-employee.

In one case, food products were disappearing from a retailer's warehouse, and a security guard reported seeing a supervisor eat a bag of chips from the inventory. The retailer promptly fired the supervisor, without talking with her or checking with other witnesses. Worse, when gossip started spreading, employees were told the woman had been fired for stealing.

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The woman sued, claiming defamation, and the jury awarded her $90,000 in compensatory damages and $1.4 million in punitive damages. While the verdict was later overturned by an appellate court on a legal technicality, Pasek contends that the case remains a textbook example of how not to conduct an investigation.

Doing It Right

So how do you investigate properly? "I don't think there's ever been a perfect investigation," Pasek says. "The issue is how to do it well enough." He offers the following suggestions:

• Plan in advance how you'll handle an investigation should the need arise. "That way, you won't have to scramble in crisis mode," Pasek says.

• Appoint an objective party to investigate. This may seem obvious, but Pasek has seen cases where the subject of a sexual harassment complaint was appointed to investigate.

• Investigate promptly and thoroughly. In cases of harassment, prompt action can protect you from liability. "If a company doesn't act quickly on a complaint, it can be held liable, even if the harassing conduct had stopped before management took action," Pasek says.

• Be objective and fair. "Imagine the case before a jury," Pasek says. "People decide these cases, and they will expect your tactics to pass the test of fairness."

• Unless it compromises the investigation, tell the employee what's going on and allow a response.

• Don't compromise an employee's reasonable expectation of privacy. Informing employees in advance that you retain the right to investigate misconduct eliminates this expectation.

• Don't share your suspicions or the results of the investigation with third parties. Breaching confidentiality is inviting a defamation lawsuit.

• If high-level executives are part of the problem, hire an outside investigator. Otherwise, an employee assigned to investigate may fear reprisals.

• Take a lesson from Enron and Arthur Andersen. If the problem is financial high jinks, don't assign the investigation to someone from accounts payable or from the accounting firm that advises your business.

• Interview witnesses effectively and document everything. Cover what occurred, where and when it happened, who was involved, and whether it could have been avoided. Be consistent in what you ask and what you do with the information.

• If the employee requests representation, don't proceed without it.

The list of cautions may be daunting, but doing it right can fend off liability that could be worse than the original problem.

Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.