Fire Proof A thorough investigation is the only way to build a case against problem employees.

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

But not too fast. "Before disciplining anyone formisconduct, conduct a full and fair investigation," says JeffPasek, an attorney specializing in employment law with CozenO'Connor in Philadelphia. That way, you'll have anexcellent defense if you end up in court. The opposite is alsotrue: A jury hearing that you fired someone after false accusationsand a slapdash investigation may be more sympathetic to theex-employee.

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

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

Doing It Right

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

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

• Appoint an objective party toinvestigate. This may seem obvious, but Pasek has seencases where the subject of a sexual harassment complaint wasappointed to investigate.

• Investigate promptly andthoroughly. In cases of harassment, prompt action canprotect you from liability. "If a company doesn't actquickly on a complaint, it can be held liable, even if theharassing 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 tacticsto pass the test of fairness."

• Unless it compromises theinvestigation, tell the employee what's going on and allow aresponse.

• Don't compromise an employee'sreasonable expectation of privacy. Informing employeesin advance that you retain the right to investigate misconducteliminates this expectation.

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

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

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

• Interview witnesses effectively anddocument everything. Cover what occurred, where and whenit happened, who was involved, and whether it could have beenavoided. Be consistent in what you ask and what you do with theinformation.

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

The list of cautions may be daunting, but doing it right canfend off liability that could be worse than the originalproblem.

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