Compliance investigations: labor law pitfalls and guidelines for employers

By Pascal R. Kremp, LL.M. (Wake Forest)

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Compliance is still a hot topic, and the media continues to regularly report about major compliance cases. Companies that are not compliant with mandatory law may not only face severe fines, but also significant loss of reputation.

When corruption, bribery, tax fraud, violations of antitrust and competition laws, or other compliance breaches are first suspected, employers face immense pressure to investigate such misbehavior as quickly as possible. At the beginning of such compliance investigations, the primary focus is placed on reducing potential criminal sanctions, including fines. Only at a later stage does the investigation focus on the possible consequences for individual employees. It is not unusual at this point that the employer may then find itself in a very weak position and have to try to settle a termination case by making significant severance payments or face having to reinstate the employee, even in cases where the employee may have committed a criminal offense.

Employers are therefore well advised to not delay and consider potential labor law pitfalls at the outset of an investigation.

Gathering the facts

At the beginning of most investigations, comprehensive collection and screening of data is necessary to get a full picture of a misbehavior. This step is, however, also important for providing a thorough basis of evidence for all further steps. To prevent losing any data, employers may want to consider issuing employees a legal hold notice to not delete any data connected to the subject of the investigation. Such a notice can include the warning that deleting this data may be met with disciplinary action.

An employee’s e-mail inbox is one of the most promising sources of information during an investigation. Many employers have, however, no clear rule as to whether the company e-mail address may be only used for business or also for private purposes. Some courts take the view that the employer must be considered like a telecommunications provider, particularly if private use is allowed or accepted. This carries the consequence that accessing the e-mail account bears the risk of criminal sanctions against the employer. Companies are therefore well advised to review their rules on e-mail access well ahead of any compliance investigation.

The review of e-mail accounts may require the consent of the works council where one exists. It is not unusual that employers then face a situation where they have to make a decision between taking the risk of delaying the review or accepting a possible breach of works council rights, with the possible consequence that evidence is not admissible in a lawsuit with an employee. Such a pitfall can be avoided by reaching agreement with the works council on general rules about investigations far before any suspicion of an investigation arises.

Interview of suspected employees

Normally, the next step in the process is for the employer to hold a personal meeting with the employee and confront him or her with the (possible) misconduct on the basis of the findings gathered during the data screening. Although attending such a meeting and answering the employer’s questions are usually part of the employee’s duties, it may be advisable to not put too much pressure on the employee. In complex cases, it may also be necessary to allow the employee some time to prepare for the interview. This means the employee then must be informed about the purpose of such a meeting or be invited to a second meeting if the employee cannot immediately answer all the questions.

There is no clear case law that indicates whether or not an employee is entitled to consult a lawyer or a works council member during an interview. Since often the employer also consults a lawyer during an interview, employees should be allowed to consult a lawyer or a member of the works council.

Disciplinary consequences

Having established the misconduct of an employee or at least a strong suspicion of this on the basis of facts, the final step is to decide on the disciplinary action to take. The toughest decision to implement is termination for good cause with immediate effect. In this case, the employer has to demonstrate and prove a significant reason (for example, fraud, theft, corruption) or, in the special case of a termination for suspicion, the suspicion of a significant reason that could not be dispelled.

If a termination for good cause is the intended decision, a two-week deadline must be observed. Notice must be given within two weeks of receiving knowledge of the facts qualifying for cause. The employer is allowed to investigate a misconduct and to collect evidence (for example, affidavits) before the two-week deadline is reached. In the case of suspicion, there is also the legal requirement to confront the employee with the allegations without undue delay (usually one week after the employer becomes aware of the suspicion). Many employees do, however, try to challenge the point that the employer has observed the two-week deadline, which, indeed, may be difficult to prove in court in complex cases. For this reason, it is advisable to carefully document the collection (for instance, the laptops and smartphones collected) and data-screening (for example, a list of search terms, the accounts or data screened) processes at the point the facts are gathered and screened.

The two-week deadline becomes particularly crucial if a “normal” termination with the applicable notice period is not permissible. For example, many collective-bargaining agreements only allow termination for good cause depending on the years of service and age of the employee. If the two-week deadline is missed, the employer may not be able to terminate the employment at all.

When assessing the prospects of success for a termination, employers should also consider that the court will take into account aspects beyond the misconduct itself. These include such issues as the awareness or even involvement of supervisors and/or management as well as an employer’s failure to establish and implement clear compliance policies and training. It is often the case in compliance investigations that individual employees are not the only people to have committed criminal offenses. Their departments, supervisors and even the management may have also been involved. If the supervisor or management has tolerated the misconduct, termination of the employee may be null and void since the employee may not have culpably violated his or her contractual duties.

Less severe than termination, a warning letter can be considered. It should be noted, however, that, generally speaking, once the warning letter has been issued, the employee cannot be terminated for the same misconduct outlined in the warning letter. Should there be an ongoing compliance investigation, it may be advisable to explicitly mention in the warning that the employer reserves the right to take further action if additional facts are uncovered during the investigation.


There are no legal stipulations for the process of carrying out an internal investigation. As a result, it is the company’s obligation to determine a structure for the investigation and to keep the legal pitfalls in mind throughout the process. For this to be efficient, possible outcomes must be considered from the very beginning. A final decision for termination for good cause may, for example, require detailed information when knowledge of the facts was received during the screening at the very start of the investigation. The best approach for companies to take is to prepare themselves far ahead of any possible compliance investigation.


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