Internal investigations: Are employees required to cooperate?

Businesses, particularly in the financial services sector, face an ongoing need to conduct internal inquiries, either following, or in anticipation of, scrutiny from the media, regulators and, with the continued cross-bench control of the Senate, a more active parliament.

In this environment, it is important that both companies and individuals understand how and when employees may refuse to participate in internal investigations, particularly where employee participation can be crucial to the success and effectiveness of the investigation, and where an employee’s failure to cooperate can expose them to disciplinary action.

Importance of internal investigations

Running thorough internal investigations on allegations made against a company, separate from and often in advance of formal investigations carried out by a regulator, can be a critical tool for a company to get ahead of those allegations, address any problematic conduct identified, and mitigate the damage the company faces from the allegations. That will typically require the collection and review of complete and accurate evidence, which in turn will typically require the cooperation of a number of the company’s employees.

An obligation to cooperate

It is this need for cooperation that may raise a potentially difficult issue for individual employees. They may believe that doing so would put them at risk of self-exposure to criminal or civil liability based on the information they are being asked to provide to their employer.

However, Australian employees will often have both common law and contractual obligations to cooperate:

• The common law obligation of fidelity to one’s employer requires employees to cooperate and participate in good faith in any lawful and reasonable internal investigation undertaken by their employer. This obligation binds the employee to disclose to its employer any facts relating to their employment, provided that the internal investigation is genuine and necessary to properly inform the employer of the true nature or extent of the employee’s conduct, and the questions asked by the employer are put in a reasonable and fair manner.

  Usually, internal investigations in circumstances where a regulator has commenced an inquiry into an employee’s organisation, or where the media or politicians have raised concerns about the conduct of an organisation, are likely to be considered genuine and necessary.

• This common law obligation is typically reinforced either expressly or impliedly in company codes of conduct and/or individual employment contracts.

Accordingly, failure to cooperate in genuine and necessary internal investigations may justify disciplinary action against the employee, including, in certain circumstances, termination of their employment.

An employee’s obligation of fidelity to their employer can be also captured by statutory requirements. For instance, in the public sector, statutes or regulations (such as the Commonwealth Public Service Act) commonly specify obligations on employees to cooperate and respond in good faith to questions posed by their employer during internal investigations, or otherwise face potential disciplinary action, unless a specified valid reason is available.

The right to silence in an internal investigation – an employee’s ‘out’

The ability of an employer to require cooperation with an internal investigation is curbed by the operation of the privilege against self-incrimination – more commonly known as the right to silence. An employee may not be compelled to answer questions by an investigator that would be self-incriminating and would expose the employee to criminal prosecution or civil penalty.

An employee who asserts that privilege in the context of internal investigations must be able to support their claim with sufficient evidence and demonstrate that there are reasonable grounds for the apprehension of the risk of self-incrimination. The protection is limited to the extent of the apprehension. Failure to cooperate in any investigation beyond the extent to which such cooperation attracts reasonable grounds for apprehension of such risk, may constitute a valid reason for dismissal. The privilege can also be abrogated or diminished by express statutory provisions to that effect, including for example under the harmonised Federal and State/Territory work health and safety legislation (except in South Australia).

So this means that while an employee may rightly assert a claim of privilege against self-incrimination during an internal investigation, the employee may later be compelled to respond to questioning by a regulator. Usually however, information compulsorily supplied by the employee to the regulator will not be admissible in subsequent civil or criminal proceedings against the employee, where the employee has claimed the privilege.

What now? Taking steps after an employee refuses to cooperate

If an employee refuses to cooperate in an internal investigation, disciplinary action (up to dismissal) may be justified if that refusal:

• amounts to a breach of contract or company policy to which the employee has expressly agreed;
• amounts to a breach of a lawful direction from the employer, given in accordance with applicable statutory regulations governing the industry in which the company and employee operate; or
• causes sufficient loss of trust and confidence between the employee and employer, including a failure to be open and honest, that the necessary elements of the employee-employee relationship are undermined; and
• the non-cooperation is not based on a reasonable apprehension of self-incrimination.

In each case, it will be necessary to consider the particular specific facts and circumstances before implementing any severe disciplinary action.

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This article was published in DLA Piper Publications.