Internal or external workplace investigation? – that is the question

Employers faced with employee misconduct will often ask: should my business conduct a workplace investigation internally or engage an independent investigator? The answer will usually depend on the circumstances of the allegations.

The Fair Work Commission is increasingly scrutinising investigations, whether conducted internally or by external investigators, more on this below in the case of Roy Smout v BHP Coal Pty Ltd. This case underscores the importance of ensuring that all investigations are carried out with impartiality and the principles of procedural fairness in mind.

We have set out below some factors that should be front of mind for businesses when considering which path to take.

Is an investigation necessary?

A formal workplace investigation is not always necessary. For example, admitted conduct does not need to be investigated. An employer may choose to address low-level misconduct through informal corrective action, such as counselling, training or a facilitated discussion.

What is the appropriate framework for conducting an investigation under any applicable industrial instrument and/or company policy?

An applicable enterprise agreement and/or company policy may set out a framework that the employer is required to follow when conducting an investigation and the form that the investigation must take. Typically, these documents will be drafted to provide a degree of latitude to the employer to decide the most appropriate means of investigating the allegations at hand. However, non-compliance can cause significant issues. A breach of a process prescribed by an enterprise agreement can result in civil penalties or a dispute. A breach of a company policy that has been ‘contractualised’ can result in damages (see our article Questions left unanswered: When will an employer be liable for an employee’s psychiatric injury?) and raise procedural fairness issues.

Should a regime of legal professional privilege be established?

If there is a real risk of litigation arising from the allegations, an employer should consider whether a law firm should be engaged to provide legal advice on the matters the subject of the investigation. If so, the employer may be able to rely on legal professional privilege over documents created during the investigation.

How serious or sensitive are the allegations?

Highly sensitive matters such as allegations involving discrimination, harassment, workplace violence, ethical breaches, fraudulent conduct or criminal conduct can draw increased scrutiny internally and externally to an employer. This is particularly important if the allegations are likely to attract media attention. An external investigator brings a neutral perspective, reducing the risk of accusations that an internal investigation may have been biased.

Allegations that are on the lower end of the scale of seriousness are more likely to favour an internal workplace investigation.

What are the potential sources of conflicts of interest in an internal investigation?

Internal investigators face several potential conflicts of interest that can compromise their impartiality. These include personal relationships with employees involved in the investigation, which may bias their judgment; financial interests, such as direct investments or bonuses linked to the investigation’s outcomes; and career implications, where their advancement or job security might depend on favourable findings for certain individuals or departments. Additionally, company pressure, including loyalty to the employer and potential influence from senior management, can further challenge their ability to remain unbiased.

Does the employer have reporting obligations?

Depending on the nature of the allegations, the company may have reporting obligations to investors, shareholders, the board, industry regulators or similar. If external company reporting obligations do exist in relation to the allegation or the investigation findings, this position should favour the appointment of an external investigator to dispel potential assertions of investigation bias or perceived bias.

Is the investigation urgent and are there available resources?

In some cases, an investigation process may take up to or around one year or more to complete. The investigation duration will depend on matters such as the seriousness of the allegation, the fact pattern, the number of allegations, the number of parties involved, the amount of evidence that must be considered and the time spent in drafting the investigation report.

An internal investigation might be completed in a shorter time frame than an external investigation. However, this is not always the case. An assessment should be made of issues raised above combined with the availability of an internal investigator or an external investigator to complete the investigation

In relation to an internal investigator, consideration must also be given to whether an organisation can adequately continue to operate with the resources of one or more staff members being assigned to focus their time to a substantive investigation of one matter for what may be an extended period of time. In small to medium organisations with less available resources, an internal investigation may not be an efficient option.

Key takeaways

The decision between appointing an internal or external investigator necessitates a careful assessment of factors such as potential conflicts of interest, reporting obligations, urgency, and resource availability. Engaging an external investigator can often mitigate perceived biases and enhance credibility, particularly when reputational damage or regulatory scrutiny is at stake. However, conducting an internal investigation may be cost-effective, build employee trust, and can allow for faster resolution due to familiarity with company operations.

Footnotes

1. [2024] FWC 2062