Workplace investigations and regulators

A workplace investigation is rarely straightforward. For those of you in a regulated profession, there is the added scrutiny of your regulator to consider, as well as the potential regulatory implications for both the organisation and the staff involved. This raises the stakes for all concerned. Regulatory oversight might make everyone involved take the issue more seriously – or it might lead to panicked witnesses refusing to engage.

There are a number of key issues to think about at the outset:

• When should the regulator be notified?
• What should the regulator be told?
• What is the potential regulatory impact on the organisation – best and worst case scenario?
• What is the potential regulatory impact on the accused and other witnesses – best and worst case scenario?
• Should the investigation be adapted to take into account regulatory obligations?

The answers to the above may not all be obvious from the outset and all questions need to be kept under review as the investigations continue. Something which does not at first appear to be a regulatory issue may turn out to be one once the investigation is underway.

At Farrer & Co we work with many different regulated sectors and help businesses and organisations manage their relationships with their regulators. In this article, we set out the thoughts of some of our regulatory specialists.

Regulator: The Charity Commission
Reporting: serious incident report

Workplace investigations will not necessarily need to be reported to the Charity Commission. That said, whether a serious incident report to the Charity Commission is warranted should be considered early on and then that decision should be revisited regularly throughout the investigation if the initial decision is not to report. The Charity Commission may also contact a charity proactively about an investigation if allegations are reported to it by a whistle blower or other complainant.

During an investigation, factors that make it more likely that a serious incident report should be made will be:

• where the investigation involves allegations against a trustee or trustees;
• where a number of the senior team are involved either in raising the allegations or where allegations are raised against them;
• the investigation is having a serious adverse impact on the charity’s work; or
• the investigation is otherwise considered (by the trustees) serious with the potential to damage the charity’s reputation.

The Charity Commission publishes a helpful example table that is non-exhaustive but provides helpful illustrative indications of what it considers to require a serious incident report. Any allegations of sexual harassment against the chief executive should be reported as serious incidents and any allegation about sexual assault by a trustee, staff member or volunteer should also be reported. It also indicates that if an investigation identifies a culture of bullying within a charity then that justifies a report.

"If a charity does need to make a serious incident report, it should use the online form and complete the information required. The report needs to be complete and accurate but there is no need to include supporting documentation or provide a blow-by-blow account of events at this stage."

Elizabeth Jones, Farrer & Co Partner

The Charity Commission may ask for further information or updates on the investigation following the submission of a report, although in many cases a serious incident report does not lead to lengthy regulatory enquiries being raised. If the Charity Commission is not satisfied with the information provided about how trustees are dealing with the investigation then its regulatory enquiries may be escalated by it opening a wider compliance case or, in the most serious circumstances, a statutory inquiry.

Where it is considered that a workplace investigation should result in filing a serious incident report, then at least some of the trustees should know about the report before it is filed. If an investigation is sufficiently serious to trigger a serious incident report then in most cases at least some of the trustees will be aware already, but it is important that trustees do have an appropriate level of knowledge about the investigation ahead of filing any serious incident report to the Charity Commission.

Regulator: The Financial Conduct Authority
Reporting: written or oral notification

The position is very similar for organisations regulated by the FCA – it will not always be the case that the fact of an investigation, or the underlying facts and circumstances giving rise to an investigation, will need to be reported to the FCA, but reporting is something that should be considered at the outset of an investigation and then any decision taken not to report kept under regular review.

The starting point is the obligation on firms imposed by the FCA’s Principles for Businesses (Principle 11) to deal with its regulators in an open and cooperative way and to disclose to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice. Helpfully, the FCA does set out further rules relating to the specific matters and circumstances that it would expect to be notified of, for example requiring notification where a matter could have a significant adverse impact on a firm’s reputation, there is a significant breach of a rule, a firm becomes aware that an employee may have committed a fraud against it or a customer, or where a firm suspects that an employee may be guilty of serious misconduct concerning honesty or integrity. There are also specific notification requirements in relation to SMCR firms and conduct rules staff.

This not an exhaustive list and there will be many circumstances in which a firm will be required to make a judgment call as to whether a matter under investigation is something that the FCA would expect notice of. At the outset of an investigation that may involve looking at the seriousness of any issue or breach, the potential reputational or financial consequences, the potential for customer harm and what is known about the facts at that stage. It may be that a decision is taken that there are too many unknowns before the investigation has made further progress, and in those circumstances the firm will need to review the position regularly as further progress is made in investigating the facts to determine whether and when a notification obligation arises.

Once a decision is taken that a notification should be made to the FCA, if it is a notification being made under.

Principle 11 it can either me made orally to a supervisor or in writing, although notification requirements under other rules typically require notification in writing. However where a notification is made orally, the FCA may request written confirmation of a matter and in any event it is the responsibility of firms to ensure that matters are properly and clearly communicated to the FCA.

"In the case of a workplace investigation involving complex, significant or serious subject matter, this is likely to mean firms are best advised to notify in writing. The information should be provided promptly and should set out the relevant facts and circumstances, clearly identify and relevant rule breaches or offences and include information about the steps a firm is taking in response to the matters notified."

Gerard Heyes, Farrer & Co Partner

Read more insights from Gerard here.

Regulator: The Teaching Regulation Agency
Reporting: written or oral notification

The Teaching Regulation Agency regulates the teaching profession and investigates and, where appropriate, prosecutes cases where there is evidence of serious misconduct on the part of a teacher or a headteacher. Referrals are usually made by the teacher’s employer where the alleged misconduct is so serious that it warrants a decision as to whether the teacher should be prevented from teaching.

"Employers have a statutory duty to consider a referral to the TRA where a case involves allegations of serious misconduct."

Maria Strauss, Farrer & Co Partner

Usually, a referral occurs after an employer (or the Police) has carried out an investigation into the alleged misconduct and, either, the teacher has been dismissed or has resigned before dismissal.

In these cases, with such high stakes for everyone, employers should take advice and must ensure they carry out a robust workplace investigation to ensure both a fair process for the teacher and also to ensure that they, and other agencies such as the TRA, are making decisions with the benefit of a good investigation which has unearthed and tested all the relevant evidence.

The investigation that has been carried out by the employer will be disclosable to the TRA including all the underlying witness statements and digital or documentary evidence. So, as with every investigation, it is important to ensure that the basics are properly covered. This includes ensuring everyone understands how their witness evidence will be used; issues of confidentiality and anonymity should be addressed at the beginning and a careful process for the interviewing of children should be mapped out (see our previous blog post here). Schools should also follow applicable guidance (such as KCSIE 2022) and investigation reports should make clear findings on the balance of probabilities as to the alleged serious misconduct.

If you require further information about anything covered in this briefing, please contact Kathleen Heycock, Elizabeth Jones, Gerard Heyes, Maria Strauss or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2022