First Appellate Case Considers Who Is An Employer Under Federal Polygraph Law.
by Darrell R. VanDeusen

Management employment attorneys often get calls from clients who suspect that missing inventory is the result of an "inside job" by one or more employees. Most of the time, the client has not yet decided to play Sam Spade, nor hired an investigative firm to do it for him. Sometimes, however, the thought of playing private eye is too attractive, and an investigation has already begun -- with private investigators on the scene interviewing employees. If you are lucky, the call goes something like: "Can't we just give the employees a lie detector test?" If you are not, the question is: "So, we gave this guy a lie detector test and he flunked. So we fired him. Now what do we do?"

The regulation of polygraphs in employment has long been a matter of state law, with 25 states restricting their use. In 1988, Congress stepped in and passed the federal Employee Polygraph Protection Act (EPPA). ^[1] The EPPA sets a floor for limiting the use of lie detectors in employment, with many states providing additional restrictions. In Calbillo v. Cavender Oldsmobile, Inc.,^[2] the first EPPA case to reach an appellate court on the issue, the Fifth Circuit recently considered whether a private investigator who administers a lie detector test to an employee is an "employer" within the meaning of the Act.

What is the EPPA?

As most employers have lived with limitations on the use of lie detectors imposed by state law, many are only vaguely aware (if they are aware at all) of the requirements of the EPPA. The EPPA prohibits most private employers from requiring lie detector tests as a condition of employment. The Department of Labor promulgated regulations interpreting the EPPA soon after it took effect. ^[3] Under the EPPA, employers may not:

• directly or indirectly require, request, suggest, or cause any applicant or employee to take a lie detector test;
  
  
• use or inquire into the results of a lie detector test;
  
  
• discharge, discipline, discriminate against, deny employment or promotion to, or threaten to take such action against an applicant or employee who refuses to take a lie detector test; or an applicant or employee on the basis of the results of a lie detector test; or
  
  
• retaliate against applicants or employees who challenge the use of a lie detector test by filing a complaint; testifying at a hearing on a complaint; or acting on behalf of another person to challenge an employer's polygraph testing. ^[4]

Section 801.2(c) of the EPPA defines "employer" as "any person acting directly or indirectly in the interest of an employer in relation to an employee or prospective employee."^[5] Exempt from the law are federal, state and local governments; government contractors involved in national defense and security services; and manufacturers, distributors, or dispensers of controlled substances.

Employers subject to the EPPA must post notices explaining its protections "in a prominent and conspicuous place in every establishment of the employer where it can readily be observed by employees and applicants for employment."^[6] Copies of the notice can be obtained from the Department of Labor's Wage and Hour Division. ^[7]

Employees who are the focus of an "ongoing investigation involving economic loss or injury to the employer's business" may fall within a limited exception for polygraph use. Even under this "ongoing investigation" exemption, however, employers are constrained from blanket testing, and a test can only be conducted if certain procedural requirements are met. ^[8] For example, an employer may not use a polygraph to determine whether theft is occurring, but only for specific investigations where there is separate evidence that intentional wrongdoing has already occurred. ^[9] The regulations also provide that polygraphs may not be used to investigate accidents or to determine whether an employee has used drugs or alcohol. ^[10] Additionally, in some states, the employee must voluntarily consent to the test.

Violators can be fined up to $10,000 for each violation, as well as be sued for reinstatement and back pay for any aggrieved individuals by the Secretary of Labor. ^[11]

Employers are also directly liable to individuals for violations of the Act. ^[12] All forms of legal and equitable relief are available, including reinstatement, back pay, and monetary compensation for pain and suffering and punitive damages. ^[13] Lawyers' fees may also be awarded, and an individual has three years to file a lawsuit. ^[14]

Unlike virtually every other employment law, litigation under the EPPA is infrequent, with only a few dozen cases reported since its passage. Perhaps this is because of the infrequency of lie detector use by employers or possibly because of more restrictive state laws. As a result, judicial interpretation of the Act is sparse.

The Facts of Calbillo

Calbillo worked as a parts technician for Cavender Oldsmobile in San Antonio, Texas. In April 1998, the parts manager began to notice that quantities of Freon were missing. The car dealer's general manager questioned a number of employees including Calbillo, about the missing Freon, who claimed they did not know who was stealing it. By the fall of 1998, Cavender management was so concerned about the loss of Freon that it hired private investigator Donald Trease of Allied Polygraph Services, to figure out what could be done to stop the thefts.

Trease was asked to interview the employees in the parts department. In his interview, Calbillo claimed that he did not have a key to the Freon cabinet. According to Calbillo, Trease told him that other employees had agreed to take a lie detector test and asked if he would take one too. Calbillo agreed. Immediately after the interview, however, some of Calbillo's co-workers told him they had refused to take a polygraph.

Following the interviews, Trease told Cavender management that other employees suspected Calbillo had stolen the Freon, and suggested that Calbillo take a polygraph. Trease gave the company a standard package on polygraphs, which included information about the EPPA and other rules on lie detector tests. He discussed the employee interviews and the EPPA with Cavender's attorneys. Armed with this information, the company asked Trease to give a polygraph test to Calbillo.

The company then demanded that Calbillo take the polygraph to prove he was innocent of theft. Calbillo took the test. He was read his rights regarding the test before it was given, and was required to answer three sets of twelve questions. At the end of the examination, Trease gave Calbillo a copy of the results and asked him "who took the Freon," as Calbillo's test indicated that he was "hiding something." Calbillo responded that he did not know who was taking the Freon. The next day, Cavender management told Calbillo that he was fired for failing the polygraph examination.

Calbillo sued both Cavender and Trease's company, Allied, for violation of the EPPA (as well as negligence and fraud). Cavender settled with Calbillo and the case against Allied went forward. The trial court granted Allied's motion for summary judgment, holding that Allied was not an employer of Calbillo, and therefore not subject to liability under the EPPA. ^[15] Calbillo appealed.

Who is an Employer Under the EPPA?

The trial court adopted the view that the determination of whether a polygraph examiner is an employer under the EPPA requires consideration of whether the examiner exerted control, as a matter of economic reality, over the employer's compliance with the EPPA. The court determined that most of Trease's role was that of a private investigator, not that of a polygraph examiner. Moreover, there was no evidence that, in either role, Trease exercised control over Cavender's compliance with the EPPA.

On appeal, Calbillo argued that there was a genuine issue of fact regarding Allied's status as an employer. The EPPA defines an employer as anyone acting "directly or indirectly in the interest of an employer in relation to an employee . . . ."^[16] The DOL regulation interpreting this Section provides:

"The term employer means any person acting directly or indirectly in the interest of any employer in relation to an employer or prospective employee. A polygraph examiner either employed for or whose services are otherwise retained for the sole purpose of administering polygraph tests ordinarily would not be deemed an employer with respect to the examinees."^[17]

No appellate decisions existed on the issue, so the Fifth Circuit looked to the four district court cases to address the definition of employer under the EPPA and found the trial court's adoption of the "economic realities test" consistent with those decisions. ^[18] Calbillo, however, argued that the plain language of the Act and regulations required that a polygraph examiner be considered an employer unless the examiner was retained solely for the purpose of administering the test.

The Fifth Circuit disagreed. Holding that the economic realities test is the better approach, the court stated: "whether a polygraph examiner is an employer under the EPPA requires consideration of whether the examiner went beyond the role of an independent entity, and exerted control, as a matter of economic reality, over the employer's compliance with the EPPA."^[19] Relying upon the district court decisions, the court suggested the following analysis to determine whether the examiner is an employer:

• did the examiner decide that a polygraph test should be administered?
  
  
• did the examiner decide which employees would be examined?
  
  
• did the examiner provide expertise or advice to the employer regarding compliance with the EPPA's requirements, or did the employer rely on the examiner to ensure compliance?
  
  
  • did the examiner decide whether an employee would be subject to disciplinary action, or did he merely report the results of the test?^[20]

The Fifth Circuit declined to go further with the definition of employer, finding that Allied had not exercised enough control over Calbillo under these four factors. There was no evidence that Trease made the decision to polygraph or decided who to polygraph. Although he was involved in the decision to interview Calbillo, Trease participated as an investigator, not as an examiner. There was no genuine issue of fact regarding Allied's status and summary judgment was appropriate.

What's to Come Under the EPPA?

Most private investigators do not want to "call the shots" during an investigation and the Calbillo case reinforces why that is so. Employers faced with loss prevention and investigation issues should be aware of the EPPA, as well as their state law governing lie detector use. It is essential to consult knowledgeable counsel before traveling this road, even if a private investigator or polygraph examiner appears to know what to do and is not bashful about telling the employer.

^[1]   29 U.S.C. § 2001-2009.

^[2]   No. 00-51129, 2002 WL 535048 (5th Cir. Apr. 25, 2002).

^[3]   29 C.F.R. § 801(c) (2001).

^[4]   29 C.F.R. § 801.4.

^[5]   29 C.F.R. § 801.2(c).

^[6]   29 C.F.R. § 801.6.

^[7]   Id.; see this link

^[8]   29 C.F.R. § 801.12.

^[9]   Id.

^[10]   29 C.F.R. § 801.12(d).

^[11]   29 C.F.R. § 801.40(a)(1)-(2).

^[12]   29 C.F.R. § 801.40(b)(1)-(2).

^[13]   29 C.F.R. § 801.40(b)(1).

^[14]   29 C.F.R. § 801.40(b)(2).

^[15]   See Calbillo v. Cavender Oldsmobile, Inc., No. Civ. A.5A-99-CA-05-FB, 2000 WL 33348243 at i12 (W.D. Tex., Sept. 29, 2000).

^[16]   29 C.F.R. § 801.2(c).

^[17]   Id.

^[18]   Calbillo v. Cavender Oldsmobile, Inc., No. 00-51129, 2002 WL 535048 at (i)4 (5th Cir. Apr. 25, 2002).

^[19]   Id.

^[20]   at (i)5.

Reprinted by permission from Matthew Bender's "Labor and Employment Bulletin."

May 2002

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