The Practical Application of the Employee Polygraph Protection Act

Misappropriation of cash and product by employees is an issue most franchise business owners and their leadership teams manage on a consistent basis.  Most franchises invest time and money in hiring talent in the hope that these individuals will not violate policy and commit dishonest acts.  In the age of advanced technology, businesses have sophisticated audio and video surveillance systems to identify employees who either steal from the business or utilize other creative measures to affect a company’s profitability.  Additionally, employers must have a comprehensive employee handbook delineating processes and procedures for the management of cash and product and consequences for those who choose to violate policy.  The most common violations are giving product away without payment, failing to follow the void and complimentary meal process, misusing the employee meal benefit, and underreporting food waste.  When investigating these policy violations, employers consider administering polygraph examinations – commonly referred to as lie detector tests.  Prior to conducting this type of examination, employers must have a thorough understanding of the Employee Polygraph Protection Act of 1988 (“EPPA”) and the consequences for failing to fully comply with the law.

The EPPA is enforced by the Wage and Hour Division of the Department of Labor and prohibits most private employers from administering polygraph exams, in limited circumstances. If a business owner reasonably suspects certain employees to be involved in an incident that results in a serious monetary loss to the employer, a polygraph may be administered if an employee is provided with the following:

• A statement explaining the specific incident being investigated and the basis for testing certain employees;

• Particulars of the monetary loss;

• A description of the employee’s access to the property being investigated;

• An explanation as to why the employer reasonably suspects the employee was involved; and

• A signature of a person authorized to legally bind the employer.

Utilizing a polygraph examination to identify dishonest employees, may appear to be the simplest way to determine which employee violated policy.  Unfortunately, in addition to the employee’s notification rights, the EPPA allows employees to refuse to participate in testing and limits whether an employer may take adverse action, termination or otherwise, for doing so.  Moreover, even if an employee chooses to participate in the administration of a polygraph exam and the results indicate the employee was involved in the incident leading to the financial loss, the EPPA prohibits an employer from terminating an employee based solely on the results of the exam.

The at-will nature of the employment relationship allows employers to terminate an employee with or without cause and with or without notice.  Unless the termination is based on a discriminatory reason, employers are allowed flexibility in employment decisions. This also allows employers to circumvent the provisions of the EPPA by simply conducting their own internal investigation to identify dishonest employees without administering a polygraph exam.  Employers may base disciplinary decisions on their good faith belief that a violation of company policy has occurred.  The notice requirements and limitations of the EPPA often complicate the investigative and subsequent disciplinary process for employers.  Therefore, business owners who choose to administer polygraph exams in the workplace are advised to consult a human resource professional to avoid violations of the law and civil penalties up to $20,521 per employee.