The Private Investigator As an Independent Contractor

The majority of private investigators are part of a business organization with a limited number of investigators. Consequently, there are many occasions when additional investigative assistance is required. The utilization of investigative resources outside of your business organization presents several items for consideration. Transferring a portion of an investigation to a third party does not reduce your liability and, in some cases, may even increase your potential for liability. Depending on the situation, the private investigator can be an employer or an independent contractor.

It is important to understand your relationship with the outside investigator. First of all, this individual is your personal representative and his/her actions will have a direct impact on your relationship with your client and the general public. For example, if the independent contractor you have hired commits a tortious act, you and possibly your client will be included in any litigation or media attention. As evidenced by recent litigation involving misconduct by private investigators, the media has had a field day reporting the illegal and improper acts of these individuals. The media fails to report the pro bono activities of our investigators and as a result, according to the media, private investigators are considered to be incompetent, corrupt and unethical. This of course, is not the truth but sensational and bad news sells in the media world.

Is the investigator an independent contractor or an employee?

The Internal Revenue Service has identified three main areas that determine if an individual is an independent contractor or an employee. IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding outlines in detail the facts to be considered in making this decision. In summary, the following categories of information are determinate, however no single category is determinate:

Behavioral Control: These facts show whether there is a right to direct or control how the worker does the work.

• A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done—as long as the employer has the right to direct and control the work.
• If you receive extensive instruction on how work is to be done, this suggests that you are an employee. If you receive less extensive instructions about what should be done, but not how it should be done, you may be an independent contractor.
• If the business provides you with training about required procedures and methods, this indicates that the business wants the work done in a certain way, and this suggests that you may be an employee.

Financial Control: These facts show whether there is a right to direct or control the business part of the work.

• If you have a significant investment in your work, you may be an independent contractor. While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be an independent contractor.
• If you are not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your unreimbursed business expenses are high.
• If you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.

Relationship of the Parties: These are facts that illustrate how the business and the worker perceive their relationship:

• If you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor.
• A written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts.

How do I find a competent independent contractor?

If you need a private investigator to conduct some inquiries in Swanton, Vermont, how would you find someone who is competent to do the job in a professional manner acceptable and agreeable with your standards? One thing you probably wouldn’t do is make a random selection from the telephone yellow pages directory.

A good first choice is to determine the mandated requirements for the State in which you require assistance. Colorado, Idaho, Mississippi, Missouri, South Dakota and Wyoming have no minimum standards for the private investigator. In effect, this means nothing more than the individual can declare himself to be an investigator and have absolutely no ability or experience to act in that capacity.

Another possibility is to consult the state private investigator association listing but this also has built-in problems. What are the minimum requirements for membership? Do they require “investigative” experience or just law enforcement experience? Twenty years of experience as a correctional or detention officer may not be the requisite experience. Are the applicants required to have 6000 hours of supervised experience or is the only requirement that the check for membership is honored by your financial institution? Association membership requirements will tell you a lot about an individual. For example, Intellenet, an international association of private investigators and security consultants has a minimum requirement of ten years verifiable investigative experience and the personal endorsement of an Intellenet member in addition to the conduct of a background investigation. Intellenet members currently have an average of 35-40 years of investigative experience; many in very specialized investigative areas.

Another problem inherent in some associations is whether or not the individual investigator is required to continue his/her professional education. Without a requirement for continuing professional education, it is difficult to determine if the individual’s knowledge base is current or from educational experiences of many years past.

The independent contractor’s reputation and business qualifications should be verified with the State licensing authority in those states where investigators are required to be licensed. It is also wise to check with the Secretary of State to determine if the investigator’s business is properly licensed to transact business within the state and is in good standing with business regulators. This includes municipal business licenses where applicable.

How do I select a competent investigator?

It is important to remember that the independent investigator is your representative and you are personally and financially responsible for his/her actions. Each step of the selection process should be appropriately documented to show that you utilized a systematic and comprehensive due diligence inquiry as to the individual’s qualifications. This could a defense in possible future litigation.

• Due Diligence: Due diligence requires that you verify the independent investigator’s formal education, actual work experience, additional professional training and knowledge of applicable laws. A personal interview with a comprehensive list of predetermine questions should be documented. It is also wise to obtain a list of investigative and client references for interview to determine the quality of work produced by the independent investigator.
  • When looking at the work experience of the individual, the question should be asked “Does this individual have the specific experience and training to conduct the investigation that is needed?” The exact experience of the applicant is critical. If the only experience is that of a traffic accident investigator, that would not necessarily be adequate to conduct a technical investigation involving a computer crime.
  • Another area of concern is whether the investigator carries a firearm. The question is whether or not the individual is properly licensed to carry a weapon and whether or not he/she is qualified in appropriate firing skills, techniques and strategies.
• Education and Experience: Another area of interest is the practical experience of the individual. Formal education and training are a necessary component but there is no substitute for practical experience and adaptability. The ability to apply formal education and training to real life situations is the main component of “experience.” “Adaptability” is being able to apply general knowledge to a variety of situations to arrive at valid conclusions. In other words, no two cases are the same!
• Personal Interview: During the interview it is necessary to ask specific questions and expect candid answers from the applicant. The questions should be stated in such a manner that the applicant must give a specific detailed answer. You basically have to use interrogation techniques to get the information you need. Any indicators by the applicant that indicate that the individual is hesitant to answer or is not candid in their answers should cause the individual not to be further considered as your representative.
• Association Membership: Another aspect of the selection process should be the professional associations of which the person is a member. The number of professional and business associations is not an indicator of competence—just an indication of a “joiner.” The membership criteria and the ability to sanction members for specific improprieties are important. The value of the association is significantly diminished when there are no realistic qualifications and the individual is allowed to become involved in improper activity with impunity.
• Fee Schedules and Expenses: The selection process should include an in-depth discussion of the fee schedule. This will reduce the potential for future problems and potential litigation. The hourly rate of the individual investigator is dependent upon geographical location, the investigator’s experience and specialized expertise. It is wise to always remember that “you get what you pay for.” If an individual who is willing to work for $25 per hour it may indicate that this person does not have much experience, fails to recognize the value of their efforts, or has a low opinion of his/her abilities. When discussing costs and expenses, it is necessary to identify what will be considered legitimate expenses, expense limits and documentation.
• When working for attorneys or other third parties, it is necessary that the individual responsible for compensation be identified. The responsible party should be the attorney and not the attorney’s client. When we decide to accept a client, we make decisions which include the client’s ability to pay. The attorney does the same when he accepts a client. The attorney is the investigator’s client based on the compensation criteria. The investigator probably does not know the attorney’s client’s ability to pay the invoice.

Should the independent investigator have insurance?

Part of the selection criteria should concern the potential for future litigation based on the actions of the investigator. Therefore, the independent investigator should be required to provide documented evidence of E&O (Errors and Omissions) insurance as well as insurance coverage for automobile liability and worker’s compensation. The independent investigator is working as an agent for a client whose insurance will be at risk if the independent investigator does not have adequate insurance coverage. The independent investigator may not intentionally create problems but may be accused of torts such as trespass, invasion of privacy and stalking. Who ever is responsible for insurance coverage in such a case can expect to incur significant premium increases or even cancellations.

What are my responsibilities for the independent investigator’s actions?

Under the “respondeat superior” doctrine, the employer of an independent investigator may be held responsible for inappropriate or illegal actions by the investigator. This doctrine is invoked when there is a master-servant relationship between two parties. The “respondeat superior” doctrine stands for the proposition that when an employer, dubbed “master,” is acting through the facility of an employee or agent, dubbed “servant,” and tort liability is incurred during the course of this agency due to some fault of the agent, then the employer or master must accept responsibility. Implicit in this is the common law notion that a duty rests upon every person to conduct his or her affairs so as not to injure another, whether or not he or she is managing the affairs of employees or agents.

The employer of the independent contractor is obligated to supervise all subordinates and employees and monitor their activities on an on-going basis. Ignorance of their activities is NOT bliss! Documenting the supervision activities is vital in the event it is necessary to counter allegations in civil litigations. This supervision can be accomplished in frequent interaction with the investigator on the progress of the inquiry.

It is important to understand that your professional insurance may not pay claims if misconduct is involved. Among the necessary support for your supervision activities is having a written policy that outlines expectations imposed on the investigator, how client information is to be handled and safeguarded, and what actions will result in the event of impropriety. A confidentiality agreement is also a necessary document.

Successfully working with attorneys

The working relationship with an attorney requires specific conduct on the part of the independent investigator. The investigator is required to adhere to the same rules of ethical and professional conduct as the attorney. These rules are outlined in the ABA Model Code of Professional Responsibility and the ABA Code of Professional Conduct. An understanding and acknowledgement of these rules should be acknowledged in the contract with the investigator.

Specific prohibitions on unethical conduct on the part of the investigator include:

• Communicating with a party represented by legal counsel,
• Revealing confidential information,
• Suppression of evidence,
• Extrajudicial statements by public statement to prejudice a proceeding,
• Advising a witness to secrete himself,
• Pay or offer to pay a witness based on the content of testimony,
• Directly or indirectly sharing legal fees from the client,
• Failure to comply with FCRA (Fair Credit Reporting Act).

Should I have a written contract with the independent investigator?

A written contract is a matter of personal choice and is based on the amount of risk the employer is willing to accept. The value of a written contract is that it succinctly outlines expectations and requirements. This will eliminate confusion and contention in the event of disagreements and litigation.

There are basically two ways to utilize contracts. Each alternative is based on the amount of interaction between the employer and the investigator. If the investigator is to be employed on a recurring basis, it may be wise to reduce paperwork by have a general contract pertinent to all inquires with individual LOI (letter of instruction) for specific cases. The LOI basically outlines the investigative objectives, fee schedule, reporting format and timelines. The LOI is normally transmitted to the investigator in letter format and should have a provision for acknowledging the receipt of the letter.

In a situation where there probably will not be a recurring need for the investigator, a single document incorporating the contents of the general contract and the letter of instruction should be adequate.

There may be occasions when the employer does not want to sign a contract for investigative services. This leaves the contractor in a position where there may be difficulties in receiving payments for services rendered. One solution is a letter of engagement. The contractor can send a letter to the employer stating a summary of the matter under investigation, the contractor’s understanding of the investigative requirements, timelines, fee schedules and related information. The final paragraph of the letter should state to the effect that the information outlined is the contractor’s understanding of their agreement and that unless information to the contrary is received within a specified time following the date of the letter, the information will be assumed to be correct. This letter should be prepared on the contractor’s letterhead stationery and sent via Certified Mail with a Return Receipt. This procedure may be recognized as a form of legal contract if difficulties arise in the future.

The international investigation encounters unique problems

Conducting investigations in an international environment face problems not normally encountered in the United States.

Cost: Among the many issues is the financial cost. It is unrealistic to expect that international hourly rates will be similar to, or lower than, rates within the United States. The recent decline of the dollar against the Euro and other currencies has dramatically increased the costs of an investigation. The current average minimum hourly rate for international investigations is in the $150.00 to $200.00 range.

Bureaucratic Obstacles: Another issue is the manner in which international records are maintained and the bureaucratic road blocks to speedy compliance with requests. In the United States, the vast majority of records and documents are accessible via computer with the generation of immediate results. It should be remembered that more than 90% of the world works by old-fashioned investigative standards and practices and has draconian secrecy laws for all investigations, including asset searches and background checks. In some instances, the bureaucracy requires that only a limited number of individuals have access to records. This could mean an extended period of response time when the designated person is unavailable to process the request.

Travel Considerations: Another issue in the international arena is the additional travel time required because of the distance involved in getting to records storage at distant locations. The poor quality transportation system in some countries dramatically increases the travel time required to complete a project. In non-English speaking countries there is also the cost and time required for translations. The actual and incidental bureaucratic costs of obtaining records on a timely basis must also be considered. In some foreign venues, non-native requests for information are not given the same priority as requests from indigenous personnel.

Cultural Differences: In addition, corruption can be a factor in some developing countries, thus has to be included in any pricing arrangements. When a client or fellow investigator is quoted a fee from an overseas provider estimated to be in the $150 to $200 per hour range, the potential customer often times decides to get a quote from several other local providers in the country concerned. Fair enough. Sometimes local providers will be in a better position to quote lower than an international provider, usually based on lower overhead; but sometimes based on issues of corruption. Transparency International ranks many countries in the developing world much higher on the list of corrupt countries than those in the Western World. And unfortunately, that occasionally trickles down into our industry. Some local providers, though not necessarily the majority, may discard your legal papers in a process service, and prepare a fraudulent affidavit of service. Or they may engage in “ghost writing” negative results, never having conducted the required leads in the first place; taking your money for a little literary effort.

Expediting Investigations: How to minimize the costs and time delay for completion of international requests is contingent on the preparatory actions of the requesting investigator. It is incumbent upon the requestor to advise the client of the difficulties encountered in international jurisdictions. Of primary consideration should be the explanation that foreign privacy and secrecy laws are considerably more restrictive than United States laws. Records that are commonly available in the United States may not be available in other countries. Secondarily, the client needs to be advised that it normally requires additional time to complete an international investigation because of the unique political and judicial situation in each country.

There are certain steps that the requesting investigator can accomplish to facilitate the investigation.

1. Consider the international investigator as an integral part of your investigative team by taking the investigator into your complete confidence and providing ALL pertinent details surrounding your client’s request. This could require the requesting investigator to obtain the client’s consent and having the international investigator execute a non-disclosure or non-compete agreement if necessary.
2. The approach to information disclosure should be to “tell everything, as if you were handing over the case to a new investigator.” This approach allows the international investigator who is uniquely acquainted with the local culture and bureaucratic structure to analyze the request and prepare an investigative plan in accordance with the laws of the foreign area. It is essential to solicit advice from the international investigator who may be able to provide direction to an area not known to the requestor.
3. The agreement with the client should document the explanation of problems encountered in other countries, such as record keeping systems, translation problems, and travel. The agreement should also specify the approximate turn-around-time, costs and budget limits, reporting standards, i.e., need for official documents and signed statements, and translation responsibilities.
4. When considering time constraints, it is important to coordinate with the foreign investigator to arrive at a reasonable and manageable time line. Appropriate prior planning will prevent misunderstandings and unanticipated results.

Summary

Utilization of an independent contractor is frequently a necessity and always a potential for problems. It is important to consider all ramifications of using an independent contractor to reduce the possibility for personal liability and adverse media attention. A comprehensive and critical analysis of the advantages and disadvantages of utilizing independent contractors will reduce problems and increase productivity.

IRS Publication 1779, Independent Contractor or Employee
Steven H. Gifis, Law Dictionary, Third Edition, 1991, Barron’s Educational Series, Inc., Hauppauge, NY.
William F. Blake, Quality Investigations—Getting What You Pay For, 2008, www.blakeassociates.com

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