Physicians. Insurance agents. Real estate agents. Dentists. Financial institutions. Nurses. Electricians. Hair stylists. They are among 500 occupations licensed or regulated by the State of Minnesota.

In the 1950s, about five percent of the workforce needed an occupational license. Today, it’s about 25 percent, or one out of 4 Americans. The regulatory agencies that issue such licenses have authority to investigate licensees for compliance with regulatory requirements. In most cases, the licensing agency has the authority ask the licensee for documents or information. Sometimes the request starts with a letter or phone call. Other times, it starts with the regulatory agency asking the licensee to come to a conference. In some cases, the regulator may even show up unannounced on the premises and demand access to records under an “administrative subpoena.”

A regulatory interaction is not just a “coffee visit.” It is possible—and in some cases likely—the interaction was triggered by a crabby competitor, a disgruntled employee, or an unsatisfied customer. There are certain steps every regulated business or professional should consider when interacting with regulatory agencies.

The Best Defense is a Good Offense.

The best defense to a government inquiry is to have a solid compliance program in place. The compliance program should test the policies, practices, and procedures of the business before anyone has even a thought of a government examination. Some of the things to consider in establishing a compliance program are:

• The compliance program should be overseen by someone familiar with regulatory requirements.
• Written policies, procedures, and standards should be established to set forth compliance requirements.
• The business should consider setting forth compliance expectations in any written contracts it uses with employees.
• Employees should be adequately trained in regulatory compliance requirements. The business should establish a way for employees to ask questions and report concerns.
• The business should regularly monitor its compliance with regulatory requirements. Compliance reviews should result in a written report, with any necessary corrective action taken. Keep in mind that the report may not be attorney-client privileged, however. The report should identify any employees interviewed and documents reviewed and summarize the conclusions of the compliance team regarding any incident reviewed. The findings of the report should be discussed and addressed.

Don’t Go It Alone.

The laws applicable to licensed professionals and industries generally require licensees to cooperate with a regulatory investigation. If they don’t, they are subject to disciplinary action for failure to cooperate. But licensees do have due process rights and the right to consult with an attorney. This means they can appear before any regulatory tribunal with an attorney and have an attorney represent them in providing documents and responses to inquiries. Employers may not generally instruct their employees not to answer questions, but they may be able to pay for attorneys to represent their employees.

Determine the Scope.

One of the first steps the licensee or the licensee’s attorney should take is to determine the scope of the government investigation. Understanding what is driving the investigation and who complained will help formulate the best approach for responding.

• Review Written Documents. Closely review any administrative subpoena, investigative demand, examination order, or letter of inquiry. The document will typically state what the government is looking for and the authority under which the government makes the request. This will often help the licensee to determine what prompted the investigation.
• Identify Government Agents. Identify the government representatives involved in the inquiry, such as their name, email address, phone number, title, and employer. Get copies of business cards. Once again, the representatives, agencies, and divisions involved in the inquiry will help counsel to determine the focus of the inquiry.
• Identify Any Problem Areas. Most regulatory investigations are complaint-driven. The licensee and attorney should immediately review whether there have been any complaints—whether from employees or former employees, business competitors, unhappy customers, or jilted romantic partners—that may have given rise to the investigation. A candid evaluation of any problems in the business and understanding of what is motivating the investigation will help the licensee and attorney evaluate what the regulator may be interested in and get out front of any problems.

Don’t Treat It Lightly.

We’ve all heard the tongue-in-cheek phrase, “I’m from the IRS. I’m here to help.” In the same vein, it is important to remember that government regulators have a job to do and are not the “friend” of the licensee. Licensees also have certain rights when dealing with the government:

• The Right Not to Entertain. A regulatory investigation is not a social visit. Investigators will make note of any out-of-earshot or hallway-talk comments made by licensee or their employees. Jokes or comments that are seemingly harmless are sometimes written down by government agents and then tossed back at the licensee as being flippant or cavalier. Employees who are confrontational may be written up as uncooperative. And anything said may be used against the business.
• The Right Not to Be A Volunteer. More often than one would think, a government agent is looking into one alleged infraction when the employee or owner of the business decides to volunteer other information which is more incriminating. Seemingly innocent questions can lead regulator into other areas of inquiry.
• Get in Front of Problems. In some cases, it may be possible for a licensee to fix a problem and get off the desk of the regulator. Review with counsel whether this is a possibility. In trying to solve a problem in good faith, licensees should work with counsel to be sure not to inadvertently make an admission of wrongdoing.
• Get Copies of and Make Recordings of Statements. An employee who gives a statement to a government regulator should ask for a copy of the statement. The licensee or employee may also with to ask the agent if he or she can record the interview.
• Employees Should be Cooperative but Careful.Employees should be cooperative and truthful. They should not agree with incorrect statements made by the government in an attempt to appear helpful or cooperative, however.
• Be Timely or Get Extensions. Many regulatory requests involve complex areas of the law, a lengthy factual record, and voluminous documents. It is important for licensees to be timely when responding to the government, whether by meeting deadlines or asking for extensions. In most cases, regulators will grant reasonable requests for extensions to respond to inquiries.

The Perils of Unannounced Regulatory Visits.

In some cases, a regulator may show up on the premises unannounced and ask to inspect or remove records. The regulator will usually present an administrative subpoena demanding that certain documents be produced. In the event of such a visit, the licensee should immediately contact their attorney for advice and, if possible, have the attorney to come to the premises to interact with the regulator. On top of that, there are a number of considerations to handling such interactions:

• Document Retention. More than one business licensee has witnessed the devastation of a business when government agents cart off the books, records, and datafiles. A document retention policy that preserves copies of business records off-site may prevent this problem. The attorney for the licensee can also demand prompt return of any documents, or in some case file a lawsuit to secure the timely return of documents so the business can operate during the examination or investigation.
• Appoint a Team Leader. Designate a team leader who is courteous and calm to respond to an unannounced government examination. This person should interact with the government until the company’s attorney arrives. The team leader or attorney should ask to see any paperwork authorizing the visit, such as an administrative subpoena, and ask the lead government investigator if the business must permit the examination. If so, the team leader or the company’s attorney should tell the lead investigator that the agency can go forward with the process only because the government says that the company must consent and make clear that the company does not consent to the examination or waive any rights. The team leader or attorney should debrief with the lead government agent at the end of the on-site visit to identify any further needs of the government and confirm contact expectations going forward.
• Documents.The team leader or attorney should compile and review all requested documents to determine the propriety of their production and any privilege that may apply.
• Consider Sending Employees Elsewhere. It can be quite intimidating for employees to watch an investigator at work, and employees can accidentally incriminate themselves even though wholly innocent due to nerves. Accordingly, consider sending employees to another location. For those employees who remain on the premises, make note of everything they heard and saw during the visit.

Administrative Disciplinary Actions.

There are dozens of state agencies and boards that license and regulates professionals and businesses in Minnesota, such as the Minnesota Board of Medical Practice (doctors), the Minnesota Department of Commerce (insurance agents and agencies, realtors and real estate agencies, title companies, insurers, mortgage brokers, securities firms, banks, credit unions, etc.), the Minnesota Board of Dentistry (dentists), and the Minnesota Departments of Health and Human Services (various health industries), to name a few. These agencies and boards can impose a wide range of discipline over licensees. They can revoke or suspend a license. They can fine a licensee. Or they can impose occupational or business restrictions or conditions.

The administrative procedures applicable in disciplinary cases differ from agency to board and are very different than normal civil or criminal procedures. That said, the courts have generally determined that a license is a property right entitling the licensee to due process protections.

Crisis Communications.

We live in a 24-hour news cycle. Businesses must be proactive in their communications. A company’s public response in the initial stages of a crisis is critical to its ability to control the narrative and limit the fallout with its stakeholders, customers, the public, the government and other interested parties. Anyone facing a significant government investigation should have a plan on how to respond to the investigation if it becomes public.

They can be reached at 612-315-3037. Visit their website at www.swansonhatch.com.

Lori Swanson: lswanson@swansonhatch.com
Mike Hatch: mhatch@swansonhatch.com