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A Bona-Fide Defense

June 2010, F&I and Showroom - Feature

by Jim Lawrence - Also by this author

The bona-fide and good-faith precedent was set by two U.S. Supreme Court rulings in 1998. Today, those rulings guide how regulations are written and how organizations comply.

It’s anyone’s guess whether or not the June 1 enforcement deadline for the Red Flags Rule will stick. Well, since I’m sure many of you waited anxiously to find out if the Federal Trade Commission (FTC) would delay it for a fifth time, I thought it might be helpful to address a key phrase used by the agency to describe the effort it’s looking for from those who must comply: “bona fide.”

A bona-fide (or “good-faith”) effort means doing your best to meet the mandate at hand. That applies to the Red Flags Rule as well as the hundreds of other rules, regulations and requirements your dealership operates under today. The definition might seem simple enough, but achieving that type of effort is the single most important aspect of any compliance program.

The legal establishments for most of the Western world are able to determine whether companies have put forth a bona-fide or good-faith compliance effort when it comes time to dole out fines, claims and judgments. So, there is both a rhyme and reason to making a good-faith effort.

Bona Fide’s Link to Harrassment Rules

For those of you who know what the terms Safe Harbor Provisions or Affirmative Defense are, well, they represent the same general legal concepts as good faith and bona fide. It’s a pretty straightforward, common sense approach to compliance: Adopt compliant policies, give every employee a copy, train managers and employees, investigate promptly and enforce consistently. So, where did this standard come from?

Well, the bona-fide approach was born out of two 1998 U.S. Supreme Court rulings involving sexual harassment in the workplace. The cases are known in legal circles as the Faragher and Ellerth cases. In both cases, two female staffers accused their supervisors of sexual harassment.

Not only did the rulings bring about changes in how employers prevent harassment and avoid liability, they also set a compliance precedent for other rules and regulations. The rulings told employers that they could avoid or reduce their automatic liability if they exercised reasonable care to prevent and promptly correct the harassing behavior. Liability would also be reduced if an employee unreasonably failed to take advantage of any compliant procedure provided by the employer.

The two cases also established one additional item: Employers are required to include a test or an assessment after employees are trained on a compliance policy. The additional item basically requires that employers document their employees’ understanding of the policies and procedures once they’ve been trained on the organization’s policies and procedures. This is especially important in a moment of litigation. The test serves to prove that an offending employee knew and understood a given policy but chose to ignore it.

The simple beauty of this methodology is that dealerships do not need to demonstrate perfection. They merely have to document and demonstrate an understanding of what is required, and that they can consistently work toward effective business processes that address the regulatory mandate. Once the process is established, legal precedent indicates that your dealership can expect fewer liabilities and a concomitant reduction in your risk profile (i.e., your chances of paying out punitive fines or judgments are greatly reduced).

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