Dealing With Employee Theft

As an attorney advising business clients on daily employment matters, I often see trends in issues faced by employers across many industries. Lately, it seems like more clients are dealing with employee theft situations – either confirmed or suspected. Without going into why this trend may be increasing, some employers seem hesitant on how to deal with these situations.

This article will discuss three hypotheticals including legal guidelines to be considered. It will close with a discussion of an employer's options in theft situations ranging from mild to severe.

Before starting with the hypotheticals, it is important to note that this article constitutes general information and is not state-specific. However, these guidelines can apply in most at will employment states. Employers should always consult with employment counsel when dealing with these situations. With that caveat in mind, here are the hypotheticals:

Hypothetical #1 – A banking executive travels to a resort location for a business conference. The executive requests and obtains permission to include his spouse as many attendees also invite spouses and guests. After the conference, the employer hears from other industry attendees that the executive was never seen at any conference event but was seen golfing and at the pool. The employer reviews the executive's expense report and notices that he has fully expensed the entire trip. When confronted, the employee admits what he has done but claims that “everyone” treats the conference as a vacation. 

Hypothetical #2 – A longtime manager at a medical practice is suspected of stealing approximately $20,000. When confronted, the manager emotionally admits the theft, says that the guilt has been overwhelming, and explains that the money was taken to support her recent gambling habit.

Hypothetical #3 – A shipping supervisor at a large retail distribution center has a company credit card to purchase various supplies and equipment. An accounting employee notices that an excessive amount of non-shipping related supplies has been purchased with the credit card – with the amount of questionable charges totaling $300. When confronted, the employee has no legitimate explanation for the charges and claims it is just a misunderstanding.

Employers facing these situations should consider the following general guidelines:
 

1. When in receipt of information or suspicion of employee theft, the employer (or possibly a third party) should investigate the situation, including review of records and interviewing potential witnesses.
2. During the course of the investigation, it is imperative that the employer document the entire process with records, witness statements, and interview notes. This can be especially important in the event of litigation.
3. When sufficient information has been compiled, the employer should meet with the suspected employee. The meeting should be attended by two members of management. In some situations, and depending on the jurisdiction, an employer may even want to record the meeting. To be safe, the suspected employee should be given notice that the meeting is being recorded.
4. Listen to the employee's possible explanation. Although anecdotal experience shows that many confronted employees simply admit their guilt, others might have a plausible explanation. The employer should listen to that explanation and further investigate as necessary.
5. Some employers are tempted to use a polygraph as part of the interview of the suspected employee. The use of lie detectors could be the subject of an entire other article, but employers are generally advised to not use polygraphs pursuant to the federal Employee Polygraph Protection Act.

In some situations, the confronted employee offers to resign from employment. If that occurs and the employer is satisfied that the employee has engaged in misconduct, then the best move may be to simply accept the resignation. If the employee denies the charge or presents some plausible explanation, then the employer can consider several responses ranging from mild to severe:
 

1. Assuming the employer is unwilling to ignore the situation, it can discipline the employee (something short of suspension or termination), enhance expense protocols, and/or monitor the employee's activity going forward. This response can be appropriate if the employer is unsure of the employee's guilt, has sympathy for the employee, or considers the employee too valuable to terminate.
2. The next level of employer response would be to discipline the employee with some sort of warning, reprimand, or suspension. This could include additional training as well as restricting or removing the employee's credit card or cash access. This response might be appropriate with an employee such as the executive who expensed his guest's travel. 
3. The next harshest response is to terminate the employee. Unless the employer has established the employee's guilt or the employee admits guilt, the reason for termination should be carefully worded to minimize potential litigation exposure. For example, if an employee is only suspected of theft and is fired, the termination should be documented accordingly rather than stating that the termination is for theft. In the event that the terminated employee pursues any wrongful discharge action, the employer may then avoid having a judge or jury expect it to “prove” that the discharged employee was actually guilty. 

Although any of these individuals could likely be legally fired if employed on an at will basis, that is sometimes not justified or presents an unacceptable litigation risk. When an employer is considering termination, there are two very important additional considerations. First, the employer should review its history to confirm that this employee is not being treated differently than similarly situated employees in prior situations. For example, if an employer terminates an employee in a protected Title VII discrimination class but has a history of less severe response with other employees, then the employer should carefully evaluate its decision. 

Second, and very importantly, although an employer may certainly call law enforcement in response to a suspected theft, it MUST NOT threaten to call the police or prosecute as part of leveraging a resignation or other resolution. Employers can be tempted to offer a deal such as “If you resign from employment today, we won't call the police.” In many jurisdictions, threatening criminal prosecution for civil gain constitutes extortion. Other jurisdictions can impose a legal obligation on an employer to report certain level crimes – such as felonies. Whenever these issues arise, the employer should involve legal counsel for guidance.

So how did the hypothetical situations turn out?

Hypothetical #1 – The executive was required to reimburse the company for the conference expenses. The executive was also given a warning and required to undergo additional training on the Company's expense policy.

Hypothetical #2 – The manager was terminated for stealing in excess of $20,000. Although the employer was strongly impacted by the employee's long service and sympathetic to her gambling problem, it felt that it had no choice but to report the theft to the police in light of the amount of money involved.

Hypothetical #3 – In light of the shipping supervisor being unable to explain the credit card discrepancies, she was given the opportunity and chose to voluntarily resign rather than be terminated. No police were involved in light of the relatively low dollar amount. 

The key takeaways from this article are as follows. First, if an employer has reason to believe that an employee is engaging in theft of company property or money, it should fully investigate the situation and document that investigation. Second, the employer should confront the suspected employee to obtain either admission, denial, or some explanation. Third, the employer must decide its course of action, with care to make sure that any decision is consistent from a Title VII perspective. Lastly, the employer must never threaten police involvement as part of negotiating a resolution or resignation.

These situations are very fact and jurisdiction specific. Employers are strongly urged to involve legal counsel to make sure that a situation is properly handled and that the employer does not unnecessarily expose itself to litigation. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.