So You Think Your Employee Might Be Stealing…

October 20, 2006

Editor’s note—This is the second article of a three-part series addressing employee theft and embezzlement. Part one was published in the 2006 summer issue of our Priority Read® Business Law Update. Part three will be printed in the 2006 winter issue.
Something doesn’t fit. It looks like Joe is stealing from the company. What do you do? Seems like a simple question with a simple answer: Fire Joe, right? After all, if Joe is a thief, why should you worry about him suing you? You won’t have to, provided you think before you fire.
Joe may indeed be headed for the unemployment line (or a line to collect a striped jumpsuit). But before you make the move, be sure you’ve planned your steps through some legal rules, because they offer protection even for suspected thieves and embezzlers. A misstep in catching or confronting Joe can help Joe avoid responsibility for his actions. Even worse, it could enable him to keep his job and sue you for money damages.
In cases of suspected employee theft, employment laws come into play in three general ways: 
  • They affect what can be done to obtain evidence to confirm or refute the suspicions against Joe;
  • They affect whether it’s legal to fire Joe based on the information that has been obtained; and,
  • They affect what the employer may say to Joe or about Joe.

A misstep in any of these areas can mean that the employer who sets out to catch a thief catches a lawsuit instead. So let’s take a breath before we confront Joe, and sort out our approach.

Gathering Evidence
There are many different ways to obtain evidence that might prove Joe’s guilt or innocence. Strategies might include accessing Joe’s e-mail and other computer files—maybe even from his home computer; searching his work station or his car; monitoring his phone conversations; accessing his cell phone records; installing video cameras or recording devices in strategic locations; conducting surveillance of Joe’s activities or a “sting operation;” obtaining bank or credit card records; obtaining information, statements, or records from customers or vendors Joe might deal with; and more—or simply turning the investigation over to the police.

Each of these strategies presents potential legal hurdles. For example, if Joe’s computer might contain evidence of dishonest transactions, are we confident that Joe has no legally-protected “right of privacy” that could prevent access to those records? What about searching Joe’s desk, the sport coat hanging over his chair, or his car in the company parking lot? State and federal laws limit the circumstances under which Joe’s telephone conversations can be monitored or recorded—even on equipment owned by the company. As Joe’s boss, you hope that company policies protect the right to search Joe’s stuff, and establish Joe’s “consent” to monitoring his conversations.

You have the right to require Joe to answer questions about his activities. In certain situations, Joe might be entitled to have a representative present. Can you record the interview without Joe’s knowledge? (Almost always yes.) And what if Joe refuses to answer the questions, and tries to get up and leave the room? If we lock the door and prevent him from leaving, is that “false imprisonment?” (What if a scuffle ensues, and later we discover that Joe is innocent? That might be a problem.

To Fire or Not to Fire
Employment laws will affect whether Joe can be fired. If Joe is an at-will employee, the decision is less complicated; conclusive proof of guilt won’t be needed to defend a claim of “wrongful discharge.” But what if “just cause” is required for Joe’s discharge—because he is employed under a contract, or because the employer lacks a clearly-established at-will policy? Then the company will bear the burden of proving (by the weight of the evidence) that Joe did steal. Joe’s discharge will be “wrongful” if a judge, jury or arbitrator is not sufficiently persuaded that he did it.

Even if Joe is an at-will employee, or is caught red-handed, the case is not closed. Anti-discrimination laws might come to his rescue. Suppose a 31-year old committed a theft last year and was given a one-week suspension; what if Joe is 54 years old, a local union activist, or just returned from military leave?

Beware the News Release
Aided by your human resources pro and counsel, you’ve completed a careful investigation and decision process. But your legal concerns aren’t over. You need to manage what you say, and to whom, about Joe.

It’s no surprise that Joe can sue for defamation if you tell someone that Joe is a thief and that accusation turns out to be wrong. (This concern also applies during the investigation, to statements that might be made in the course of requesting information from third parties—vendors, customers, banks, other employees.)

More troubling is the prospect that you could be liable for things you say to or about Joe even if Joe is guilty and your statements are true. If you threaten to have Joe prosecuted for a crime unless he pays the company some money, you risk being accused of extortion. Conversations with Joe about his guilt, his options for repayment, and the consequences if he fails to do so, must be well thought out in advance.

You might be tempted to tell employees, customers, or a reference-seeking employer that Joe was fired for theft. But even if that statement is true, Michigan law says that an employer may not disclose disciplinary information about an employee to a third party without giving the employee written notice of that disclosure.

The law gives employers the tools to take prompt effective action against employee theft. But it’s also important to know that those legal tools—like any other powerful tool—must be used with the appropriate timing, care, and skill to protect the user from an unintended injury.