United States: What To Do About Employee Thieves—Catch Them If You Can!

Seyfarth Synopsis: When employee theft occurs, employers must be cautious in investigating, avoiding self-help, and in deciding if and how to terminate the offending employee.

Companies work hard to hire trustworthy employees, but employee theft can occur in any business. Employee theft takes different shapes—you may discover an employee is stealing products, supplies, confidential information or money from the company; an employee may steal more surreptitiously by padding time on a time sheet; or an employee may intentionally fail to enter vacation time taken in order to get paid for that time when they quit. Whether subtle, or as brazen as a famous thief (see https://en.wikipedia.org/wiki/Catch_Me_If_You_Can), any form of employee theft hurts your business and can present you with a difficult management situation.That's why we're here to help with the following tips.

  1. "An Honest Man Has Nothing to Fear"—Background Checks:

Inquiring into an applicant's history can be a useful tool to identify people with a propensity toward dishonesty, but if you use background checks, make sure you follow the rules about collection and use of information.

a) California law prohibits use of consumer credit reports for employment purposes except when hiring for certain specified positions, such as managers, peace officers, positions that involve regular access to personal and banking information of individuals, access to $10,000 or more of cash, or access to confidential or proprietary information of the employer. (Labor Code § 1024.5.)

b) State and local agencies (as well as employers in San Francisco and Richmond) cannot use information about criminal history unless and until a decision about the candidate's minimum qualifications has already occurred. (See. e.g., Labor Code 432.9 and San Francisco Fair Chance Ordinance.)

c) In addition, under federal law, criminal history may not present an automatic barrier to employment; there must be a relationship between the criminal activity and the important elements of the job, and employers should consider the number of convictions, their nature and seriousness, how recent they are, and evidence of rehabilitation.

For the kinds of background inquiries that are permitted, make sure that you provide the appropriate disclosures, get permission from the prospective employee, and provide a copy of the background check report if requested. See our prior posts on California background check requirements here.

A thorough pre-employment background check should include:

  • criminal history (if permitted) for crimes involving violence, theft, and fraud (in California you can only check back 7 years; you cannot ask about marijuana-related convictions that are more than 2 years old, or arrests that did not result in conviction)
  • civil history for lawsuits involving collections, restraining orders, and fraud
  • driver's license check for numerous or serious violations
  • education verification for degrees from accredited institutions
  • employment verification of positions, length of employment, and reasons for leaving.
  1. "People Only Know What You Tell Them"—Verify Past Employment:

Even though most employers will verify only position and dates of employment, a prospective employer may be able to tell by the tone of voice whether the former employer had issues with the employee. A prospective employer should consistently ask previous employers whether the applicant is eligible for rehire.

  1. "Don't Break the Rules"—Provide Clear Written Policies Prohibiting Theft:

Develop a written policy regarding timekeeping, with specific instructions on the duty of honesty and prohibition against timekeeping fraud. You should also have an employee handbook that covers the policy and the penalties for theft. In addition, it is a good idea to have clear written policies posted in the workplace regarding stealing, what types of acts constitute stealing and the consequences that will be enforced if an employee is caught stealing. Translate your policies into the languages spoken by your workforce. Have your employees acknowledge in writing that they have read and know the policies.

What to Do (and Not Do) If You Think an Employee Is Stealing

  1. Investigate ... With Care and Document Results.

An allegation of theft is serious and an employer should be very careful in planning, carrying out and documenting the investigation. There should always be at least two individuals involved in the investigation and, ideally, at least one of the investigators should not know the accused. If the company has a protocol for an investigation, follow it closely. Let the accused employee tell his or her story and include it as part of the record of investigation.

  1. Do Not Withhold Missing Amounts of Money From the Employee's Paycheck.

An employer can lawfully withhold amounts from an employee's wages only under very limited circumstances, and employee theft or suspected theft is not one of them. (Labor Code Sections 221 and 224.) In fact, court decisions and the IWC Wage Orders specifically regulate an employer's ability to deduct amounts from an employee's wages due to cash shortages, breakage or loss of equipment. So, if you lose some equipment or merchandise, or find that cash is missing, resist the urge to take an offset against the suspected offending employee's wages, and instead find out how to respond correctly.

  1. To Terminate or Not To Terminate?

This determination depends heavily on how strong the evidence is against the employee. If the evidence is not conclusive, you may want to be careful about telling an employee that he or she is being fired for theft, dishonesty, or suspicion of theft. Accusing an employee of a crime may be considered defamatory and should not be done unless the employer is 100% certain. Instead, the cautious employer will cite to lack of trust, or loss of confidence as the reason for termination. Or, even better, connect the termination to a violation of policy or procedure. Even this less dangerous road can contains land mines, as inconsistent enforcement of a work rule could potentially lead to claims of discrimination.

Workplace Solutions: "Don't Be a Stranger" when it comes to consulting your counsel regarding the appropriate response to employee theft, including whether to terminate an employee for stealing. In the event you find yourself depending against any resulting claims, you will want to make sure your actions were well thought out and well documented.

Edited by Coby M. Turner.

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.

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