United States: A Step-By-Step Guide To Terminating Employees For Theft

Last Updated: July 24 2018
Article by Edward F. Harold

A 2016 University of Florida Study found that the percentage of shrink caused by employee theft was "only" 30 percent.

This accounts for approximately $15 billion in losses on an annual basis. Catching an employee stealing would seem an unassailable reason for termination. But many individuals, even guilty ones, feel compelled to try to clear their name through litigation.

If you or your managers were to make innocent mistakes during what should be a legitimate termination, you could find yourself facing a lawsuit. Worse, you could learn that your mistakes gave the lawsuit legs because it opened you up to exposure to an individual who stole from your company.

The Investigation

In virtually every employment lawsuit arising from a termination for wrongdoing, the first step of the termination process — the investigation — becomes the most critical when scrutinized by a jury. An allegation of theft is a powerful accusation and so an employee's first tack in a trial to prove innocence will be to show the investigation and its results are untrustworthy.

The Appropriate People Should Conduct the Investigation

First, at least two individuals should be involved in your investigation and, optimally, one should not be personally acquainted with the subject. This will help avoid claims that the allegation was trumped-up against an employee by a hostile or biased investigator. For example, an employee being able to claim that they were framed for theft by a manager for refusing earlier sexual advances will create doubt as to fairness.

Make Sure the Accused Tells Their Side

You must allow any employee being investigated to tell their story and include the account in your record of the investigation. Otherwise, a jury may think the employee was railroaded. The investigation must be thorough, and your investigator should never limit questioning to the witnesses identified by the accused when there may be other individuals with relevant knowledge.

Follow Your Own Internal Policies

If your company has a protocol for investigations, it must be followed to the letter. Juries demand that employers follow written procedures. Failure to do so can serve as evidence of "pretext" (a justification for a course of action that is found to be false) and could defeat your efforts at winning the case on written motions, rather than going all the way to trial.

Make Sure Your Witnesses Provide Their Own Testimony

It is important for witnesses to write their statements in their own handwriting and using their own words. Nothing tanks the credibility of a witness faster than when they don't understand the meaning of words used in "their" written statement when testifying on the stand.

Preserve Records and Recordings

Another concern arises when a company acts as if it will never hear from the employee again once they depart the workplace following a termination. Even if you obtain a written confession of theft, it will be no substitute for a complete investigative file. Your investigator must organize and store all the records of the investigation for future use. Nothing should be destroyed.

If you plan to use business records or recordings that are ordinarily destroyed in accordance with your company's record retention and destruction protocol, they should be moved from their usual location and preserved. Just as video footage of an employee pocketing a twenty is solid gold in a court, not having that video footage is solid gold for the plaintiff in an employment trial. If the video is missing, no explanation will overcome a jury's assumption that you did not want them to see the video for some nefarious reason. Likewise, if an investigator reviews evidence, such as financial reports, stored on a computer, they should create copies of these records to be included in the investigation file.

Catching the Thief

The method used to catch thieves is another aspect that can result in liability. For example:

  • It is common for retail managers to hide baby monitors or other electronic listening devices in break rooms to try to catch employees talking about stealing. While the idea seems perfectly logical, it could also be illegal under federal anti-wiretapping laws and state privacy statutes.
  • During an investigatory meeting with an employee who is suspected of theft, if you have the employee in a position where they cannot leave the room or area without "going through" one of your managers, it could lead to a false imprisonment claim.
  • Digging through an employee's purse or other personal belongings looking for stolen merchandise without consent to search could generate an invasion of privacy claim.
  • Using a lie detector during an investigation of monetary loss could open you up to legal claims given strict federal regulations on the subject.

Because of factors like these, it's important that you take several steps while attempting to catch an employee on suspicion they are stealing.

Destroy the Expectation of Privacy

Every employee should sign an acknowledgment that they understand they have no privacy rights in regard to those items they choose to bring on the premises. Employees should also acknowledge and consent in writing that they are under video surveillance while in all public and employee-only spaces at your store (not bathrooms or other private spaces). This will prevent them from bringing a successful invasion of privacy claim in the future.

Set Expectations for Investigations

At the outset of any investigation into alleged theft, the accused employee should be made aware that participating in company investigations is mandatory. Provide them a written notice that refusal to cooperate may result in termination.

Create and Enforce Policies Related to Company Assets

Finally, you should expressly advise all of your employees regarding your policies pertaining to the protection of company assets. Instruct them that violations of the policy may lead to their immediate termination without any finding of intentional wrongdoing.

The Termination Meeting

The termination meeting should not be the first time the accused is informed that they are suspected of malfeasance. Regardless of any benefit to keeping the employee in the dark about your suspicion while you conduct a covert investigation, and even if termination is essentially a foregone conclusion at the time of your interview with the accused, you should still hold off on making a termination decision and from communicating that sort of message during that first interview. It is far better to suspend the employee pending the outcome of the investigation. Many times the employee will not return for a follow-up meeting and can be terminated as having abandoned their job. There are far fewer facts to argue when an employee is terminated on these grounds.

Your Words Matter

How the termination meeting is to be conducted depends heavily on the strength of your evidence. If all the signs point to theft but you don't necessarily have anything that is conclusive, you should not use terms like "theft," "dishonesty," or even "suspicion of theft" as reasons the employee is being terminated. This does not mean you cannot terminate the employee, but accusing an individual of a crime is per se defamatory in many jurisdictions, and you may be required to prove in court that the employee did, in fact, commit a crime. Instead, language centering on your lack of trust in the employee—"we are terminating you because we have lost confidence in your ability to perform your job up to our expectations"—is much less likely to be considered defamatory.

Focus on Your Policies, Not the Criminal Code

Another way to couch your justification for termination if you are less than 100 percent certain of the employee's guilt is to cite a violation of your company policies and not any allegation of criminal wrongdoing. In this scenario, you should tell the employee that you have not reached a conclusion as to their culpability for a crime, but that the termination is because proper store procedures were not followed.

Admissions of Guilt

If an employee admits to the theft, ask for a written confession. As with any other witness statement relating to an investigation, this should be in the employee's own handwriting. Managers should also be taught that the "Law and Order" hot-boxing method of extracting written confessions could easily backfire. If the circumstances under which the employee gives the confession can be characterized as coerced, a jury may choose to ignore it. To this end, allow an employee to leave the interview and go to another area where the investigators are not hovering around as the document is prepared.

If the employee refuses to admit theft even where there is indisputable evidence of guilt, you must choose carefully how to characterize the termination. Employees who refuse to admit guilt in the face of overwhelming evidence will most likely continue to fight the assertion of theft at every opportunity. These are the individuals most likely to sue.

Once you submit "theft" as the reason for termination to an unemployment compensation board, the battle will be on. It may well be a battle worth fighting, but that decision must be made in light of all the potential claims an employee may have against you, not just the unemployment compensation claims. These include discrimination allegations, wrongful termination claims, and defamation suits.

Police Involvement

Before calling the police, it is critical to know how seriously they will respond to allegations of theft of a few hundred dollars in merchandise. Some police departments are simply too overwhelmed to do more than write a report of the complaint. Either a lack of interest or sloppy handling of the matter by the police can both be used to undercut your claims against the employee. Ultimately, no police involvement is better than limited or poorly handled police involvement.

If a police department is ready, willing and able to respond to reports of theft, call them when the missing item or money is discovered. In such a situation, it is critical that whoever interfaces with the police does not point the finger at the suspected employee. If a different employee turns out to be involved, your initial finger-pointing might spur a claim for malicious prosecution under state law. Should the suspect beat the charges, which sometimes occurs, the employee will be more likely to succeed on a claim for malicious prosecution against you.

If the police move forward with charges against the employee, you must be willing to provide all the assistance they require. Witnesses failing to appear for trial will result in charges being dropped and will cast doubt on your good faith.

The Unemployment Compensation Hearing

Treating the almost inevitable unemployment compensation claim lightly can wreak havoc on later proceedings related to the termination. If the employee already has counsel, that attorney will likely attend the hearing and question witnesses. Testimony is under oath and, in some cases, can be used against you in later proceedings. For these reasons, it is important to prepare for an unemployment hearing as if it were a formal court proceeding.

Another problem can arise if key witnesses are no longer employed by the time of the hearing. While they can be subpoenaed, many employers fail to take this step, hoping that the written statements taken during the investigation will carry the day. The problem is that, while the statements are often admissible, the court or administrative body might not be able to credit hearsay statements over the first-hand accounts of the employee.

The employee often becomes emboldened to assert other claims when they prevail in an unemployment compensation claim. Additionally, an employer that loses at the unemployment hearing might also lose the qualified privilege defense to a defamation claim for statements accusing the employee of malfeasance. If you do not want to spend the time, energy, and effort needed to fully prepare for the unemployment compensation claim, it may well be better not contesting the claim at all.

While retailers can take strong efforts to reduce employee theft, eliminating it entirely is likely impossible. But employers have the ability to greatly diminish the opportunity for the insult of an expensive lawsuit being added to the injury of theft.

Originally published in Workforce Magazine

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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