Should We Fire Jane?

getting-firedAs a CFE your client’s employees are fifteen times more likely to steal from them than their customers. A classic rule of thumb for employers to use when considering employee dishonesty is: 10% of employees will steal no matter what is done; 10% of employees will never steal, no matter what the circumstances; and the remaining 80% may steal if you let them. The goal of loss prevention programs is, thus, to keep this 80% group from stealing. A strong deterrent for dishonest employees is knowing exactly what the ramifications of their actions will be. Employees must know that if any employee, at any level, steals or violates company policy, they will receive a fair hearing, swift, consistent, and serious sanctions will be imposed; and termination from employment, criminal prosecution and civil action may result.

So, it appears from your examination that Jane has embezzled what appears to be a lot of money over the past two years and she hasn’t cooperated with the investigation. Now your fraud report comprehensively lays out all the facts of the case and your client asks you flat out, “Should we fire Jane?”

Regardless of whether or not your client decides to seek criminal or civil recovery of fraud losses against an employee, your client needs to consider the future of the employee at their company. When confronted with a possible wrongdoer or with an employee like Jane who refuses to cooperate in the investigation of a suspected fraud, most employers immediately want to fire the employee. Whether the employee can or should be discharged depends on the facts of the case and the law in the employer’s state. There is usually a way to discharge the employee, but such cases need to be handled carefully so that the client doesn’t inadvertently open themselves to liability.

In some U.S. states, absent an employment contract, employment is considered “at will.” This means that the employer or the employee can sever their relationship at any time for virtually any reason. The only exception is that the employee cannot be discharged for a discriminatory reason based on such things as race, sex, disability, or national origin. In other states, the employer may be prohibited from terminating the employee unless the termination is for “just cause.” Before discharging any employee, it’s best to document in the employee’s file that the employer has ”just cause” to terminate employment, whether or not the client operates in an “at will” state.

Although there is no exact definition of “just cause,” there are several questions that the client company should ask before terminating Jane:

— Did Jane know that the conduct would be subject to discipline?

— Was the rule the employee violated reasonably relate to the safe, efficient, or orderly, operation of the business?

— Did the company investigate, formally or otherwise, to discover whether the employee violated the rule?

— Did the company conduct a fair and objective investigation?

— Did the company obtain significant evidence of a violation?

— Was the decision nondiscriminatory?

— Was the discipline related to the seriousness of the offense and the prior record of the employee?

As a CFE, your final report provides invaluable insight in formulating and obtaining documented answers to a majority of these questions.  If, based on the facts, the client company feels that discharge of the employee is likely, it should make sure that the employee’s actions and the company’s actions are well-documented and placed in the employee’s personnel file.

Make your client aware that issues of employee termination are complex and that in many cases it’s prudent to consult corporate counsel before acting. At least one state has recognized the right of an employee to sue for the employer’s failure to properly investigate charges against the employee before discharging him or her. Most of the courts that have addressed this issue have refused to recognize the claim however. Many states now recognize an implied contract between employers and employees arising out of employee handbooks. Handbook provisions might limit the right to discharge for ”just cause,” and the issue might be whether the employer has enough evidence of wrongdoing to constitute “just cause.” A few states recognize a duty on the part of the employer to deal with its employees fairly and in good faith. Documentation from the CFE’s report that the employer had good cause to terminate the employee should defeat this claim.

Other states recognize a public policy exception to “at will” employment. The employee must prove that her conduct is favored by a relevant public policy and that the employer retaliated against her for engaging in this “protected” activity. Again, the company will need to show that it had good cause to fire the employee and that it was not retaliating against the employee because of the protected conduct. For example, if an employee is fired because she supported a particular political candidate in the last election, a court or jury might find that his termination is in violation of the general public policy allowing people to vote for whomever they please. However, if the employee was conducting fund-raising activities on company time, the company would likely have good cause to terminate the employee and such termination would not be in retaliation of the employee’s support of a particular candidate.

The CFE can be of great assistance in marshaling the facts related to all the aspects of an employee discharge for cause.  Just bear in mind that these issues are often more complex than they seem and so always recommend that clients proceed with caution.

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