Every business owner tries his best to monitor the daily activities of the business and its employees. However, try as you might, an employee may still steal monies without your knowledge. Employee theft is a huge problem, and once learned, how a business owner responds can mean the difference in recovering most, if not all, of the stolen monies, or none at all.
1. Be Sure Money was Stolen
Before making accusations and firing employees, the business owner must make sure the evidence it has is strong. The evidence can consist of video, emails, audited computer files, bank statements, correspondence with client and vendors, etc. Once the evidence is gathered, it is critical to document what was learned.
2. Termination of the Employee
Many business owners will rush to do this, and it is easy to understand why. However, how an employee is fired is a delicate act that requires the business owner to follow the company’s policy. The business owner should try and get the employee to execute a release to prevent the employee from filing a Wrongful Termination suit, for example. Until the stolen monies are returned, the company should not execute a release of its claims against the employee.
3. Notify the Police and Your Insurance Company
A police report is necessary if the company hopes the employee will be criminally prosecuted one day. After a report is made, a detective is usually assigned to the case, and he/she will interview the business owner and other relevant persons. Based on the detective’s recommendation, the District Attorney may decide to criminally prosecute the employee. By initiating the criminal process, an employee may be more willing to divulge important information about where the monies are, and whether any monies are unspent.
The company should not hesitate to tender a claim to its insurance company due to the employee’s theft. If the stolen monies were within the applicable insurance policy’s limits, it is possible the company will be made whole, and it can avoid filing a civil action. Insurance companies are not often willing to just cut its insureds checks, and it may require a forensic accountant to review the company’s books and recordspot. Also, do not be surprised if the insurance company requests interviews with the business owners and related employees depending on how egregious and large the theft was.
4. File a Civil Action and Hire a Private Investigator
Initiating a civil action is necessary to obtain a monetary judgment against the employee. The initiating complaint may contain, at a minimum, claims for Conversion, Fraud and Concealment, Breach of Fiduciary Duty, and Injunctive Relief, depending on the applicable facts. The company should always consider including a claim for Theft and Misappropriation under California Penal Code § 496(c). This statute, if applicable, entitles the company to treble damages and reasonable attorney’s fees.
Along with the filing and service of the complaint, the company should concurrently appear ex parte before the Court for an attachment order, or alternatively, a temporary restraining order, and for an order granting expedited discovery. “Ex Parte” is the legal definition for appearing before the Court on an emergency basis because of the urgency of the situation. The temporary restraining order would require the employee to stop the use and enjoyment of the illegally stolen monies. An attachment order would allow the business to access the monies in the employee’s bank accounts. The expedited discovery order is necessary, so the company can begin to serve subpoenas on possible banks to acquire information about deposited checks, bank statements, and determine where the monies are going. In California, a plaintiff may propound written discovery 10 days after service of the Summons and Complaint. (California Code of Civil Procedure § 2030.020 (interrogatories), § 2031.020 (inspection demands), § 2033.020 (admissions)). A plaintiff may serve deposition notice 20 days after service of the complaint. (California Code of Civil Procedure § 2025.210). Thus, the ex parte application can be used to get a much-needed head start.
If and when the Court grants the company an attachment order, it will be required to post an undertaking. (California Code of Civil Procedure § 489.210, 489.220). This can be done through a bonding/insurance company. Once the bond is posted with the Court, the company can attempt to claim the monies placed in the employee-controlled bank accounts.
Finally, a private investigator can be very helpful. An investigator can determine an employee’s assets that were unknown to the business owner and what banks he/she has accounts at. This information is critical, so a document subpoena and other discovery can be served on the proper parties.
5. Be Aggressive, Be Patient, Be Flexible
Recovering monies from an employee requires aggressive use of the legal system via discovery, depositions, and mechanisms to recover monies from bank accounts. However, business owners must also be patient to allow the process to unfold. Business owners also need to be flexible. It is possible an employee may share the stolen monies with family members or deposit the funds in a dummy corp. The company needs to be willing to pursue any family, or other corporate entities that may have assisted with the embezzlement of the company’s funds. If the monies were used to purchase real estate, a Lis Pendens may have to be recorded to cloud title and the possible transfer of the property.