Employee Theft – Protecting More Than Property

How you handle a case of employee theft can mean the difference between a simple matter and complicated litigation. By practicing unwavering hiring and training procedures and having proper hotel policies in place, employers can limit potential theft along with possible liability claims related to employee theft situations. In this article, Converge, Andria Lure Ryan, shares a few “best practices” for handling employee theft and controlling your exposure to litigation.

The problem of employee theft in hotels is an age-old problem. Businesses lose billion of dollars each year in employee theft. And hotels, by nature, present numerous opportunities for employee theft from guests and the house. Theft in a hotel can take many forms – from identity theft to credit card fraud to theft of merchandise and guest property. No employer hires an employee thinking that the employee is someday going to steal. Hotels need to take steps to prevent theft and be cautious in taking action against an employee after a suspected theft. Both have practice and legal implications.

Prevention in All Forms

Take a thorough look at your hotel’s security measures and processes. Ensure that your guest room locking systems and room safes meet general industry standards. Review, implement or update employee policies related to 1) package passes to control removal of property from the hotel, 2) lost and found procedures, which should be strictly enforced and 3) guest room access by employees. Consider an audit by a security expert to review your security procedures and protocols – in action.

Another criminal trend that can have a major impact on the hotel industry is identity theft. Many hotel employees have access to guest identity and credit card information. Make certain that your hotel is in compliance with the payment card industry security standards. Implement best practices related to credit card and identity documents: purge unneeded credit card data, do not imprint credit cards, ensure that only partial credit card numbers are displayed, carefully monitor charge-backs and carefully limit the employees who have access to guest identity and credit card information.

Prevention also includes proper employee screening. One of the best ways to prevent theft by your employees is to not hire a thief. Consider conducting criminal background checks on applicants and employees with access to guests, their property and hotel property. Consider credit checks on applicants and employees who have access to financial assets. And employee screening should not be finished once the employee has been hired. Require employees to report any criminal convictions during the course of their employment and conduct periodic criminal background and credit checks during employment.

Criminal background checks pose some legal risks at any stage in the employment process. In 2012, the U.S. Equal Employment Opportunity Commission (EEOC) issued updated guidance on the use of criminal background checks in employment titled, Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964. Although Title VII does not prohibit the use of criminal background checks, the EEOC cited concerns that employers could use arrest and conviction records to unlawfully discriminate against job applicants based on their race or national origin. A hotel’s criminal background and credit check policy should be tailored to comply with the EEOC guidance and state and local laws that restrict or prohibit criminal background and credit inquires.

The hotel also should be certain it is in full compliance with the federal Fair Credit Reporting Act (FCRA) which sets forth the requirements for authorization by the applicant or employee to conduct the background check and which has strict notification requirements for a hotel if it decides not to hire an applicant based on the information obtained in the background check. Be certain that your background screening vendor is accredited and using updated authorization and notification forms.

Responding to Suspected Theft

A common reaction to suspected theft is to discharge and make an example of the employee and hope to prevent similar actions by other employees. While an employer has the right to discharge an employee who steals, doing so can involve hidden traps. Case law is rife with examples of employers being sued by discharged employees for wrongful termination, malicious prosecution, defamation, false imprisonment, false arrest and invasion of privacy. These legal challenges are usually centered on the methods used to try to catch or prove employee theft – which can result in liability. Surveillance or recording of employees may be illegal under federal anti-wiretapping laws and some state laws. Forcing a suspected employee to sit in a room where the employee cannot leave an investigation meeting can lead to a false imprisonment claim. Searching an employee’s personal items without consent or proper notice can lead to an invasion of privacy claim. Federal laws also regulate the use of lie detectors in investigations of monetary loss.

Before conducting any kind of surveillance through video or voice monitoring, hoteliers should check state and federal law to determine whether an employee’s consent is necessary for such surveillance. Even if consent is not necessary, it is wise to inform employees at the time of their hire and throughout their employment that such monitoring may occur. Never conduct surveillance in private areas such as restrooms or locker rooms.

Policies regarding searches of employees’ lockers or personal belongings brought onto hotel property are generally acceptable and common in the hotel industry. Be certain that the policy is well publicized and acknowledged by every employee. These searches should be conducted in a manner that minimizes confrontation – such as first requesting an employee remove a lock from a locker before removing it forcibly. Loss prevention personnel and managers should be instructed that any search of an employee’s purse or briefcase should be minimally invasive and conducted with the dignity of the employee in mind. Give all employees specific instructions on how to properly remove authorized items from hotel property, through the use of a property pass or otherwise.

Investigations into theft should be carefully conducted and invasive techniques, such as polygraphs, should be avoided. Involve at least two individuals in the investigation and, optimally, one person should not personally know the accused employee. This will help avoid claims that “charges” were trumped up against an employee because of hostility by the investigator. If the company has a written protocol or established past practice for conducting investigations, the protocol or past practice should be followed. Witnesses should write their own statements in their own handwriting and all statements should be legible, dated and signed. An employee who is being investigated should be allowed to tell his or her side of the story and have it included as part of the investigation file. Otherwise, a judge or jury may feel that the employee was railroaded and falsely accused. The investigation must be thorough and an investigator should not limit the investigation to the witnesses identified by the accused if other individuals might have relevant knowledge.

While many law enforcement agencies still include a polygraph examination in investigations, employers are severely limited in the use of polygraphs. The Employee Polygraph Protection Act of 1988 (EPPA) prohibits most private employers from using lie detector tests either for pre-employment screening or during the course of employment. Polygraph tests are permitted in only limited circumstances. One of those circumstances is in connection with an ongoing investigation of theft, embezzlement, misappropriation or an act of unlawful industrial espionage or sabotage. But there are strict limits to this exception, which makes the use of the polygraph exam a legally risky proposition. In order to conduct the polygraph, an employer must demonstrate that the employee had access to the property that is the subject of the investigation, that the employer has a reasonable suspicion that the employee was involved and the employer must execute a specific statement about the loss.

Employers conducting polygraph tests under circumstances permitted by law are subject to strict standards for the conduct of the test, covering pretest, testing and post-testing procedures. And most significantly, the employer cannot terminate an employee based solely on the results of the polygraph test. The employer must have additional, independent evidence of the theft before it can discharge the employee. Many employers decide not to risk running afoul of the strict requirements under the EPPA if the employer has other evidence linking the employee to the theft.

The Final Days

Risks arise again when the hotel makes a decision about what to do with the employee after an investigation into theft. Carefully consider whether police involvement makes sense. While it might act as a deterrent for other employees, it may also lead to a lawsuit by the departing employee for malicious prosecution. It is critical to have some idea as to how seriously the police will respond to allegations of employee theft. Some police departments are too overwhelmed with violent crimes to do more than write a report of the complaint. 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.

Attempting to recoup monetary losses from employee theft can be tricky business. Before engaging in efforts to recoup losses, strongly consider whether it is worth the effort. A common method of recoupment is to deduct from the discharged employee’s last paycheck or withhold the pay out for earned benefits, such as vacation or PTO. Making deductions from a last paycheck may implicate the federal Fair Labor Standards Act, and there are numerous state laws around the country that make the paycheck deduction either unlawful or extremely risky. Before embarking on efforts to recoup losses, it is strongly advised that you consult with trusted labor and employment law counsel in your particular state.

Treat the inevitable unemployment compensation claim with great care. If the employee has counsel, that attorney will likely attend the hearing and question witnesses. Take the time to prepare witnesses fully and make sure they understand the importance of the proceeding. If an employer loses an unemployment compensation claim related to employee theft, the employee may become emboldened to assert other claims. If you cannot spend the time, energy and effort needed to fully prepare for the unemployment hearing, it may well be better to not contest the claim at all.

While hoteliers can take strong steps to reduce employee theft, eliminating it entirely is likely an impossibility. The best loss prevention involves good procedures for hiring, training and supervision of employees. And by following a few best practices, employers can limit the potential liability for claims related to employee theft situations and diminish the potential for the insult of an expensive lawsuit on top of the injury of employee theft.

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