An Employer’s Guide to Employee Dishonesty, Breach of Duty of Loyalty, and Embezzlement Cases

A challenging aspect of employee dishonesty, disloyalty, and embezzlement is that it often occurs at the hands of some of the most trusted personnel. When business leaders empower their employees to access vital information, execute critical business processes, or manage large financial transactions, their trust can be abused. This betrayal can lead to significant financial harm to the business. 

How Employees Act Dishonestly or Disloyally

There are many ways that employees can act dishonestly or in breach of their fiduciary duty of loyalty, causing financial harm, including: 

• Fraud in business operations: Cases may involve false invoices, businesses formed under names similar to the employer’s business, or conspiracy with vendors in an attempt to defraud.
• Trade secret theft and unfair competition: Sometimes a business’s greatest asset is its information. When employees misuse or leave with trade secrets, insider information, and client lists, it may be actionable in court.
• Fraudulent transfers and concealment of assets: Many embezzlement cases involve fraudulent transfers to unauthorized accounts.
• Usurpation of a business opportunity: Agents of a business may misuse their position to take advantage of an opportunity that rightfully should have been presented to the business.

What Employee Dishonesty and Embezzlement Looks Like

It can be hard to detect these dishonest and illegal actions because the employee takes extensive steps to conceal them. In our experience, we have repeatedly seen the same three components that lead to disloyal conduct: opportunity, pressure (or motive), and rationalization. The existence of this “fraud triangle” is supported by extensive research. Opportunity arises where there are few internal controls in place, or they are not enforced, monitored, or effective. Pressure or motivation may occur from debt, lifestyle needs, greed, or addiction (to substances, gambling, or otherwise). Rationalization is often present in thought processes such as “I am overworked and underpaid,” “The company can afford it,” or “I’ll pay it back.”  

Employers should also pay attention to their employees’ close relationships with vendors, as well as the employee’s personal financial choices. Someone who begins living more extravagantly than you would anticipate given their salary could be engaging in embezzlement. 

Employers’ Legal Options

When an employee’s disloyal actions hurt a business’s bottom line, several civil legal remedies are available. Business litigation options include preliminary injunctions, prejudgment attachment of assets, and other provisional remedies. 

Obtaining such relief at the outset of a lawsuit is often necessary to protect your business’s interests. These remedies can prevent more revenue from being drained out of the business and can be a critical tool in recovering assets. 

Claims for civil theft can be a powerful tool, as some cases may warrant treble (triple) damages and/or an award of attorney fees. The Uniform Trade Secrets Act can also provide additional remedies. Fraudulent transfer claims may also be required to collect against embezzled assets that have subsequently been concealed. 

Take Legal Action Against Employee Dishonesty

When an employee’s dishonest actions cause financial harm, business owners have options. The lawyers at Keating Wagner Polidori Free can help you understand what options are available to you and what next steps to take. Get started by contacting us for a free consultation. Call 303-534-0401 or send us a message.