Prepare to prove fraud – or pay

On the very first day of his new job with Home Depot, Bill Macdonald concluded that Peter Tong, one of his sales associates, was guilty of time fraud and of taking excessive breaks.

Triumphantly announcing his findings to his store manager, Sandra Galucci, Macdonald breathed excitedly, “Sandra, you’ll never believe it. This is what is going on in your store. I can’t believe it.” Galucci responded by directing Macdonald to place Tong under surveillance.

Over the next month, Macdonald religiously recorded on his clipboard the times that he saw Tong leave the store floor, when he ate lunch, and when he punched in and out of the computer sign-in system. Macdonald transferred all of these notes to another sheet of paper that he submitted to Galucci.

Although Tong had no prior history of excessive breaks, much less time fraud, Galucci accepted Macdonald’s report and dismissed Tong for just cause, without severance.

Home Depot’s defence of Tong’s wrongful dismissal case quickly unravelled. Skewering the employer for the quality of its investigation, Mr. Justice Echlin of the Ontario Superior Court found Macdonald’s inquiries to be sorely deficient. He had destroyed his original notes and presented only the summary to the store manager. He exaggerated his evidence, stating that he had observed Tong stealing time every day, when that was not the case. He gathered no evidence from any other employees, not even from Tong’s supervisor. Tong was never even confronted with the allegations. Outraged by this skewed process, the court awarded Tong damages for wrongful dismissal, interest and substantial legal costs.

When employers allege dishonesty and fraud, the burden of proof is more exacting than the evidentiary standard required for other allegations, such as incompetence. The reason is simple. The consequences to an employee, if allegations of dishonesty or fraud are proven, can be devastating. Strong suspicions or gut instincts of dishonesty or any criminal conduct are insufficient.

Rock-solid evidence of wrongdoing is required if one is going to terminate an employee for fraud. I recommend the following steps:

1. Consult an employment lawyer before conducting the investigation to develop an appropriate strategy for your investigation.

2. Have a seasoned, independent human resources staff member or, if there is sufficient at stake, an outside expert, perform the investigation. Avoid having a witness, or anyone who has a stake in the outcome, act as the fact-finder.

3. Keep contemporaneous notes of observations and discussions. These records should never be destroyed.

4. Interview all witnesses who might have any information that would shed light on the allegations — not just those who might support the employer.

5. Record the statements of witnesses in writing and have them signed, so as to ensure an accurate record. This also commits them to their position.

6. Afford the employee a full and fair opportunity to respond to allegations and record a statement.

7. Take a cold, hard look at all of the evidence before proceeding to terminate. Avoid the temptation to overstate the effect of certain statements and whether they support your position. Consider whether the evidence will hold up.

8. Apply lesser forms of discipline such as a suspension or a letter of warning, if the evidence does not support the penalty of dismissal.

9. Avoid alleging cause unless strong evidence exists to support the allegation. Employers face the risk of being penalized with an award of extended damages if the dismissal is found to be in bad faith.

Remember, you can always dismiss any employee without cause if you provide sufficient notice or severance. But if you allege cause and you don’t have the evidence, you risk an increased award.
If you, or someone you care about, is dealing with employment law issues in the Toronto, Ontario Region, contact Lang Michener LLP.

This article is taken from an interview with Howard A. Levitt,Employment Lawyer at Lang Michener LLP, a Toronto, Ontario Employment Law Firm. Note that laws vary from province to province. Please consult with a lawyer in your own area to be sure of the laws and specific issues in your own jurisdiction.