HRANB Newsletter

Although not uncommon, employee theft is one of the most serious issues an employer can encounter. What can employers do if they suspect theft in their workplace? Lessons can be learned from two recent cases where investigations into suspected employee theft and the aftermath ended up causing the employer significant headaches. The first (McNeil v. Brewers Retail Inc.) is an egregious example for employers of what not to do, the second (Slipp v. Town of Woodstock) provides an overview of the difficulties arising even when the employer makes every effort to deal with the issue properly.

McNeil v. Brewers Retail Inc. (“McNeil”), 2008 ONCA 405:

In McNeil the employer noticed that it had ongoing shortages of cash and inventory. Employee theft was the suspected cause. In order to investigate these suspicions, the employer had covert surveillance cameras installed in its premises. Upon reviewing the tapes, the employer had a member of its management prepare a witness statement, which it handed over to the local police along with the tapes. As a result, six employees were arrested; four plead guilty, while the charges against a fifth employee were withdrawn. The sixth employee was McNeil.

The crucial flaw with the employer’s investigation in this case was that the videotapes contained footage that was both inculpatory and exculpatory of McNeil; the tapes actually showed McNeil taking American money and replacing it with Canadian funds. Despite knowing of the existence of the exculpatory footage, the statement provided by the employer to the police referred only to the inculpatory segments of the footage, and failed to draw the police’s attention to the fact that the employed had replaced funds. To make matters worse, the police relied on the employer’s assistance to access the security camera tapes, and were never shown the exculpatory segments of the tapes. As a result of the arrests, the employees were suspended without pay, and became the subjects of considerable scrutiny in the local media. Internal memoranda of the employer later surfaced that expressed concern about the information provided to the police, and recommended that a solution would be to use the criminal charges “as a lever to obtain some kind of non-grievable admission of guilt.” McNeil was tried and convicted of theft, without the exculpatory segments of the tapes ever being disclosed.

McNeil grieved his discharge from his employment that followed his criminal conviction. In the course of the arbitration, the union was provided with the security camera tapes, and discovered the exculpatory segments. McNeil appealed his criminal convictions and was ultimately found to be not guilty of all the charges against him. McNeil then commenced a civil action for malicious prosecution against the employer, claiming the employer had intentionally failed to disclose the exculpatory evidence.

McNeil’s civil action was successful at trial, where a jury awarded him damages totalling over $2 million dollars. In addition, McNeil’s wife was awarded $50,000 under the Ontario Family Law Act for loss of care, guidance, and companionship. On appeal, all of the employer’s arguments were rejected, and the exceptionally large damages award was confirmed. The employer’s argument was that the issues between McNeil and the employer arose out of the collective agreement, and therefore were properly within the jurisdiction of a labour arbitration tribunal and not the courts. The Ontario Court of Appeal rejected this argument, holding that the courts have plenary jurisdiction over actions in tort, and that malicious prosecution falls outside the scope of the collective bargaining regime. The employer also urged that it was not it that had initiated the prosecution of McNeil, but the police; this argument was rejected as, but for the withholding of the exculpatory evidence by the employer, the prosecution would never have been initiated by the police. The employer ended up publicly embarrassed and subject to a heavy damage award, as well as undoubtedly having incurred significant legal costs of its own.

Slipp v. Town of Woodstock (“Slipp”), 2008 NBQB 166:

In Slipp, a municipal employee was dismissed for cause after monies under her control went missing. Slipp was responsible for basic daily administrative functions as part of her job duties. One of these functions was to take responsibility for Town funds and to prepare bank deposits for the employer and to deliver them to the bank. In reviewing its bank statements, the employer noticed that a deposit, in the amount of $168.50, which it knew had been prepared, did not appear in the statements. Slipp had no explanation for the missing deposit other than that it must have been lost somehow. The employer sent a memo to Slipp, stating that the employer held her responsible for the loss of the deposit, but would not be asking for the return of the money; the employer gave Slipp the benefit of a doubt due to the isolated nature of the incident.

Following the disappearance of the deposit in September of 2005, the employer introduced a new procedure for making daily deposits, designed to eliminate the chance that future deposits would go missing. About three months later, the employer noticed that two more deposits, totalling over $1400 in cash, were missing. Slipp, the person responsible for controlling the funds, again had no explanation for the missing deposits, but she denied having taken the money herself.

The employer asked the police to investigate the missing deposits. In the context of this investigation, Slipp consented to a polygraph examination. The police reported to the employer that Slipp had failed the polygraph test. The employer then met with Slipp to give her an opportunity to explain the situation. Slipp again acknowledged that she was responsible for the care of the missing funds, but continued to deny that she had misappropriated them. Slipp also offered to repay the missing funds. Following this meeting, Slipp was given a letter advising her of her dismissal for cause.

Despite the fact that the funds were under the care and control of Slipp when they went missing, at trial, Slipp was held to have been wrongfully dismissed. The burden of establishing cause for dismissal was on the employer, and, in the view of the court, the employer had not discharged this onus. The employer urged the court that they were not trying to show culpable conduct (i.e. that Ms. Slipp had stolen the money), but that her failed responsibility and the surrounding circumstances impaired the employer/employee relationship to the extent that dismissal for cause was justified: Slipp was responsible for the care and control of funds and they went missing while under her care and control. The court noted that Ms. Slipp was not criminally charged, due to the lack of concrete evidence against her, and stated that the employer placed too much weight on the reliability and accuracy of the failed polygraph test; the court held that the employer was not entitled to rely on the polygraph results to establish cause for dismissal. The court awarded Ms. Slipp damages as pay in lieu of notice, but no punitive damages were awarded against the employer.

Implications for Employers

The above cases make it clear that an employer who suspects that employee theft is an issue within their organization will have to be very careful in how they investigate and address the situation. Employers must not approach a potential theft with a closed mind (i.e. having already decided that the employee is guilty), but must take care to gather as much evidence as possible in as discreet of a manner as possible (in order to avoid unnecessarily damaging the employee’s reputation); should the employer decided that prosecution is warranted, they must take care to make full disclosure of all relevant information to the police.

Despite past jurisprudence which indicates that an employee can be dismissed on the mere suspicion of theft as long as the suspicion is reasonable, Slipp demonstrates that it may be difficult to be successful in a wrongful dismissal action based on suspicion alone. While the Slipp case may be a bit of an aberration, in that case it was not enough to simply argue that the missing funds went missing while in the care and control of the dismissed employee.

The bulk of the caselaw indicates that a single isolated act of theft is often enough to justify summary dismissal. This is because there is an implied term in every contract of employment that the employee will not steal from the employer. Theft provides a revelation of character incompatible with the due and faithful discharge of the employee’s duty to his employer. While theft will often constitute cause for dismissal, in order to be successful, proof of theft will be required. Thus, the employer must take care that sufficient evidence is gathered and all the facts are known to it before taking any action against employees suspected of theft. Otherwise, you may end up paying an employee who you suspect stole from you.