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When It Comes to Employee Theft, Opportunity Makes a Thief

The problem of employee theft is well-documented, with recent figures suggesting that the majority of workers have stolen from their employers. Retail theft is a particularly acute challenge, given the ready access to cash and stock. The financial impact of employee theft on retail businesses is considerable, with some surveys estimating that employees account for between 30 and 45 percent of retail crime losses, far in excess of those resulting from external shoplifting. Against this background, what steps should retail employers take to protect themselves from employee dishonesty, and what are the constraints?

Pre-Employment Screening

Only a minority of employee thieves face any adverse consequences, including dismissal or a criminal investigation arising from their theft. This is because many retailers simply do not have the resources to identify the culprit and, in practice, it is often difficult to catch them in action; theft being typically identified through cash losses, sale irregularities, stock inventories and other means.

Given that detecting and identifying employee theft can be challenging for businesses, a sensible strategy is to put measures in place to avoid hiring dishonest employees in the first place. This involves instituting a pre-employment screening programme, or reviewing the effectiveness of existing screening processes.

Pre-employment screening practices may include:

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  • Verifying personal background information provided by a candidate looking for employment, such as his/her education and qualifications;
  • Checking the candidate’s references with previous employers; and
  • Undertaking identification, criminal, and credit-history checks.

Screening and the Law

Legal constraints limit the scope of pre-employment screening permitted in European Union (E.U.) countries. This reflects, in large part, the E.U. Data Protection Directive that in this context aims to strike a balance between the employer’s needs and the candidate’s right to carry respect for his or her private life. Cultural expectations around privacy also play a part in shaping employer requests for background checks in different E.U. countries.

In most E.U. countries, background checks are only permitted if they are relevant and proportionate to the role, and the candidate’s consent is required in order for the checks to be carried out. An employer can generally refuse to hire a candidate based on the findings of the background check, although the candidate may request access to the information collected that led to this decision. Many E.U. countries strictly enforce the rules limiting background checks, and businesses are advised to take them seriously as breaching them can lead to financial and other penalties.

Across the E.U. there are varying rules about criminal record checks, with most countries applying strict controls. For example, this might include only permitting the disclosure of unspent convictions.

Screening in Practice across Europe

While this summarises the position in relation to pre-employment screening in the E.U., there are some nuances across countries. For example, in general terms:

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  • It is not common for employers to carry out credit and criminal records checks in Ireland due to practical difficulties in obtaining the information, although candidates can be required to declare any relevant criminal convictions.
  • Checks concerning identity and criminal history are quite common in Italy. However, criminal record checks can only reveal unspent convictions and must be requested specifically by the candidate; and then only if the potential job involves a high degree of trust. Consultation with the works councils is necessary when introducing a policy on pre-employment screening.
  • Credit history checks are not allowed in the Czech Republic. That apart, background checks are quite common.
  • In Finland, if the employer has at least thirty employees, it must negotiate general principles and practices for collecting information from candidates and employees during and after recruitment with its employees and/or employee representatives.
  • In Germany, works council consultation may be triggered where the employer only hires candidates successfully passing pre-employment screening. It is not common to ask former employers for references, as employers are under an obligation to provide departing employees with a written reference on termination. Candidates will therefore normally provide the employer with copies of all written references when applying for a job.
  • In France and Poland, restrictions operate to limit most credit and criminal history checks, with some exceptions for criminal checks. For example, this may apply in relation to some security or financial-sector positions.

When introducing pre-employment screening in E.U. countries, employers should explain to candidates as early as is reasonably practicable in the recruitment process, the nature of the verification process and the methods used to carry it out. They should only request information that can be justified in terms of the role offered, and prior consent should be obtained. Local laws may impose additional legal constraints.

Monitoring Employees

Monitoring employees, such as using CCTV to deter dishonesty or collect evidence in the event of suspected thefts, is a common occurrence in retail businesses. Again, E.U. data-protection laws require the employer to balance its needs with an employee’s right to privacy when installing and operating workplace monitoring.

Typically, across the E.U. there are legal constraints that require the employer to inform employees, in as much detail as possible, about the manner in which they will be monitored and to only conduct monitoring that is relevant, justified, and proportionate. Consent is usually also necessary.

Covert monitoring is strictly controlled. For example, in the U.K. it should only be carried out as a last resort, be time limited, sanctioned by senior management, and be required by law or instituted to prevent or detect criminal activity or malpractice. These conditions are difficult to satisfy in practice, and mean such monitoring can only be justified where other means of detection have failed and in sufficiently serious circumstances.

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Lawfully Terminating Employment

There will be occasions where an employee is caught stealing, or the employer is satisfied that he or she is responsible for a theft and wishes to terminate the employment. The law and practice regulating the termination of contracts for misconduct differs across the E.U. This reflects the absence of any harmonising E.U. law around dismissal on grounds related to the individual, as opposed to, for example, on economic grounds such as redundancies. This means that it is left to each country to decide how to regulate individual employee theft dismissals.

Despite this, there are some general themes that emerge from the regulation of employee terminations on the grounds of misconduct across Europe:

  • A serious incident of employee theft is likely to amount to gross misconduct, which may entitle the employer to terminate employment without lengthy notice.
  • An employer should follow a fair procedure before the termination. While the detail of the procedure varies across E.U. countries, it will usually include informing all workers during their employment of the consequences of committing employee theft, for example, in a readily available disciplinary code; conducting a thorough and independent fact-finding investigation in response to specific allegations of employee dishonesty; providing a written statement of the theft allegations to the employee before meeting with him or her; allowing the employee to put forward a defence; and ensuring that the process is not subject to undue delay.
  • Most countries require the notice of termination to be put in writing.

In some E.U. countries, there are set time periods within which the employer must act following the discovery of the employee theft, as in the following examples:

  • In the Czech Republic a period of two months applies.
  • In Germany, it is two weeks.
  • In others, the trade union or works council must be informed in advance if the termination is to be valid.
  • In Sweden, if the employee is a union member, the employer must notify the local union, which is entitled to consult with the employee before the termination takes place. If consultation is requested by the trade union, the employer cannot give notice until the consultation is concluded.

Minor or petty theft, in itself, may not provide sufficient cause to justify immediate termination in some countries, and a warning may instead be appropriate or a termination with notice.

Awareness and Other Programmes

Many retail businesses, aiming to keep employee theft at a minimum, will screen potential job candidates for high-risk roles, monitor employee conduct in the workplace, and act to remove employees reasonably believed to have committed theft. In addition, as retailers increasingly operate and expand their brands’ appeal across borders, the preference is often to adopt consistent recruitment policies and rules across countries.

Outside of the specific options identified above, other HR employment practices can help reduce employee theft:

  • Embedding an organisational culture that promotes honesty and vigilance.
  • Promoting fair reward and recognition to reduce the risk of theft arising from staff feeling underpaid and undervalued.
  • Operating a whistle-blowing facility to allow employees to confidentially report concerns about the conduct of others.
  • Having clear rules around transactions, such as not serving family and friends, and rules around the use of discount cards.
  • Training employees, for example, to make them aware that theft is monitored, that there is a risk of them being detected, and the implications of breaching company procedures.

As employee theft continues to challenge retailers, big and small, employing a range of these tactics can help tackle this growing problem.

This article was first published in LP Magazine EU in the Autumn edition 2014 and updated in May 2016.

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