Senior executives are sometimes indemnified against costs and expenses incurred as a result of legal proceedings that might be brought against such employees. Indemnification of this kind provides the executives with a level of security in which they can make necessary, often difficult decisions required in their roles without fear of being exposed to liability, should they become a target of legal proceedings. Absent specific and careful language, however, these indemnity clauses can leave employers vulnerable to paying costs and expenses associated with dismissing senior employees who are alleged to have committed fraud or other misconduct while employed.
Employees are often reluctant to report suspected misconduct because they fear retaliation from those that are engaged in the misconduct. This often prevents companies from discovering employee-related fraud at its early stages. While employer surveillance can go a long way to discovering wrongdoing in the workplace, employees are in a better position to know what their colleagues are doing and employers should have mechanisms in place to encourage their employees to report wrongdoing. In a previous post, we referenced the recent $2 million alleged fraud by several York University employees. The University eventually became aware of the situation through a whistleblower, but by that time, it had been ongoing for over 7 years. This illustrates the importance of having transparent whistleblower protection policies that provide employees with a safe route for registering issues or complaints of wrongdoing within the company. Such protection policies will encourage early reporting to the employer and facilitate earlier discovery of wrongdoing thereby reducing the potential losses incurred. In addition, employees will be less likely to make the complaint externally, for example, directly to the media, if they know that their complaint will be taken seriously by the employer and properly investigated.
In this age of technology, the risk of departing employee theft and fraud has increased substantially. Departing employees are no longer limited to removing printed confidential business information, but can abscond with business information, trade secrets, client contacts, and other similar material using, for example, an external disk drive or an external email account.
How can companies protect themselves from departing employee related theft and fraud?