It can happen to any employer: certain employees turn out to be black sheep and their conduct, which may even be criminal, causes the company considerable economic loss. In particular, in cases where the employer grants employees further up the hierarchy the freedom to make their own economic decisions, there is also the risk that individual employees may abuse this trust and purposely overstep their competencies to the detriment of the employer. For example, knowing that a service has not been provided, an employee may approve the payment of fictitious invoices from third-party companies in order to unjustly enrich himself or herself or those close to him or her. Another situation would be where an employee with his or her own budgetary responsibility oversteps the limits which he or she may approve internally, thus giving rise to economically disadvantageous obligations for the employer as against third parties.
In such cases, the employee can be criminally liable, particularly on the grounds of (serious) breach of trust pursuant to Section 266 of the Criminal Code. Depending on the circumstances of the individual case, the employee may also be criminally liable on the grounds of (serious) fraud (Section 263 of the Criminal Code), taking and giving bribes in business transactions (Section 299 of the Criminal Code) and tax evasion (Section 370 of the Tax Code).
The employer may not only dismiss the employee, but may also consider whether it can successfully claim damages and whether it would be helpful to file a criminal complaint with the Public Prosecutor's Office. In addition to difficulties in providing evidence, preclusion criteria and liability privileges may present the employer with problems.
The success of a compensation case depends, principally, on whether the employer can provide conclusive evidence of the breach of duty committed by the employee (eg, a breach of the internal company rules known to him or her) and the specific amount of the loss incurred thereby. This means, in particular, a clear description of the accounting processes and payment flows triggered by the employee's misconduct. This could take the form of invoices, payment approvals, statements of account and printouts from internal accounting systems. However, if the events took place some time ago and various company departments were involved in the processes, it can be difficult to reconstruct fully the events in retrospect. The employer must also demonstrate and, if necessary, prove that it gained no economically equivalent counter-value for the asset outflow. This can be difficult if an employee placed orders with third parties without being authorised to do so and the contractual partners provided their services to the company. If the employer is unable to provide the documentation required, it will probably lose its case before the courts.
Therefore, companies suffering loss frequently seek assistance by filing a criminal complaint with the Public Prosecutor's Office. Pursuant to Section 46(2) of the Employment Court Act in connection with Section 149 of the Code of Civil Procedure, in principle, it is possible to stay an ongoing compensation case in favour of a pending investigation by the public prosecutor or court criminal proceedings. However, such stay is justified only if the outcome of the criminal proceedings and the collection of evidence in these proceedings promise additional and considerable gain of information for the compensation case. The court staying proceedings must respect the specific circumstances of the individual case in its decision and may not restrict itself to the blanket remark that, as a rule, such knowledge is gained in complex economic criminal matters.(1) As employment court proceedings pursuant to Sections 9 and 56 of the Employment Court Act should be held as quickly as possible, proceedings are infrequently stayed. This is because whenever the necessary proof and documents can be provided only by the employer itself, because the events concerned are within its sphere, the criminal prosecution authorities and criminal courts have no other ways of gaining infor-mation.
White-collar proceedings can also last for several years because of their complexity. Therefore, the Public Prosecutor's Office frequently restricts its investigations to individual facts and otherwise refrains from prosecution pursuant to Section 154(1) of the Criminal Code in order to speed up proceedings (and does not further clarify the facts in this respect).
Also, the investigations of the Public Prosecutor's Office may be terminated owing to lack of adequate suspicion pursuant to Section 170(2) of the Criminal Code. In 2010 the Federal Constitutional Court expressly pointed out the high requirements made for fulfilment of the criterion of breach of trust and, in particular, of the proof of financial loss requisite.(2)
The liability privilege of the employee, developed from Federal Employment Court case law, may present a further hurdle when enforcing the employer's claims. This grants the employee privileged status under which he or she is obliged to reimburse the full loss only if, within the context of a business operation, he or she acted with intent or at least with gross negligence (with regard to the breach of duty and loss). In case of slight negligence, the employee is not liable at all; in case of ordinary negligence, the loss is regularly divided up on a pro rata basis.
Collective bargaining agreement or employment contract preclusion periods (of, as a rule, only a few months) may present the employer with problems, as it can successfully enforce its claims in courts only if it has asserted such claims in due time with enough detail regarding the amount of loss and cause as against the employee. Although liability on grounds of intent is not covered by preclusion periods under Federal Employment Court case law, if the employer is unable to demonstrate and prove that the employee has acted wrongly with intent, it risks having its claim dismissed because such claim would already be statute barred.
Compensation cases commenced by employers against employees normally succeed only if they are prepared in detail on a sound basis and the employer has all evidence required to prove that the employee has acted wrongly. Suspending a compensation case in preference to a criminal law investigation gives the employer the desired result in only a few cases. Instead, the employer must ensure that it has taken the necessary precautions prior to court proceedings. These are essentially the following:
- ensuring the continuous due and proper documentation of internal processes;
- keeping documents (eg, invoices, statements of account and internal documents);
- securing access to computerised processes (eg, accounting systems) and email com-munication, also after several years;
- providing the due and proper written assertion of a claim out of court against the employee (detailed facts and amount of loss);
- ensuring the timely filing of a claim; and
- attaching all available documents if a criminal complaint is filed.
For further information on this topic please contact Bjoern Gaul, Bernd Roock, Eva Schäfer-Wallberg or Antje-Kathrin Uhl at CMS Hasche Sigle by telephone (+49 711 9764 248), fax (+49 711 9764 96249) or email ([email protected], [email protected], [email protected] or [email protected]).
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