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News & Media

Even an Employee Is Capable of Ravaging His/Her Firm

Date: 08/11/2016

In my practice, I am frequently confronted with the question whether an employee has the capability of devastating the firm of his/her employer, why this might happen and what are the consequences of such an event for the employer, whether the latter is able to claim damages against the employee, and whether this issue can affect also a company's Executive Officer or Director, and what defensive strategies are available to employers?

These are some of the questions I will attempt to answer in this article. To begin with, a laconic answer to the majority of the above questions would be "yes":

Yes, as of 1 July 2016, an employee has the capability of devastating his/her employer.

Yes, employers can rely on a number of ways of claiming damages against an employee in such a case.

Yes, employers can terminate such an employee's employment.

Yes, acts by employees can also impact the company's Executive Officer or Director.

Employers may face a number of risks associated with illegal conduct of an employee. Indeed, this may be a result of the new law concerning criminal liability of legal entities, namely Act No. 91/2016 (the " Criminal Liability Act") that came into effect on 1 July 2016.

Why can this Happen?

Supervision of an employee by his/her direct supervisor or Executive Officer may not be sufficient. If such an employee commits a criminal offence, his/her employer, i.e. legal entity, may be held liable.

Hypothetically, this would involve an employee of a legal entity committing a criminal offence listed in the new Criminal Liability Act, and the crime will be "assigned" to the legal entity, i.e. the employer. In other words, criminal proceedings may be conducted against the employer and the employer might by convicted and punished in a manner that was applicable solely to individuals in the past. Nonetheless, the employer would not be detained; rather, it would face e.g. the penalty of a ban on further business.

Employee – Qualified Person

An employer's supervisory staff or other employee whose responsibilities include also supervision over other employees (i.e. "compliance manager") and Executive Officers of firms are deemed 'qualified persons'. Qualified persons are also capable of devastating their firms and cause, under the worst scenario, even their destruction.

I believe that cases where qualified persons will cause problems to their companies will not be rare. In the majority of cases, this will happen if an executive body or person responsible for supervision over compliance with regulations (compliance manage) underestimates the supervision or control over employees. Supervision and control over employees will thus include everything qualified persons, in their official capacities and positions (i.e. other than ordinary employees) should have foreseen, created, introduced, implemented, adhered to, applied and controlled in order to prevent harming the employer's reputation, criminal prosecution, punishment, etc.

What Are the Consequences?

According to the Criminal Liability Act, a criminal offence committed by an employee may result, apart from punishment of the employee and/or employer, also rendering the responsible qualified person liable, and claiming damages against such a person. Nonetheless, the claim itself may be subject to a number of legal regulations.

If the person in question is an employee, the provisions of the Labour Code and/or Civil Code dealing with compensation for damages will be applied appropriately. Where a failure of the employer’s executive body, or member of the executive body (who is in many cases deemed employee, although his/her position is different from the legal aspect), employer may choose to follow the provision of the Commercial Code.

Damage Claims Against Employees

Committing a criminal offence listed in the Criminal Liability Act by employee may cause damages to the employer. Damage means a fine imposed on the employer or other damages associated with criminal activity.

Negligent and intentional criminal offences will be treated differently.

Having regard to the fact that majority of criminal offences pursuant to the Criminal Liability Act are classified as intentional criminal offences, claims for compensation for damages caused by a conduct other than 'negligent act' will not be restricted solely to claiming amounts equalling "only" to four times the employee's average monthly salary. We would recommend to claim compensation for damages in cash, and to claim also potential lost profit. Damage may be caused also where employer is required to pay either a fine imposed in other type of proceedings, such administrative proceedings, or is required to compensate for costs of removal of a damage. Where final conviction has been handed down against the employee, then we are of the opinion that employer would not be required to provide evidence of the employee's guilt and may claim the entire damage against the employee.

Claiming damages against employees may be more complicated where no particular employee acting illegally has been identified and the employer has incurred criminal liability. Nonetheless, employer should be able to establish in the investigation process who of the employee acted in breach of the law and exposed the employer to criminal prosecution. In doing so, employer would be able to lodge a claim for damages corresponding to four times the employee's average monthly salary as a result of negligent conduct, and possibly also a claim for damages pursuant to the Civil Code, should the employee's employment be terminated.

In order to prevent usually inefficient claims for damages lodged against employees who may not own adequate property allowing for the satisfaction of even a part of the claim, employers are advised to introduce and strictly follow adequate and effective preventive measures.

Impact of Employees' Acts on Companies' Executive Bodies

Illegal conduct by employees may result in employers filing damage claims against the employer's executive and representative bodies if it is proven that the executive body breached its obligation to carry out adequate and sufficient supervisory and control activities whereby it made the employee's illegal conduct or act possible.

Claiming Damages Against Executive Bodies

Liability of the Executive Officer/Director is based on the principle of objective responsibility, and the Executive Officer/Director will be liable for the damage caused, whether the damage has resulted from disorderly conduct or not. The company might claim full compensation for damages.

How Can Companies "Get Rid" of Employees

An employer that is able to determine what exactly amounts to a breach of the working discipline and how such a breach is to be penalised will have an easier life and will always be in the right.

I believe that exact definition of acts (or failure to act) of an employer will deem a breach of working discipline from its own (commercial, manufacture, business) perspective – which have been duly notified to all employees together with potential consequences of such acts – will greatly improve the position of an employer who chooses to serve a termination notice or "fire" an employee on the spot. Nonetheless, only the court can decide, whether the termination of employment by notice or instantly is, or is not valid and effective. On the other hand, I also believe that the court will have to deal also with the question if, and why a breach is of one particular obligation with such importance to the employer that it warrants a note in the Working Rules that 'breach of the obligation "X" may result in termination of employment'.

Defence

Employers having in place compliance guidelines, i.e. internal policies dealing with supervision over compliance with legal regulations are already partly prepared for the defence. They only need to give certain consideration to the new piece of legislation and adjust and/or amend accordingly their internal policies.

From the Criminal Liability Act perspective, it is necessary to prevent an employee from committing a criminal offence pursuant to the Criminal Liability Act, expose his/her employer to criminal prosecution and to ensure – as part of the control and supervision procedures – compliance with all applicable legal and other regulations.

Well-chosen liability insurance might do the job. However, I believe that only liability insurance itself would not provide adequate and sufficient protection to employers.

What may help in general – apart from the general application of the Criminal Liability Act to legal entities, employers – is a functioning and efficient prevention, practical control mechanism and other measures legal entities already have in place for other reasons.

Another measure providing employers with an efficient defence would be proper and regular updating of their internal guidelines and policies. This would allow employers to claim that any particular criminal offence is a personal failure of the relevant employee and should thus not be assigned to the employer.

A number of foreign companies active in the Slovak Republic have similar measures in place, such as measures against fraud, corruption, measures supporting whistleblowing, prevention of unfair conduct that are based – in addition to the Slovak law – also on the laws of the USA (FCPA) or United Kingdom (Anti-bribery Act).

Another set of efficient measures would include good quality drafting of employment contracts, working rules, codes of ethics, regular updates and amendments to existing internal policies and regular employee training, together with correct evaluation and assessment of the conduct by and acts of employees and subsequent application of consequences that would support the protection and defence of employers' interests.

Mgr. Sylvia Szabó
Partner
T +421 2 32 33 34 21
E sylvia.szabo@rc-cms.sk

Attorney at Law specialising in corporate criminal law, anti-corruption programmes, programmes dealing with the prevention of anti-social conduct and preventive measures.