If an employee steals money or commits fraud while on the job, the natural question is whether the business owner gets stuck with the bill. The short answer is often yes, but not always. The law holds employers responsible for theft or fraud committed by employees in certain situations, and the difference between being on the hook and being off the hook comes down to one central idea: whether the employee was acting within the scope of their job.

Scope of employment is the legal boundary that separates an employee’s personal wrongdoing from the employer’s liability. When an employee is hired to handle cash, process payments, or manage accounts, any theft that happens while they are doing those tasks falls squarely inside the scope of their job. A cashier who pockets money from the register is still performing the duties they were hired for—taking payments. The employer trusted that employee with access to money, and that trust was broken while the employee was on the clock and doing the kind of work they were paid to do. In that case, the employer is almost always liable for the loss.

The logic is straightforward. Businesses put employees in positions where theft is possible. If a company gives a bookkeeper the ability to write checks and reconcile bank statements, it creates an environment where fraud can occur. The law does not let the business wash its hands of that responsibility just because the employee acted dishonestly. Courts have long held that employers assume the risk of employee wrongdoing when they delegate tasks that involve money or customer assets.

But the picture changes when an employee steals in a way that has nothing to do with their job duties. A warehouse worker who breaks into the office safe at night is not acting within the scope of employment. They were hired to move boxes, not handle money. The theft happened outside their normal duties, and likely outside normal working hours. In that scenario, the employer is generally not liable. The employee’s act is considered a personal crime, not a risk that the employer created by putting that person in a position of financial trust.

Another key factor is whether the employer knew or should have known that the employee was dangerous or untrustworthy. This is where background checks and hiring practices come into play. If a business hires someone with a known history of theft or fraud without running a reasonable background check, and that employee then steals from the company or its customers, the employer can be held liable under a theory called negligent hiring. The same applies to negligent supervision. If a manager sees red flags—missing inventory, unexplained shortages, an employee living beyond their means—and does nothing, the company may be on the hook because it failed to stop the theft when it had a chance.

Criminal intent of the employee does not shield the employer from civil liability. The fact that the employee was breaking the law does not mean the business gets a free pass. In many states, the employer can be sued by the victim of the fraud—whether that victim is a customer, a client, or another business. For example, if a salesperson convinces a customer to pay them directly instead of through the company and then keeps the money, the customer can sue the employer for the loss, even though the salesperson committed a crime. The legal theory is that the salesperson was acting within the apparent authority of their job when they took the payment.

There is also a special rule for companies that handle other people’s money, like banks, brokerages, or property managers. These businesses are held to a higher standard because they are in the business of safeguarding assets. Courts often impose strict liability, meaning the employer is held responsible regardless of whether they were negligent or whether the theft was within the scope of employment. The reasoning is that these industries exist specifically to protect money, so the risk of employee theft is baked into the business model.

Insurance policies can help but are not a cure-all. Fidelity bonds and crime insurance are designed to cover losses from employee dishonesty, but they often have exclusions for things like lack of proper oversight or failure to report theft quickly. Business owners should read the fine print carefully. Relying on insurance without implementing basic controls—like separation of duties, regular audits, and mandatory vacation policies—is a recipe for uncovered losses.

The bottom line for any business owner is this: if you put an employee in a position to steal, you will likely be held responsible when they do. The only way to reduce that risk is not by hoping for honest people, but by building systems that make theft difficult to commit and easy to catch. Lawsuits over employee theft are almost always decided on the facts of the case, and the facts that matter most are what the employee was hired to do, what the employer knew, and what steps the employer took to prevent the loss.