When an employee steals from a customer or commits fraud while on the job, the natural reaction is to blame the employee. But the law often asks a different question: should the employer also be held responsible? The answer depends on a legal concept called the scope of employment. This rule determines whether an employer can be sued for the dishonest acts of a worker.
If a sales clerk pockets cash from a register, that is a clear personal crime. The employee is not serving the employer’s interests. The employer will likely not be liable because the theft was outside the scope of employment. But the picture gets murkier when the theft or fraud happens during a task the employee was hired to do. For example, a delivery driver who collects payments from customers but then keeps the money instead of turning it in. The driver was doing their job—taking payment—and the theft was a dishonest shortcut within that job. Courts may find the employer liable because the fraud was committed while the employee was performing work duties.
The key factor is whether the employee was acting, even partially, to benefit the employer. If a manager lies to a supplier to get a lower price, and the employer profits from that lie, the employer cannot later claim ignorance. The fraud was done for the company’s benefit, so the company is on the hook. Even if the employer did not authorize the lie, they still face liability because the employee was carrying out company business.
When the employee acts purely for personal gain and the employer gets no benefit, the employer usually escapes liability. A cashier who steals from the till is clearly not working for the employer. But there is a gray area. Consider a salesperson who inflates a customer’s bill and pockets the extra money. The employer may argue the salesperson was just being greedy. However, the salesperson was still doing their job—processing a sale—and the customer trusted the employer’s name. Some courts will hold the employer responsible because the theft occurred during a transaction the employer authorized.
To make things more complicated, many states have laws that specifically hold employers responsible for employee theft if the employer was negligent in hiring or supervising. If a company hires a person with a known history of fraud and puts them in charge of client money, the employer can be sued for negligent hiring. The same applies if a company fails to have proper checks and balances, like requiring two signatures on large checks. That negligence opens the door to liability even if the employee’s theft was outside the scope of employment.
Another common situation is when an employee uses company resources to commit fraud against a third party. A loan officer at a bank who falsifies documents to approve a loan for a friend is committing fraud. The bank may be liable because the officer appeared to be acting with the bank’s authority. The customer who trusted the bank’s name has a claim against the bank, even if the officer went rogue.
Employers can protect themselves by implementing clear policies, conducting background checks, and auditing financial transactions. But these steps do not guarantee immunity. The question always comes back to whether the employee was doing their job at the time of the theft or fraud. If the answer is yes, the employer may pay.
The bottom line is that employee theft and fraud can create liability for the employer when the dishonest act is closely connected to the work the employee was hired to perform. The employer does not need to have known about the crime or approved it. The law looks at the nature of the act, not the employer’s intentions. For business owners, the takeaway is simple: you are responsible for what your workers do in your name, even if they break the law for their own gain.
