How do I handle an employee appropriating clients?
April 13, 2012 5:48 AM   Subscribe

How do I handle an employee appropriating clients?

I run a small business. For the last, 6 months I've had suspicions that one of my employees has been appropriating clients.

Two months ago, he was caught at a client's premises without my knowledge. He claims the client called him up unexpectedly. A week later, another client called me up saying they had an appointment with him and he never showed up.

Now, last week, he was caught red handed. A client informs me directly this employee was with him one month ago.

I confronted the said employee about this and he said he totally forgot about it. 3-4 hours later he phoned me up to tell me It was a lie and he wanted one weeks pay taken off him.

I am an extremely fair employer. I pay good rates, make sure none of my employees get exploited by any clients and believe that employees are entitled to a life outside work hours.

He is an employee of average ability, is generally reliable and has an excellent rapport with clients. This issue will now have to be seriously addressed. Do I suspend him, fire him or just give him let him off with a warning?
posted by jacobean to Work & Money (26 answers total)
It would help to know what type of work it is. You may want to get him to sign a no-compete contract, stating that he will not work in your field for one year after he no longer works for you, and then fire him. He is not a team player. He sounds like a parasite.
posted by myselfasme at 5:53 AM on April 13, 2012 [6 favorites]

He lied to you and there are consequences to actions. If he's appropriating clients, he effectively stole goodwill and business from you.

I would forgive him. I would also fire him.
posted by bfranklin at 5:57 AM on April 13, 2012 [5 favorites]

Well, it sounds like you already warned him. It's not actually legal in the US to dock someone's pay punitively, by the way, so you can't "take" one week's pay. I can't tell where you are located, so YMMV.

I would strongly recommend looking again at your employee handbook if you have one and specifically noting that employees are not allowed to take on clients independently who are your firm's clients during their employment with you and for one year after. If you don't have this clause already, you may need to work with a lawyer to draft one that is airtight, as non-compete clauses are relatively easy to poke holes in and defeat in the US. (Again, YMMV.)

You may owe your clients a phone call to apologize for your employee "going rogue." It depends on your field, which is a detail you've left out. Let them know that it won't happen again, and if it does, to call you while he is on premises.

It's up to you to determine if he is sufficiently sorry for his actions or whether you believe that he won't do it again. It sounds like he would, given what you've written, but you know him best. If it were me, I'd get an ironclad non-compete set up and then fire him.
posted by juniperesque at 5:59 AM on April 13, 2012

I am a lawyer, but I am not your lawyer and this is not legal advice. You should probably talk to a lawyer.

He's lied to you and he is damaging the reputation of your business. If he's using your company's resources and reputation to put money directly into his own pocket that might qualify as embezzlement. Your lawyer should be able to help you determine what your rights and remedies are.

I don't see the upsides to keeping him on. How disruptive will it be to fire him? Do you have any kind of a non-compete or non-disclosure agreement with him? Do you think that your clients will walk if you fire him? How do you expect, realistically, to be able to trust him again? If he has made commitments to your clients, and they think that your business has made those commitments, what happens if he doesn't fulfill those commitments? Ask your lawyer whether keeping him on may amount to ratification of his actions in the eyes of your clients.
posted by gauche at 6:00 AM on April 13, 2012 [6 favorites]

By taking pay from clients that you set up, he's stealing from you. Fire him.
posted by xingcat at 6:00 AM on April 13, 2012 [1 favorite]

So just to be clear, this is a situation in which the client is obtaining the services they used to obtain from him as a part of you business, but now they are paying him directly and cutting you out of the loop?

If that is the case, I would probably do something similar to what myselfasme suggests. I would have this person become a contract employee, with clauses in there about him not being permitted to seek outside employment, and a non-compete clause after the contract is terminated, with the explicit provision that contract is terminated and the non-compete clause triggered if he is found to be performing work services outside of your employ.

Of course, you will want to engage a lawyer to craft this document for you, to help ensure that it is enforceable in your jurisdiction.

Keep in mind, if you just fire him, there is nothing stopping him from attempting to steal all of your clients. Keep your friends close and your enemies closer.
posted by Rock Steady at 6:00 AM on April 13, 2012

Lock him out of your computer system as well as any and all paper files, then fire him and ESCORT HIM OFF THE PROPERTY IMMEDIATELY. Change all computer passwords and office keys he has access to. While the idea of getting him to sign a non-compete comtract is nice, I sincerely doubt he *would* sign it, and even if he did, his word is obviously not worth shit.

He's actively stealing your clients, he's actively harming your business, he's lying to your face, and possibly he's even bad-mouthing your business while he's at it: "come work with me, I'll do a much better job for you that *they* ever will!" Fire him NOW.
posted by easily confused at 6:06 AM on April 13, 2012 [8 favorites]

This is such a no brainer. Fire his ass.

But this passage from your question makes me think that you don't understand the gravity of what your employee is doing:

I am an extremely fair employer. I pay good rates, make sure none of my employees get exploited by any clients and believe that employees are entitled to a life outside work hours.

You have earned these clients' business by the good work your company does. Their goodwill is the property of your business. It is absolutely wrong for your employee to divert customers to himself. This has nothing to do with them exploiting your employee, and everything to do with you protecting your business assets.
posted by jayder at 6:08 AM on April 13, 2012 [2 favorites]

One other thing: this sort of situation is contemplated by the law of agency. An agent is not allowed to work against his/her employer's interests, and taking clients in the same line of work who would otherwise be paying you, is against principles of agency. You would have a civil cause of action against him.
posted by jayder at 6:39 AM on April 13, 2012

If you're going to suspend him or fire him, consult an employment attorney first. This is what they're there for. Actually, you should see one anyway. You should probably be having your attorneys sign non-solicitation/non-compete agreements, which often are helpful tools in situations like these.

Even in the absense of these agreements, the employee owes you a common law duty of loyalty, which, generally speaking, bars employees from appropriating your clients.

On its face, this sounds like a situation where termination is appropriate. But, really, there are a lot of blind spots you might have here that an employment attorney can help with. There are a lot of traps for the unwary in these situations, and you want to make sure you don't stumble into a wage claim or a retaliation claim or discrimination claim. You also want to think about how to protect your clients and proprietary information, and an attorney can help with that. For example, you might want to negotiate a non-compete/non-solicitation as well as a full waiver of claims as part of a modest severance package.

In any case, what I'm trying to say is that turning to an expert in this area is worthwhile, no matter what decision you end up making. IANYL, TINLA, so on and so forth.
posted by MoonOrb at 6:46 AM on April 13, 2012

You would have a civil cause of action against him.

... which is how you get him to sign a non-compete, if he hasn't already. You let him know that you are going to sue him to recover whatever he's taken from your customers. (Chances are he's already spent it.) In the course of negotiating the settlement of this lawsuit, he has to sign an iron-clad non-compete agreement (this is tricky because courts don't love these) not to solicit or perform any work for, or to have any professional or commercial contact with, any customers of yours for the maximum duration of time allowable in your state (say, three years).

If he's already signed one, I really don't see the upside at all to keeping him on. It's not being a nice boss to let one employee take profit out of your payroll. It's not good or fair to your other employees.
posted by gauche at 6:48 AM on April 13, 2012

But yes, as MoonOrb says, talk to an employment lawyer.
posted by gauche at 6:48 AM on April 13, 2012

Fire him.
posted by Flood at 7:02 AM on April 13, 2012

Lawyer up. Now. And fire him. I'm usually the first person to suggest working things out, but he is seriously taking advantage of your nice-guy attitude. And lying to your face. Repeatedly.

He's stealing resources to poach clients, robbing you of the opportunity for future profit while damaging the reputation of your company. Stealing cash would be more honest than what he's doing.
posted by desuetude at 7:18 AM on April 13, 2012

Seconding easily confused: FIRST lock him out of the system and clear all the files out of his desk, THEN fire him.
posted by chickenmagazine at 7:22 AM on April 13, 2012

I disagree (a little bit) with everyone else here.

This behavior is a little unethical and possibly illegal, but it is also extremely common in every industry I have worked in.

You need to decide whether you would rather keep this guy, or fire him and end up with a new competitor. That's all you can do.

Unless you have a lot of money to spend on lawyers, you're not going to see the money back, and you're not going to get him to sign a noncompete agreement.
posted by miyabo at 7:27 AM on April 13, 2012 [1 favorite]

I have always worked for organizations that are extremely generous when it comes to my rights to consult in my off-hours.

and this is the precisely the sort of thing we are not allowed to do.

I'm not looking at this from the perspective of "my employee is stealing from me by profiting from clients I acquired!" I'm looking at it from the perspective of conflicts of interest, the fact that your employee's opinion of this client cannot be trusted because he has a financial stake in the client, etc. This guy is undermining the structure of your organization. You simply can't have all of these interlocking conflicts of interest. And you can't trust him because he's dishonest.
posted by deanc at 7:46 AM on April 13, 2012

miyabo: "You need to decide whether you would rather keep this guy, or fire him and end up with a new competitor."

posted by Rock Steady at 7:52 AM on April 13, 2012

"You need to decide whether you would rather keep this guy, or fire him and end up with a new competitor."

The guy's already a competitor, with the added benefit of the OP giving him a steady paycheck. Unless the OP has a way to make sure this isn't going to keep happening, I don't think it's unreasonable to think that it will keep happening.

OP, if you're in the kind of field that anybody can just walk into after some training, then you already know the world is full of competitors. One more isn't going to make a difference, but you don't have to keep paying this particular competitor's rent for him.
posted by gauche at 8:54 AM on April 13, 2012 [3 favorites]

In my field (professional services), that's a lawsuit. Last time I saw this happen, there were restraining orders to keep the (former) employees from any contact with the customers.

I've also had coworkers hired from competitors - with no non-compete agreement - who were subsequently compelled by legal means to not work with customers in X region for 12, 18, 24 months. This sort of thing is taken very, very seriously.

You don't even need him to have signed anything real specific up front. Hopefully you have a lawyer you can call, they will tell you right out of the box what you can do and then give you some help drafting specific wording for inclusion in your employee handbook and employment agreement.

You do need to fix your system so this isn't so easy in the future. I can't tell if your customer was willfully screwing you or if your employee was being paid same-day and stealing the payments. You need to invoice with specific remittance instructions, and you need your employees turning in time sheets that account for both their billing and their whereabouts in an 8-hour day.
posted by Lyn Never at 9:34 AM on April 13, 2012

Non-competes are rarely enforceable, and it would probably be hard to put one into place for this person at this point.

If you're truly a fair employer, be fair to your other employees and your company by kicking this jerk to the curb. Sure, consult your lawyer, but if you're in an at-will state, you don't have to provide a reason, especially when everyone concerned knows what the problem is.
posted by rhizome at 10:04 AM on April 13, 2012

I really think you need an attorney, both to advise you on how to properly fire this guy, and to advise you on future courses of action -- which may include suing him. You need to know the law in your jurisdiction.

Yes, you already have a competitor, and he's stealing you blind.

Fire, fire, fire him with fire. This is an unforgivable breach of trust. The guy is a brazen liar and ruthless to boot. If he's at all smart he's already made backups of anything he needs from your network. I would audit your systems, audit your books, everything to make sure that he didn't have access to proprietary stuff or money you didn't authorize.

You most likely need to send a letter to all your customers explaining that he no longer represents you (although your lawyer will advise you of how much you can say about why). You MAY need to contact clients and find out if they had been paying him in ignorance, or if they were contracting with him under the table. The latter clients are already lost to him and hell, you didn't need them anyway.

Especially if this leads to a loss of clients you may want to step up your networking efforts by joining local business or civic groups, brushing up your linkedin or other social media outreach, and generally making sure that you are out there presenting yourself well, AND crucially making yourself available for opportunities to counter anything this soon-to-be-ex employee is likely to say about you. He sounds like a snake who would stop at nothing to destroy your reputation, and frankly, you sound like a prototypical Nice Guy™, perhaps even a bit na├»ve about business. Well, consider yourself lucky you are getting this education.

I am an extremely fair employer. I pay good rates, make sure none of my employees get exploited by any clients and believe that employees are entitled to a life outside work hours.

I'm not suggesting you become an asshole as a result, but you failed to look out for Number One here: yourself and your business interests. You're the one being exploited by an abundance of trust. Just so you know, this is exactly how embezzlement and other related crimes of trust (like this one) happen. You expect you can trust everyone, but you actually can't, and the ones you can't are the ones who are BEST at presenting themselves as trustworthy. Also, I tend to believe that access to money and/or power corrupts and tempts people who were weak to begin with or suffer setbacks. The day they realize they can get away with anything and you're "too busy to notice" or whatnot is the day they start to walk away with what doesn't belong to them.

So you'll want some expert advice on how you can improve your processes so that your employees are accountable while still remaining fair to the honest employees. You can get this locally through networking, as well.
posted by dhartung at 10:42 AM on April 13, 2012

Non-competes are rarely enforceable, and it would probably be hard to put one into place for this person at this point.

As consideration for a contract of employment, yes, often they're void. But as consideration for forbearance, maybe not. See a lawyer, OP.
posted by smorange at 11:54 AM on April 13, 2012 [1 favorite]

This behavior is a little unethical and possibly illegal, but it is also extremely common in every industry I have worked in.

Moonlighting is pretty common in a lot of industries. That's not what this is. This guy is spending his days at his job doing work for company clients but arranging to get himself paid directly.
posted by desuetude at 1:56 PM on April 13, 2012

His attempt to control his own punishment is another red flag. It's an indication that he has forgotten who is in charge. It may also be a sign that he has more to hide and is trying to wrap up the matter quickly so you'll stop investigating him.
posted by gentian at 3:44 PM on April 13, 2012 [4 favorites]

After thinking about this some more, I think the folks suggesting you talk to an employment lawyer are going a tiny bit overboard; not that there's anything wrong with talking to a lawyer, but
a. if you are in a atate with "at will" employment laws, you can fire anyone at anytime, no reason needed.
b. if you're not in an "at will" state, you can still fire this guy's ass, for cause --- in this case the 'cause' is his stealing your clients to start up his own business on your time, plus the lying about it.

(Oh, and what I said above about locking him out of your computers and files before escorting him out of the building? Add to that that you should have someone else pack up his personal belongings from his desk, plus check his briefcase for any company property. Check all computer discs, thumbdrives etc. before you let them out of the building!)
posted by easily confused at 7:32 AM on April 15, 2012

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