What happens when employees break the law?

As a result of the employee’s financial dependence on the employer, the employee is, in some respects at least, in a position of weakness. In effect, the employer-employee relationship is not one of peers but of servant and master.

The deliberate deception at Volkswagen along with other events such as the insider trading and rogue trading demonstrate that employees will break the law in the course of their employment. The consequences of criminal acts committed by employees can be very significant. Employees can be prosecuted, business can be lost through loss of reputation, corporations can face fines running into billions of dollars and senior executives can be prosecuted because the law was broken on their watch. So how can executives protect themselves and their companies from being held criminally responsible for the activities of their employees?

The employer-employee relationship is complex. Many employees spend more of their waking hours at work than they do with their families and as such the workplace environment can have a significant effect on them. In fact, it is often said the employer-employee relationship is so complex that it is second most complex legal relationship that one can have, the most complex being marriage. More complex than buying a house and entering into a mortgage that can last for 25-30 years. So how can it be that an agreement that can be terminated with two weeks’ notice (or even immediately) is almost as significant as a marriage?

Well, the employer will have a significant degree of control over the employee. In addition to determining whether they behave at work the employer can control or influence some of their off duty conduct, such as how they present themselves on social media. But most importantly, the reason that the employee accepts this level of control from their employer is the employee’s need to feed, clothe and provide shelter for themselves and often their family also. They are (in most cases) financially dependent on their employer and therefore the employer will have a very significant influence on the employee.

All businesses are under pressure. They need to cover the operating costs, make the payroll and turn a profit. In a today’s fast moving business world corporations need to be innovative, efficient and stay ahead of their competition. Add this to the raft of regulatory compliance requirements including employment standards (including Human Rights), Occupational Health and Safety (OHS), consumer protection, financial and environmental regulations and we can see that business is complicated and challenging. So is it right that the executive leadership can be held accountable for the conduct of employees, particularly when the number of employees involved can run into the tens or even hundreds of thousands?

The simple answer is yes, they should, and for two reasons. The first is that corporations are in business to make money. Whatever their mission, vision or values, ultimately they are there to make a profit for the owner(s) or shareholders. For this reason they can reasonably be expected to conduct themselves ethically and in accordance with all legal obligations and requirements. To do otherwise would simply be wrong. And the second reason is that as a result of the employee’s financial dependence on the employer, the employee is, in some respects at least, in a position of weakness. In effect, the employer-employee relationship is not one of peers but of servant and master.

As a result they will be motivated to act in their employer’s best interest. Their success is mutually dependent upon their employer’s success. The business grows, the employee grows. The business stagnates, the employee stagnates. And if the business fails the employee fails. The employee’s need for the business to succeed will be a significant motivator in determining the employee’s actions and will influence their decisions considerably.

So how does this make the executive leadership accountable for the conduct of their employee? Aren’t the employees as adults with freedom of choice ultimately responsible for their own actions? For the most part, yes they are. Employees can and will be held legally accountable for their actions which in many cases can result in a criminal prosecution. In recent years there have been a number of high profile (and lesser known) prosecutions where employees have been fined or even incarcerated for criminal acts committed in the course of their employment. But the criminal liability doesn’t end there, and for one very important reason.

In addition to being financially dependent upon their employer, all of the employee’s actions at work will be conducted in an environment and a culture that is created by and is the responsibility of the corporation’s executive leadership and management. That environment and culture will shape every decision that they make to the extent that on occasion they will act in manner that may be contrary to their own values.

In the course of their employment the employee will be required to perform a number of task throughout the day. That’s their job and that’s what they are paid for. But what happens when the employee cannot complete those tasks despite their best efforts? The likelihood is that they will cut corners, bend and even break rules, to get the job done because they need to see the business succeed. At one end of the spectrum this could mean minor issues. Perhaps they will not follow all of the safety rules, but more importantly at the other end of the spectrum we can and do find employees breaking laws relating to matters as serious as insider trader and large scale regulatory non-compliance as a result of needing to see the business succeed.

So how can the executive leadership protect themselves from being held criminally liable for the actions of their employees? This certainly isn’t easy, but it is attainable with a few simple steps. The first is to never ask an employee to commit an illegal act. It’s that simple. The second is to make it clear that no illegal activity will be tolerated by employees in the course of their employment. And to do this all the employer has to do to do this is to state in their corporate values that they will conduct all of their business operations in accordance with all legal and regulatory requirements. By making the statement clearly and explicit no one can hide from the requirement. It’s that simple. The third is to make it acceptable for an employee to say ‘I can’t do that’ to their supervisor or manager when they cannot complete a task whilst complying with all necessary legal and regulatory requirements. Whatever the task is, the corporate culture must be such that the employee is able to say ‘I can’t do that’ without fear or recrimination. The supervisors, managers and executive leaders must accept that and be able to pass the message up the chain in the same light. Because if the business goal cannot be achieved within the law, it is not worth achieving. It’s that simple.