There have been a couple of interesting situations in the news recently involving employees who have been ordered by a court to repay wages to their employers. One involved a Canadian employee who submitted fraudulent timesheets. Another involves law firm associates who failed to meet their billable hours requirement. And a third involves police officers in a New York town who swiped time clocks for each other to falsely claim time worked. These cases provide some insights for employers – good and bad.

In the first case, Besse v. Reach CPA Inc., an employer used time-tracking software to find that the employee had fraudulently reported 50+ hours on her timesheets that she had not worked on the computer. The employee argued that she actually spent that time working on paper copies. However, the software also tracked printing time, and it was clear that she could not have printed the large volume of documents required to work in hard copy. Moreover, at some point, the employee would still have had to enter the information from the hard copies into the software – which never happened. The Canadian civil tribunal (part of the country’s judicial system) found that the employee had engaged in “time theft” and that the employer was entitled to repayment for those hours (totaling a little over $1500 (Canadian dollars, of course)).

In the second case, Larson Latham Huettl LLP v. Iversen, a law firm required associates to sign an employment agreement that included the following provision:

In the event that Associate bills out less than the base quota for a three month period, the Associate’s salary will be reduced appropriately at the discretion of LLH in order to make up for any discrepancy. Any discrepancy where the actual hours billed is less than the base hours required will be considered to be a debt owed by Associate to LLH at the end of the calendar year or at the termination of employment.

When an associate resigned from employment, the law firm billed him $35,772.63 for “overpayment.” (!!!) After the associate refused to pay, the firm sued him – and the Supreme Court of North Dakota upheld the agreement. (!!!) The court rejected the associate’s argument that the agreement was unconscionable because the firm controlled his work and did not provide him with enough work, which prevented him from being able to meet the billable hours requirement. Rather, the court found that because the agreement provided the associate with salary, leave and benefits in exchange for the hours billed, both parties received benefits and had obligations – meaning that the agreement was not so one-sided as to be unenforceable. (!!! Yes, really, I’m a little surprised at this decision.)

The third situation involved police sergeants in Colonie, N.Y., who were demoted after their misconduct was discovered through an internal investigation. According to a Times-Union article, the town reached a settlement with the officers and their labor union. In lieu of disciplinary charges, the officers agreed to repay dozens of hours from their accrued vacation and other leave time. According to the article, the town also decided not to refer the matter to prosecutors for possible criminal charges for theft.

Employers at this point might be excited about the idea of being able to recover wages from lying or underperforming employees, but the reality is that it may not be quite as clear cut or simple as these cases make it seem. Frankly, these cases got media attention because it is so rare for employers to get money back from employees. But they also establish that it is possible – under the right circumstances and if the employer is sufficiently committed to doing so.

In the Besse case, the employer had extremely strong evidence of the employee’s fraudulent timekeeping. That was obviously key to the employer’s success before the tribunal. But it is rare that employers have such concrete evidence of this type of wrongdoing. Technology – such as the time-tracking software used by the accounting firm – can be a powerful tool to finding employee fraud. But the use of monitoring technologies can carry some risk – several states have electronic monitoring laws that require notice or consent. In addition, employees may try to assert invasion of privacy claims. Thus, it is important for employers who wish to use such technologies to be aware of any applicable state laws, and it may be advisable to notify employees that such monitoring is occurring, in any case.

An employer that has definitive proof of time theft can always seek repayment from the employee. If employees are represented by a union, like in the Colonie police case, it may be possible to negotiate some type of repayment through the union. But if the employee (who has already proven to be a bad egg) refuses to repay the wages, the employer then has the option of going to court – possible claims include conversion, fraud, civil theft, or breach of the duty of loyalty. If the employer has entered into an arbitration agreement with the employee, that would be another possible avenue of recovery. Of course, the employer needs to weigh the time and inconvenience of litigation/arbitration against the satisfaction of recovering the improperly-paid wages.

Another option, referenced above, is to press criminal charges. But this still requires definitive evidence of time theft. And it’s possible a prosecutor could choose not to pursue the case or drop the case, depending on their caseload and interest. (I did a stint as a City Attorney long ago – we had a lot of discretion over our cases). Plus, the employer would need to spend time and effort to serve as a witness – which could all be for naught if the prosecutor decided not to pursue it.

By the way, some employers may think that simply deducting stolen time from an employee’s (proper) pay is a pretty easy solution. However, such deductions may be risky – many states have laws that govern deductions from wages and final pay. While such deductions may be allowed under some states’ laws, in other states, they may need to be authorized in writing by the employee. It is important for the employer to consult with legal counsel and check the applicable state law before taking this step.

Time theft aside, the Larson firm came up with a pretty creative way to recover wages from underperforming employees through a contract. Parties can agree to all sorts of things, and courts will enforce those contracts absent certain conditions, including fraud, duress and unconscionability. (And I suggest that a different court might have come to a different result in the Larson case). But I also caution that, regardless of whether it is technically possible to recover wages, employers consider the bigger picture. It is one thing to go after an employee who demonstrably engaged in time theft. It’s another thing entirely to go after an employee who might not have been able to meet productivity requirements because there was arguably not enough work. The latter can end up in a torrent of negative publicity – which is not great for business! I imagine the Larson firm may end up suffering a lot more than $35,000 worth!