Employer loses case: employee not responsible for colleague's fraud

In a recent court case, the Arnhem-Leeuwarden Court of Appeal decided that an employee of a car company was not liable for fraud committed by a colleague. The case involved a claims centre, which is part of employer, which was the victim of fraud by its finance director. Employer then tried to hold another employee, who was head of administration, responsible for the loss.
 
Intent or conscious recklessness required

Under the law, an employee can only be held liable for damage he or she causes to the employer if there is intent or conscious recklessness. This means that the employee deliberately caused the damage or knowingly took a great risk.
 
The court ruled that there was insufficient evidence in this case to show that the head of administration acted intentionally or knowingly recklessly. While she may not have always been alert as head of administration, that is not enough to hold her responsible for the finance director's fraud. The judge also looked at the fact that she was not criminally charged and that the finance director herself stated that she had nothing to do with the fraud.

Internal procedures and controls

A key issue in this case was the way internal procedures and controls were set up at employer. The court found that these were not good enough, increasing the likelihood of fraud. For example, the finance director was the only person authorised to make payments, and there was no proper system of control.
 
Conclusion: high demands for employee liability

This ruling shows the high requirements for an employee's liability for damage caused by a colleague. There must be intent or deliberate recklessness, and the employer must prove this. How internal procedures and controls are set up also plays an important role. If these are not good, this can hinder the employee's liability.

What can employers learn from this ruling?

Employers can learn a number of important lessons from this ruling:

1. Provide clear job descriptions: Make it clear what employees' duties and responsibilities are, especially in managerial positions.
2. Good internal controls: Invest in a good system of checks and balances to prevent fraud.
3. Write procedures: Put procedures for payments and other important financial processes in writing.
4. Look at risks: Regularly evaluate risks within the company and adjust procedures and controls accordingly.
5. Be careful about holding employees liable: Recognise that it is difficult to hold an employee liable and that it is more important to prevent losses by taking proper internal measures. 

By applying these lessons, employers can reduce the risk of fraud and protect the position of employees.
 
Do you have any questions? If so, please contact Dennis Oud, Tessa Sipkema, Elke Hofman or Tim van Riel.