Can US Employers Recover Damages from Former Employees for 'Time Theft'?

​The case of a Canadian company that recovered damages in court from a former employee accused of "time theft" raises the question of whether U.S. employers can similarly use electronic monitoring to persuade courts to award them damages. Several legal experts say that's usually not possible, but one attorney says U.S. employers can do so.

Canadian Case Involves AI-Based Software

A former accountant at accounting firm Reach CPA on Vancouver Island in British Columbia was ordered to repay her former employer for time theft after tracking software indicated she had performed personal tasks while working, according to CBS News. The firm countersued her for time theft after she sued claiming she was wrongfully dismissed and that the employer owed her unpaid wages and severance pay.

"[W]e value the privacy of our employees," Reach CPA said in a post on its website. "We also want to make sure they have the tools they need to do the job right and with minimal stress. That's why, when the former employee expressed her troubles in properly keeping track of her time, TimeCamp software was suggested. Reach paid for the [license] and the employee voluntarily installed the software on her device."

Reach CPA added that TimeCamp is an artificial intelligence-based management software that tracks how a computer is used. "This software is not required for our remote workers and only a handful of employees use it," the firm said.

"Only after we noticed a number of red flags in the reporting of her time spent on projects did we investigate further," Reach CPA added. "We do not spy on [employees'] computers to make sure what they say is truthful. That understanding is in place until an action forces us to believe otherwise."

Over the course of the one month that the former employee had TimeCamp installed, she falsely reported over 50 hours she hadn't worked, the firm said.

"We would also like to clarify that this is not a case of, 'I left a half hour early but clocked out as usual,' " Reach CPA added. "This was an employee who claimed to work hours on documents that she did not open and, in one proven instance, documents that had not even been created."

In its decision, the court said the former employee claimed to spend a significant amount of time working with paper copies of client documents that would not have been captured by TimeCamp. She allegedly did not tell the accounting firm she was working in hard copy because she "knew they wouldn't want to hear that," and she was afraid.

Reach CPA countered that TimeCamp data of the former employee's printing activity showed she could not have printed the large volume of documents she would have needed to work on in hard copy. Reach CPA also said that even if she had been working on files in hard copy, she would have had to enter information into the software at some point, and the TimeCamp data did not indicate that this happened.

The court sided with Reach CPA and dismissed the former employee's claim.

U.S. Employers' Options for Time Theft

This type of counterclaim by an employer "would not get very far in the U.S.," said Zachary Busey, an attorney with Baker Donelson in Memphis, Tenn.

Employment laws across the U.S. usually defer to the employee when it comes to work time and payroll disputes, he said. "Wasting company time is often a very defensible ground for an adverse employment action, including termination, but it is rarely a basis for recovering wages or payments from an employee."

Nicole Truso, an attorney with Faegre Drinker in Minneapolis, agreed that there is not a straightforward mechanism for recovering time theft under U.S. law, apart from a formal lawsuit.

Many states have strict limitations on employers deducting from an employee's pay, she noted: "Even in a case where an employee was overpaid based on time theft or time sheet fraud, most state labor agencies disfavor self-help mechanisms that employers have at their disposal to deprive employees of their wages."

Truso added that determining how much an employee was overpaid based purely on electronic monitoring may be difficult.

"An employee could easily claim they were engaged in a work-related task off their computer or work phone," she said. "Without a formal finding that the employee was not entitled to pay for the time worked, an employer faces the risk of an employee claim for unpaid wages under federal and state law, which can come with significant penalties."

However, David Barron, an attorney with Cozen O'Connor in Houston, said that even in the U.S., employers could seek repayment from a former employee for time theft. He said various legal theories would be available, including conversion, fraud, and in some states, civil theft statutes.

A lawsuit to recover damages for time theft might be likely to succeed when the former employee owed a duty of loyalty to the employer, such as a C-suite employee, Busey said. An employer lawsuit alleging time theft could also prevail when the employee submitted reimbursements or charged an employer for personal time.

"Depending on the facts, an employer could also file a criminal complaint for theft," Barron said. "Each case is different, and employers should consider whether simply terminating the employee is adequate, or if spending the time and money to pursue additional relief makes good business sense. Typically, the greater the amount of theft, the more likely an employer would consider taking legal action beyond termination."

Giving Notice to Employees

Employers that electronically monitor workers should provide reasonable notice to employees that they have no expectation of privacy while using company hardware, software or network systems, Barron said.

Three states—Connecticut, Delaware and New York—regulate electronic monitoring by employers.

Moreover, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo announced Oct. 31 that she will urge the NLRB to protect employees from intrusive electronic monitoring that interferes with their rights under the National Labor Relations Act.