How to Legally Address Employee Theft in Your Business (Philippine Context)
Disclaimer: The contents of this article are for informational purposes only and do not constitute legal advice. If you are dealing with an actual or suspected case of employee theft, consult a qualified attorney in the Philippines to discuss the specifics of your case.

1. Introduction

Employee theft is a serious concern for businesses of all sizes. In the Philippines, employers are afforded certain rights and remedies under the law to address and penalize acts of theft or dishonesty committed by employees. However, exercising these rights involves strict compliance with due process requirements prescribed by Philippine labor laws. Failure to follow these procedural requirements can expose the employer to liability, including illegal dismissal claims.

This article provides an overview of the legal framework that governs employee theft in the Philippines, practical steps to handle suspected theft, proper documentation and investigation, disciplinary procedures, and potential criminal implications.

2. Legal Basis and Relevant Laws

2.1 The Labor Code of the Philippines

Just Causes for Termination: Under the Labor Code (particularly Book VI, Title I, or what was formerly Article 282, now renumbered in the Labor Code’s amendments), serious misconduct or willful disobedience is a just cause for dismissal. Theft, pilferage, or fraud generally falls under “serious misconduct” or “fraud” as a just cause for termination.
Due Process: The Labor Code and its Implementing Rules and Regulations specify that employees must be accorded due process before being terminated for just cause. This includes the “two-notice rule,” which involves (1) a notice to explain (sometimes called a show-cause memo) and (2) a notice of decision.

2.2 The Revised Penal Code of the Philippines

Criminal Liability: Employee theft may also be prosecuted under the Revised Penal Code. Theft (Article 308) and Estafa (Article 315) may apply, depending on the specifics. If an employer decides to pursue criminal charges, it must be proven that the accused took the property without the owner’s consent and with intent to gain.

2.3 Civil Code Provisions

Obligations and Contracts: Employers and employees have reciprocal obligations based on their employment contract and broader civil law principles (e.g., no unjust enrichment, good faith, etc.).
Damages: An employer can seek damages if the theft causes specific losses to the business. However, pursuing civil damages is often secondary to the administrative or criminal route.

3. Signs and Common Types of Employee Theft

Cash Theft or Embezzlement
- Skimming from the register, petty cash, or during remittances.
Inventory or Supplies Theft
- Removing company stock, supplies, or other assets without authorization.
Fraudulent Transactions
- Issuing fake receipts, misappropriating refunds, or falsifying invoices.
Data or Intellectual Property Theft
- Copying sensitive files, customer lists, or proprietary information for personal gain or to sell to competitors.
Misuse of Corporate Resources
- Unauthorized use of company vehicles, credit cards, or expense accounts.

4. Practical Steps in Addressing Employee Theft

4.1 Establish Clear Policies

Employee Handbook and Code of Conduct: Create a written policy stating that theft, fraud, or dishonesty is grounds for disciplinary action, up to and including termination.
Standard Operating Procedures (SOPs): Ensure all employees know the protocols for cash handling, inventory management, and other critical operations.

4.2 Gather Evidence

Documentation and Records: Maintain clear transaction records, inventory logs, and relevant documents.
Surveillance and Technology: Use CCTV cameras, point-of-sale systems, and other monitoring tools. (Ensure compliance with privacy guidelines; employees should generally be informed of monitoring policies where appropriate.)
Witness Statements: If another employee or a third party witnessed the incident, secure written affidavits.

4.3 Conduct an Internal Investigation

Fact-Finding: Assign a neutral party (e.g., HR manager, compliance officer, or internal audit team) to look into the alleged theft.
Confidentiality: Keep the inquiry confidential to avoid defamation or damaging an employee’s reputation prematurely.
Secure and Preserve Evidence: Lock away or preserve relevant documents, CCTV footage, or electronic records.

4.4 Preventive Suspension (If Necessary)

Purpose: An employer can place an employee on preventive suspension (usually up to 30 days) if the latter’s continued presence in the workplace poses a threat to the company’s property or the integrity of the investigation.
Due Process: A notice should be issued to the employee explaining the reason for the preventive suspension. After the preventive suspension period, the employer must decide on the administrative case or extend it under justified circumstances (though employers must be cautious about extended suspensions).

5. Administering the Disciplinary Process (Due Process)

5.1 The Two-Notice Rule

First Notice (Notice to Explain)
- Contents: Specify the acts or omissions constituting the alleged offense (theft). Inform the employee of the accusations and the specific violations of company policy and/or law.
- Response Time: Give the employee a reasonable period (commonly 2-5 working days) to submit a written explanation.
- Opportunity to be Heard: In addition to the written explanation, the employee should be given a chance for a hearing or conference (especially if requested).
Second Notice (Notice of Decision)
- Contents: After evaluating the evidence and the employee’s explanation, the employer must issue a written decision stating whether the employee is found guilty or not of the charges.
- Penalty: If found guilty, the decision must state the penalty (e.g., dismissal) and its effectivity date.

5.2 Substantial Evidence Requirement

Quantum of Proof: In administrative cases (i.e., an internal company proceeding), the standard is “substantial evidence.” This differs from a criminal case, which requires “proof beyond reasonable doubt.”
Practical Tip: Ensure the evidence is credible and sufficient to support the charge.

5.3 Good Faith and Fairness

Equal Treatment: Consistency in disciplinary actions for similar offenses is key to dispel accusations of discrimination or unfair labor practice.
Prompt Resolution: Undue delay in resolving cases can weaken the employer’s position and can be viewed as condoning the misconduct.

6. Possible Outcomes and Remedies

6.1 Termination of Employment

Just Cause Dismissal: If the evidence clearly shows theft and the due process requirements are met, termination is typically justified.
Documentation: A copy of the Notice of Decision must be given to the employee and placed in his/her personnel file.

6.2 Suspension (Without Termination)

Lesser Penalty: If the theft is of minimal value or there are mitigating circumstances (e.g., long service, good track record), the employer may choose suspension or another corrective measure.
Progressive Discipline: Some employers opt for progressive disciplinary measures, but theft is commonly regarded as a serious offense that warrants dismissal.

6.3 Civil Action for Damages

Recovery of Losses: An employer can initiate a civil lawsuit to recover monetary losses or damages. However, this is often secondary to the administrative resolution of the matter.
Legal Fees vs. Recovery: Employers must consider the cost and complexity of pursuing a civil suit.

6.4 Criminal Prosecution

Filing a Complaint: If the employer decides to pursue criminal charges for theft, a complaint can be filed with the proper authorities (e.g., the police or the Office of the City/Provincial Prosecutor).
Prosecutorial Assessment: The prosecutor will evaluate the evidence to determine if probable cause exists. If it does, the case proceeds to court.
Burden of Proof: In criminal cases, the prosecution must prove the accused’s guilt beyond reasonable doubt.

7. Post-Case Considerations

7.1 Settlement and Release

Avoiding Prolonged Litigation: If the employer and employee reach an amicable settlement, especially in borderline cases or for smaller amounts, a compromise agreement may be signed.
Waiver and Quitclaim: Typically, a settlement includes a waiver and quitclaim where the employee releases the employer from any claims arising out of the employment relationship.

7.2 Review Policies and Procedures

Risk Assessment: After any theft incident, review internal controls and policies to prevent recurrence.
Training: Provide additional training to employees on ethical practices and company procedures.
Surveillance Updates: Consider improving physical security systems, cash-handling protocols, and digital audit trails.

7.3 Employee Morale and Workplace Culture

Communication: Be transparent (within reason) about policy enforcement and the consequences of violating those policies.
Rebuilding Trust: Address concerns or insecurities among remaining staff to maintain morale.

8. Common Pitfalls to Avoid

Skipping Due Process
- Even if theft is obvious, not issuing a Notice to Explain and Notice of Decision can lead to an illegal dismissal ruling.
Lack of Evidence
- Failing to gather concrete evidence before accusing an employee can expose the employer to lawsuits for defamation or malicious prosecution.
Overly Harsh or Inconsistent Penalties
- If the penalty is deemed excessively disproportionate or if other employees committed similar offenses but were not penalized similarly, it can be grounds for a successful illegal dismissal claim.
Public Disclosure of Accusation
- Publicly shaming or disclosing an employee’s alleged offense can lead to defamation or damages claims. Keep investigations discreet.
Discriminatory Application of Policies
- Policies must apply equally to all employees, regardless of rank or status in the company.

9. Frequently Asked Questions (FAQs)

Can I immediately fire an employee caught stealing on CCTV?
- Even with clear CCTV evidence, Philippine labor law requires due process. You must still issue the notices (the two-notice rule) and allow the employee to explain.
Is preventive suspension mandatory in cases of theft?
- No, but it may be advisable if the continued presence of the employee compromises the investigation or may lead to further losses. The maximum preventive suspension is typically 30 days unless justified otherwise.
What is the difference between administrative and criminal proceedings?
- Administrative: Internal company process to determine if the employee violated company policy, which may lead to dismissal. The standard of proof is substantial evidence.
- Criminal: A case filed with law enforcement and courts under the Revised Penal Code. The standard is proof beyond reasonable doubt.
What if the employee denies the accusations?
- The employer must evaluate all available evidence. If the evidence strongly supports the accusation and due process is followed, the employer can dismiss the employee.
Could the employer be liable for not paying the employee during suspension?
- Preventive suspension is generally without pay. However, if the employee is found not guilty or the employer fails to decide within the suspension period, the employee may be entitled to back wages for the suspension period beyond 30 days.

10. Conclusion

Addressing employee theft in the Philippines requires a careful balance between protecting the business’s interests and respecting employees’ labor rights. While theft is a serious offense that often justifies termination, employers must observe due process to avoid legal repercussions such as illegal dismissal claims. Investigating thoroughly, documenting evidence, and following the “two-notice rule” are critical steps in legally addressing employee theft.

Further, if the employer decides to pursue criminal or civil remedies, they must coordinate with proper authorities and legal counsel to ensure the case is handled properly. Post-incident, employers should review and strengthen internal controls, provide additional training, and foster a workplace culture that discourages dishonesty.

If faced with a suspected case of employee theft, it is best to consult a qualified Philippine labor lawyer to ensure full compliance with procedural and substantive legal requirements.

References and Resources

Presidential Decree No. 442, as amended (The Labor Code of the Philippines)
Revised Penal Code of the Philippines (Act No. 3815)
Omnibus Rules Implementing the Labor Code
Supreme Court Decisions (Philippine Jurisprudence) on Just Causes for Dismissal and Due Process