How to Deal with Employee Theft or Fraud
08/29/2025Few threats to a business are more serious than discovering that a trusted employee is engaged in theft or other misconduct. Whether it’s stealing company money or trade secrets, or launching a competing business using your proprietary information, the harm can escalate quickly if you don’t act immediately and aggressively. Here’s how to respond legally when you suspect or uncover employee theft or fraud:
Theft of Company Funds
Accounting and finance employees can exploit access to your accounts, forge signatures (including use of signature stamps), or manipulate records to divert funds. Once discovered, it’s essential to move quickly to prevent the employee or their co-conspirators from dissipating or hiding the stolen funds. Legally, you can seek:
- Emergency court orders to freeze or seize the employee’s or co-conspirator’s assets.
- Temporary Restraining Orders (TROs) served on banks holding accounts in the employee’s name to prevent transfers or withdrawals of funds.
- Lis pendens filings on real property purchased with misappropriated funds to notify potential buyers and lenders that the property is subject to a dispute.
- Appointment of a forensic accountant to examine the employee’s financial records and company data to track stolen funds, obtain evidence, identify co-conspirators and prepare a report for the Court for an eventual monetary judgment to recover the stolen assets based upon the report.
- Subpoenas on financial institutions for information on the employee’s or co-conspirator’s finances and transactions.It’s imperative to act fast because once the money moves, it may be very difficult to get back.
Misappropriation of Trade Secrets and Other Proprietary Information
An employee who takes your confidential business information (e.g., customer lists, vendor contracts, formulas/recipes, software code, etc.) and uses it to start or join a competitive business can be stopped. Your first step should be to seek a TRO and preliminary injunction to prohibit all parties involved (i.e., the employee, co-conspirators, and the competing company) from using or disclosing this information. Then, subpoena records, emails, and business documents to obtain evidence and build a case for a permanent injunction and damages.
Trademark or Trade Dress Infringement
When a former employee launches a business or helps a competitor do so and copies your branding by using similar logos, product packaging, or marketing materials, you may have a claim for trademark or trade dress infringement.
If your logo or brand elements are trademarked, you can go to Federal Court and seek an injunction under the Lanham Act. The law regulates the use of trademarks to prevent deceptive practices and consumer confusion. You can obtain an injunction to stop use of your trademark or trade dress, be awarded damages, including the defendant’s profits from using your marks, and have the infringing materials seized and destroyed
Breach of an Employment Agreement
As discussed in a prior post, having your key employees sign an employment agreement can help you minimize the risks of employee theft. Confidentiality, non-solicitation, and non-compete clauses can help deter and prevent employees from taking information gained during employment to a competitor or starting a competing business. Further, the agreement can specify that you are entitled to an immediate court order providing for an injunction against the employee to stop the employee from using or further using confidential information for their own benefit.
Act Quickly
Time is of the essence in employee theft and fraud cases. Hire an experienced attorney right away who can help you obtain necessary evidence, stop the damage, and pursue all legal remedies.
If you suspect or know of employee theft, don’t wait. Contact me for a consultation.