When a Company has encountered a Scam, whether it could claim Damages from its Employees?

In the previous issue, we introduced how to prevent scams. However, if a company encountered a scam, it would be very difficult to claim damages from the fraudsters. Some companies have another thought, which is to claim damages from the relevant employees.

Whether companies could claim damages from the relevant employees? If the answer is yes, then how much could be claimed?

To choose an appropriate cause of action for civil cases is very important. Some companies claimed damages based on labor disputes. Unfortunately, Article 16 of the “Notice on Issuing the Tentative Provisions on Payment of Wages” prescribes that where losses are suffered by an employer due to reasons related to an employee, the employer may require him to compensate for economic losses in accordance with the terms of the labor contract…. Some courts have rejected companies claim by invoking this article directly, for example, (2019) Zhe 0110 Min Chu No.8669. In view of this, it would be better to claim for damages based on disputes over compensation for property damages. Under such circumstance, the employee could not defend with the excuse that such damages are not caused by the employee himself. For example, in the case (2019) Yue 03 Min Zhong No.7501, the court ruled that the employee should undertake 70% of the liability and compensate more than RMB 1.5 million.

However, a right cause is only the first step. The amount of compensation is the key point. In the tort lawsuit, the amount would be determined based on the fault of the infringer. There are 2 factors on determining the fault of the infringer. Firstly, the employee’s gross negligence. Normally, the court would review 3 aspects: a) whether the employee has done beyond the authority of his position; b) whether the employee has complied with the internal rules, such as the financial management rules, and etc.; and c) the common sense in identifying fraud. For example, in the case (2019) Jing 02 Min Zhong No.10315, the court held that the employee was invited to join a forged company financial group, however, he failed to notice the abnormal communication in the group, so he had fault. Secondly, the company’s negligence. Normally, the court would review the company’s financial rules, financial approval rules and relevant rules, in addition it would review the implementation of those rules as well. For example, in the case (2019) Hu 01 Min Zhong No.14432, the company released the relevant rules after the incident, and then the court rejected the company’s claim.

In summary, in order to reduce the relevant risks, and avoid harm to both employers and employees, from the perspective of employers, it is recommended to establish a comprehensive and practical financial system, the approval rules, and provide risk control training to employees.