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This is one of those managerial headaches that may make life on a desert island look attractive. You don’t want to lose the customer or expose your business to accusations of wrongdoing, but you also have legal obligations to your employee. A wrongly accused employee can cause an awful lot of legal trouble.

Divide and conquer may be the best strategy. Let’s divide this problem into three questions:

  • What should you do when a customer complains about an employee?
  • Is an allegation of a crime different from a complaint about bad service?
  • If the complaint is about a crime, what additional steps should you take with respect to the customer? With respect to the business? With respect to the employee?

What to do When a Customer Complains about an Employee

Everyone knows that the cardinal rule of customer service is that the customer is always right. Everyone who has ever worked in retail knows that the first corollary to that rule is that customers are also human, so they can be mistaken and, occasionally, they can be jerks.

When a customer complains about anything, a manager should take the following 5 steps:

  • Review the complaint – Try to get details from the customer while those details are still fresh. A first-hand report is more meaningful than an indirect comment. Keep an incident log. Over the longer term, look for patterns that may reveal a fundamental problem. Has more than one customer complained about the same employee or the same unusual problem? Some fairly sophisticated schemes of employee embezzlement or customer data theft have come to light only after the employer noticed an usual pattern of similar problems.
  • Reassure the customer – Show unhappy customers that you are willing to help and will go out of your way to resolve a problem. Act immediately to repair the customer relationship. There’s a lot to be said for an apology, a promise of quick action and a refund. If possible, document the interaction with the customer.
  • Get the employee’s side of the story – If the employee mishandled a situation, provide training to avoid problems in the future. Consider keeping the employee under observation. If the situation is sufficiently serious or chronic, make personnel changes. If the employee did everything possible to make the customer happy, stand behind the employee. If possible, document that interaction. Ask the employee to acknowledge the conversation and sign the written record. Two managers should be present during the interview.
  • Make operational changes if necessary – If many customers complain about the same thing, not always involving the same employee, review and change operations and procedures. Do you need to provide more training, clarify expectations of employee conduct or increase staffing? Do you have sufficient internal controls to prevent theft?
  • Remember that customer satisfaction is closely related to employee satisfaction – Is there an issue with company culture? If your employees enjoy their jobs, they are more likely to make your customers happy. Use formal surveys or informal conversations to ask your employees about their level of job satisfaction, and what you can do to improve it.

What if the Complaint is about a Crime?

This situation is different. Perversely, it may be less risky to terminate an employee for wearing purple hair or being inattentive than for stealing from the customer or committing another crime. A false criminal accusation can be more damaging to the employee in the long run, so he or she may be far more likely to respond with legal action.

When the Complaint is about a Crime, what Else should a Manager do for the Customer?

When evidence of a crime is incontrovertible, act swiftly. Terminate the employee and assist the customer in pressing charges.

When, after careful investigation of the incident, it is not possible to determine whether a crime occurred, the manager should suggest that the customer report the incident to the police. Remember that the burden of proof in a criminal case rests with the accuser.

If the customer makes a police report, cooperate with the investigation and consider placing the employee on leave or in less sensitive duties. Call your lawyer, too.

If the customer declines to make a police report, this may be a red flag. You might want to keep the employee under indirect observation in any event.

What Should a Manager do to Protect the Business?

Sadly, employee theft is fairly pervasive. A typical business may lose between five and six percent of revenues from employee theft. According to the Department of Justice, nearly a third of employees engage in some form of theft. Employees are probably more likely to steal from the business than the customer, however.

The steps you take to protect your business from theft may, at the same time, protect your business from customer allegations that the business is permitting or colluding in an employee’s crime.

These steps should include:

  • Having a written zero-tolerance policy for theft, assault and other crimes in the workplace. Include it in the employee manual.
  • Doing a thorough reference and background check on potential employees, especially those whose position may allow them to handle financial transactions or customer data.
  • Installing security cameras in customer areas.
  • Establishing internal controls for back-office operations. Most theft is committed not by retail clerks, but by individuals working in accounting, operations, sales, upper management, customer service, and purchasing.
  • Insuring against employee theft. Make sure that your employee dishonesty insurance covers volunteers and other unpaid workers.
  • Considering a fidelity bond for anyone who handles cash or other valuables.

What are the Legal Risks of Accusing an Employee?

An employee who is falsely accused of a crime may sue you and the business for defamation. Defamation involves a false statement of fact, made to a third party that accuses someone of immoral, illegal or unethical conduct and does harm to that person’s reputation. Some statements, however, are protected. These generally include statements made to law enforcement or in court.

These are not easy cases for plaintiffs to bring, but it’s a headache you don’t need. Work closely with your attorney, but at the very minimum, keep your investigation of potential crimes confidential while in progress. Unless the case becomes a matter of public record, it might be best not to mention it to potential future employers.

Under some circumstances, an employee may also allege discrimination in employment based on race, national origin or some other characteristic.

This is probably unlikely but, if it can be demonstrated that your business deliberately targeted an employee because of bias or has a pattern or practice of employee discipline, termination or other adverse action that inadvertently impacts one racial or ethnic group disproportionately, an employee may bring legal action under Title VII of the Civil Rights Act of 1964.

Your documentation of the customer complaint and discussion with the employee is the best defense against allegations of deliberate bias. The incident log and other historical records of complaints and employee reviews may be helpful in refuting a claim of disparate impact.

When a customer accuses an employee of theft or any other crime, managers must act quickly to preserve the customer relationship and the business, while respecting the rights of the employee. It's a scenario that may be worth training for since employee theft from employers, if not customers, is fairly common.

It is important establish and enforce a zero-tolerance policy for workplace crimes, and establish internal controls that make it hard to commit a crime. No actions should be undertaken without an investigation of  both the customer complaint and the employee's side of the story.

Above all, managers should document the process and keep sensitive communications confidential to minimize the damage that may follow from a false accusation.  An accused employee may respond with legal action, in any event. But this, too, is a situation that businesses can anticipate. Together, confidentiality and documentation  often provide an effective shield.




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