CEO impersonation fraud: can an employee be liable for their negligent actions?

6 January 2020 | Applicable law: England and Wales

We first wrote about CEO impersonation fraud back in 2015 At around the same time, Peebles Media Group was a victim of such fraud. A member of their credit control team received emails purporting to be from the managing director and ultimately £193,250 was transferred to the fraudsters in a series of transactions.

Such a financial loss can be devastating both for the business but also for the individual who transferred the funds. There is usually a breakdown in the relationship between employer and employee and this can result in the employee leaving the company – either by agreement with a clean break, or, as in this case, by dismissal. Normally, a dismissal would be the end of it and the employer will seek to recover any loss from its bankers or insurers. Indeed, Peebles were able to recover £85,265.98, but this left a shortfall of £107,984.02. Peebles then took the unusual step of bringing a claim against the credit controller to recover the remaining sum.

Can an employer sue an employee?

Employers suing employees is not uncommon. However, the vast majority of these claims are in respect of breach of post termination restrictions, misuse of confidential information or for failing to work a notice period. It is rare to see a claim against an employee for loss occasioned during employment due to the employee's negligence in the performance of their duties. One of the few reported cases of an employer successfully claiming against an employee in such circumstances is Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555. This demonstrated that employees do owe an implied duty to carry out their duties with due competence and care and, if they breach this duty, the employer can recover damages.

Employers are often found to be liable to third parties for damages caused by their employees. This can give rise to employees thinking that this is where the liability ends and that there is no come back on them. However, even where an employer is responsible for compensating a third party, if there is a breach of duty by the employee resulting in that damage, the employer can still look to the employee to cover the sums that they have had to pay out.

Peebles argued that the employee should, through use of common sense, have been able to spot the risk of fraud in the transactions she was being asked to process. The employee argued that she did not have specific training on these risks and therefore should not be responsible. The court ultimately determined that as the first in the series of payments was authorised by another member of staff, the credit controller had not breached her duty to take care and was not liable to repay the sums to the employer.

What can we learn?

The outcome in the Peebles case highlights that prevention is better than cure and the more specific training the employer offers, and regularly repeats, and the better the policies and procedures that are in place, the less likely the employer will be to suffer loss in the first place (see our earlier article for more information). Further, if a business does suffer loss, having better procedures will put it in a better positon to claim against employees who do not follow these procedures.

However, before pursuing an employee in such a case, it is worth bearing the following in mind:

  1. Even if the claim is successful, will the employee have funds to pay the damages and any costs awarded?

  2. Taking action against employees could result in other employees being less prepared to come forward with mistakes that are made, which could mean that incidences of fraud go unreported or uncovered.

  3. Bringing a claim against a former employee can have implications for the reputation of the employer. If this is seen as heavy handed (particularly if the employer loses), it could affect relationships with customers and also restrict the ability of the employer to recruit talented employees.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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