Small business owners have dozens of things to worry about, from paying vendors and fulfilling client requests to ensuring the office coffee keeps flowing. While everyone involved usually acts in good faith, sometimes an employee becomes disgruntled and goes rogue.
Rogue employees pose several threats that, if carried out, could prove disastrous for a small business. They may have access to proprietary information, including client lists and personal data, exclusive business techniques and other information that you, the owner, probably don’t want shared with your competitors. They might also have access to corporate assets such as cash, inventory and equipment. And they probably know your company’s weaknesses.
Employee Theft of Assets
One of the most obvious threats is employee theft. This doesn’t mean just grabbing a ream of paper for their home printer, though that’s still technically theft. It covers stealing petty cash, blank check stock, inventory, equipment such as cell phones and computers, and intangible assets such as client lists. All of these items have significant value to your small business and having signed contracts and strong controls in place can’t completely prevent them from getting stolen.
Unfortunately, employee theft is prevalent. According to one study, $50 billion worth of assets are stolen from U.S. businesses by their own employees every year. In more than a fourth of cases, the amount stolen exceeded $1 million. And three-quarters of employees have stolen from their employer at least once.
For small businesses, the numbers may be smaller, which can actually be more problematic. How? In 25 percent of the cases, amounts stolen were under $50,000 which means they’re considered too small for prosecutors to pursue criminal cases. When this occurs, small business owners often find themselves with little to no legal recourse. This leaves business insurance coverage as their only option for recovering losses.
Of course, many businesses’ most important asset is intangible: their customer base. When employees either leave or are terminated under negative circumstances, it’s extremely important to have protections in place that mitigate the chance of former staff poaching customers with whom they previously worked. While steps like non-competition agreements help to reduce the chances of such activity and provide the company legal recourse against the former employee, again, business insurance coverage may be your best chance for recovering such losses.
Employee Theft of Data
Assets aren’t the only thing a rogue employee can steal. They can also destroy your reputation. A disgruntled former employee knows plenty of ways to “get even” if they feel treated unjustly, regardless of whether the boss did anything wrong. They can steal client lists, send malicious correspondence, publicly publish proprietary information or sell data to your competitors. One study found that:
- 85 percent of employees admitted to taking company documentsand information they had created
- 30 percent took information they hadn’t created
- 35 percent took customer data
- 20 percent said they’d be likely to pass the information to competitors if terminated or dissatisfied
As a managerial matter, it’s critical to monitor employees’ behavior, particularly with respect to data access toward the end of their tenure. Once an employee has tendered their resignation, your small business should begin withdrawing that employee’s access lest they help their future employer at your expense. If you terminate an employee, their access to data should be immediately stripped—many companies have IT departments deactivate access during the termination meeting.
In a perfect world, such measures would be sufficient; however, they’re certainly not and particularly for small businesses with limited systems and controls, this risk is all too real. Even if an offending individual can be caught, charged, tried and convicted, the odds of recovering losses are slim. As with the theft of tangible assets, a business’ only recourse to cover such losses is often their business insurance policy.
Damage to Your Reputation
Any time a small business experiences a theft, particularly involving private information, its reputation is damaged. A rogue employee can also post negative information about your small business—and reach a lot of people doing so. Consider an employee who has a popular blog, who posts on your business’ Google or Yelp pages, or who responds publicly to online job postings. What if a rouge staff member has a popular podcast and spreads negative rumors about your business? These scenarios can be costly, especially if the information shared is untrue, constituting slander or libel.
Just like the other scenarios, these situations may constitute legal breach, but there is little recourse for small business owners. Successfully suing an individual in these cases is extremely difficult. Again, business insurance may remain your only option.
Business Insurance is the Best Answer
If you own your small business long enough, you will most likely deal with a rogue employee. In the majority of cases, getting some form of legal recompense is extremely difficult if not impossible. In those instances, your best bet for being made whole will be your business insurance policy.