Employee theft is a very serious issue for today’s employers, and it is a problem that is only getting worse. According to the U.S. Chamber of Commerce, theft by employees costs American companies $20 billion to $40 billion a year. Unfortunately, seventy-five (75%) of all employee-related crimes go unnoticed.

According to a 2002 survey by Ernst & Young LLP and Ipsos-Reid, businesses can lose twenty (20%) percent of every dollar earned due to employee theft. It has been estimated that employee theft is increasing at an alarming fifteen (15%) per year.

Nearly every business experiences some degree to employee theft, and nearly one-third of all company bankruptcies are caused by employee theft.

So what can a business do to protect itself against such employee theft? There are, thankfully, a number of “tools” available to employers to combat this growing problem. For example, more thorough background checks may weed out individuals with a history or propensity for workplace theft. Surveillance cameras can be set up around all exits and entrances, including loading docks. Security cards can be utilized to better track employee’s comings-and-goings. Companies can obtain fidelity insurance, to insure against employee theft. Outside investigative services may be utilized to investigate specific instances of theft.

One “tool” that may be advantageous for a company to use if it believes a theft has occurred by an employee is to administer a polygraph, or lie-detector test. However, companies should tread very lightly in this area, and carefully follow the federal and, if applicable, state laws which govern such examinations.

The Employee Polygraph Protection Act (“EPPA”) of 1988 (hereinafter “The Act”) is the federal law which sets forth guidelines for polygraph testing of applicants and employees. This law, which applies only to commercial businesses and not local, state and federal government or their agencies, prohibits commercial businesses of all sizes and industries from performing polygraph examinations on their employees. There are, however, exceptions for certain businesses, as well as certain situations.

In general, an employer cannot request that an employee take a polygraph examination, unless the following specific conditions have been satisfied.

First, a company must have a notice explaining the Act posted on its premises. Such notice must be posted in a prominent and conspicuous place in every establishment of the employer where it can be readily observed by employees and applicants for employment. A copy of the required poster can be obtained from the United States Department of Labor.

Second, in order to justify compelling an employee to take a lie detector test, an employer must be able to show that it has suffered an identifiable economic loss, and there must be an ongoing, specific investigation related to the incident in question.

Once these thresholds are met, the Act sets forth a number of steps an employer must take before it may administer a polygraph examination to an employee.

The employer must provide the employee with a written statement setting forth the following: (1) the identification of the company and location of the employee; (2) a description of the loss or activity under investigation; (3) the location, specific amount and type of economic loss; (4) how the employee had access to the loss, and (5) what kind of reasonable suspicion there is to suspect the employee of being involved in the loss. This statement should be signed by someone other than the polygraph examiner. Finally, this statement should be read to the employee, and should be signed, dated, timed, and witnessed.

In addition, the employee must be given two business days (forty-eight (48) hours) written notice of the date and time of the scheduled polygraph examination. This notice should include the date, time, and location of the examination, and written directions if the examination is to be conducted at a location other than the place of employment.

Also, the employer must conduct an additional interview of the employee prior to taking any adverse action against him/her following a polygraph test, and must maintain a statement of any adverse action(s) taken, if any, against the employee following a polygraph examination. All written records must be kept by the employer for a minimum of three (3) years.

Lastly, it is important to remember that the above-listed rights of the employee and responsibilities of the employer cannot be waived by an employee.

Perhaps most importantly, even if the conditions set forth above are met, the employee may still refuse a request to take an examination, and if he/she does so, the employer cannot discipline or discharge the employee based solely on his/her refusal to submit to the examination.

Compliance with EPPA is extremely important, and an employer should verify the credentials of the polygraph examiner to ensure that he/she meets EPPA requirements. If an employer fails to do so, it could face a penalty of up to $10,000.00 for each violation of the statute.