WHAT TO DO ABOUT PARTNER MISCONDUCT

In a perfect world, we would be able to trust everyone around us to do the right thing. Unfortunately, that’s not how it always works out, especially in the world of business. A 2013 study found that 41% of employees at businesses in the U.S. experienced some sort of misconduct in their place of work, a considerable decrease from the 55% of employees who reported misconduct in 2007. While partners are often one of a business’s most valuable assets, they can also become a liability.

Partner misconduct, including inappropriate work relationships, theft, and lying, are all issues that have the potential to severely impact the overall wellbeing of your business. If such misconduct occurs, the best-case scenario would be to expend considerable amount of time and money trying to recoup lost funds and mend broken relationships. Worst case? Your company may face bankruptcy or dissolution and liquidation of the company.

How Misconduct Happens

Partner misconduct comes in many forms, from the classic cases of embezzlement to unauthorized or fraudulent commitments. Any variation of partner misconduct may leave the company exposed to financial and/or legal liability.

Workplace misconduct isn’t only limited to theft and shady business dealings. Sexual harassment, discrimination, drug or alcohol use, and breach of confidentiality all are examples of different forms of misconduct that can occur.

What You Can Do About Partner Misconduct

When it comes to partner misconduct, there are a variety of actions you can pursue.

Refer to Your Company’s Shareholder/Operator Agreements

When in doubt, it’s always a good idea to refer to the shareholder or operating agreements that govern the operating of your business. Many agreements outline what actions and behaviors qualify as misconduct or default and may warrant a partner’s expulsion from the company. Typically, these stipulations are found in a “removal for cause” or “an event of default” clause. If your shareholder or operator agreement does not address partner misconduct, the only way a partner can be removed from the company is by dissolving the company entirely.

File Criminal Charges

Another possible way to solve partner misconduct is by filing criminal charges against the offending partner. Criminal charges are most often taken in cases of embezzlement, especially when the amount stolen is enough to warrant a felony offense. In order for someone to be charged with felony embezzlement in the state of Colorado, the amount taken must be over $2,000.

Take Civil Action

Another way to address partner misconduct is to take some sort of civil action. You can take your case to civil court and recover monetary damages.  Civil lawsuits can be filed even if criminal charges have been reported.

Don’t Try To Coerce Repayment or Resignation

Although tempting, threatening to take file criminal charges against the offending partner unless they make financial reparations may be a form of extortion. For instance, if you try to strong arm the offending partner into signing a promissory note and/or resigning in exchange for not filing criminal charges, you might be committing extortion, which could lead to company or even personal liability.

In Colorado, extortion is referred to as either “criminal extortion” or “aggravated criminal extortion,” depending on the severity of the crime. If you threaten to take action against an employee who you suspect has engaged in unacceptable or illicit behavior in the workplace, you could be charged with a class four felony.

Other Alternatives

Although agreeing to forego criminal charges in exchange for repayment of funds might be extortion, agreeing not to file a civil complaint for either breach of contract or breach of fiduciary duty is likely perfectly legal.

If you’re in the midst of a partner misconduct situation and need guidance, contact us today. We can help you resolve the issue in a timely and cost-effective manner.