Employer

Employer’s burden of proof in false reimbursement disputes

FFor most employers, false reimbursement is a serious disciplinary violation under their rules and regulations, often forming the basis for the termination of employees found guilty of making such false statements. However, in practice, false refunds can be very concealed, with many employers only discovering the fact after the funds have been approved and refunded.

In court cases involving false reimbursement, this initial approval of employee reimbursement requests often comes back to haunt and negatively affect the outcome.

This article focuses on the practice of arbitration and adjudication of these matters in Shanghai, and combines the authors’ recent practical experience to suggest recommendations for employers to properly present evidence and respond in such labor disputes. work.

Types of Fake Refunds

Tracy Liu
Partner
Jingtian and Gongcheng

In practice, false reimbursement of an employee generally falls under one of the following three scenarios.

Fictitious and non-existent payment event. Although the invoice submitted by the employee is genuine, the payment event, or reimbursement trigger, behind the invoice is fabricated. This can take the form of a manifest contradiction between the content of the invoice and the payment event, or an impossibility of the payment event. For example, an employee goes on a business trip to Beijing, but submits invoices showing F&B consumption in Shanghai.

True payment event with false or irregular invoice. While the employee’s payment event is genuine, the invoice is false or irregular. For example, the invoice cannot be verified with the tax authorities or the invoice numbers of the different refund batches are consecutive.

Genuine payment event with genuine invoice but breaking reimbursement rules and regulations. Although the employee’s payment event is genuine and the invoice is valid, the reimbursement violates the rules and regulations of the employer. This may occur when: (1) the type of expense claimed is prohibited by the employer; (2) the amount exceeds the standard and level of reimbursement stipulated by the employer; or (3) the employee uses non-business expense invoices for reimbursement of business expenses.

Negative impact on decisions

Larry Lian, Jingtian & Gongcheng, Employer Burden of Proof in False Reimbursement Disputes
larry lian
Advice
Jingtian and Gongcheng

In many cases, if the false reimbursement has persisted for some time but the employer has not previously raised an objection to the irregularities, the legal authorities may consider that the employee’s false reimbursement has been acquiesced and authorized by the employer. ’employer. For this reason, they can decide that the employee is not responsible for any serious disciplinary fault and finally reject the employer’s claims.

Of the three types of false refunds mentioned above, employers are more likely to win the lawsuit in the first two scenarios.

Since fictitious reimbursement and the provision of false invoices are considered serious transgressions involving subjective malicious intent and a serious breach of integrity on the part of employees, arbitrators tend to consider the legal liability of the employee for false reimbursements and serious breaches of discipline is not waived by the prior approval of the employer.

However, in the third scenario, arbitrators may consider the employer’s long-standing approval as, to some extent, a change or variation from its original reimbursement policy, and thus consider that the employer should no longer hold the employee responsible and that the employee is not responsible for the false refund.

Burden of proof

Considering the relevant cases in Shanghai in recent years where employers had approved reimbursement claims, the authors suggest employers take the following steps to win the support of contracting authorities.

Evidence of knowledge and willful violation. The employer’s ability to prove that the employee knowingly and willfully violated reimbursement rules can aid in determining the employee’s subjective malice. For example, the employer can present evidence proving that the employee is aware of the refund policy or that they have already been disciplined for false refunds.

Proof of the seriousness of the breach. Arbitrators tend to weigh the seriousness and adverse consequences of a false refund to determine whether it is reasonable. Therefore, if the employer can prove that the employee’s act of false reimbursement is significant – for example, in terms of frequency, duration or cumulative amount – this can help the employer obtain a favorable decision, based on the seriousness of the breach.

Evidence of false refund concealment difficult to identify immediately. The employer can claim to have made a formal review of basic financial and tax matters, and to have exercised due diligence and good faith in approving and reimbursing expenses. On this basis, the employer can further prove that the false reimbursement of the employee is concealed and misleading.

For example, the employee may have made false claims for company expenses that were, in fact, spent on personal items. However, the exact list of items purchased was not on the invoice submitted to the employer, so there would be no way for him to find out the truth before checking with official tax records obtained from the authority.

Or the invoice-issuing entity may actually be engaged in commercial or other services that do not provide, or are authorized to provide, catering services, but the employee has listed and submitted the invoiced item for reimbursement as F&B invoice. In this case, the employer could have discovered the truth only by investigating the invoice issuer’s information through official channels or by visiting the entity on site.

Armed with this information, the employer can mount a defense by asserting that it is neither realistic nor reasonable to expect their routine audit process to timely detect these false refunds that are not identifiable. by their form or the information presented.

By proving that the employee’s breach falls under one of the above scenarios, the employer will see their chances greatly improved in arbitration or in court.

In this case, the employer may have a chance to convince the arbitrators that, despite having failed to some extent to strictly examine the reimbursement and suffering from an oversight on the part of management, a Such failure does not change the nature of the employee’s false reimbursement, does not reduce the degree of his fault, nor should it affect the determination of such action as a serious disciplinary violation.

Tracy Liu is a partner and Larry Lian is an attorney at Jingtian & Gongcheng

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Jingtian and Gongcheng

45/F, K. Wah Center
1010 Huai Hai M. Road,

Shanghai 200031, China

Tel: +86 21 2613 6125

Email: [email protected]

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www.jingtian.com

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