Is it illegal for a store employee to do this with payment?

Question

In a retail store the official policy is that cash is not accepted and payment must be made through payment card (e.g. credit card). Some employees started telling the customers who want to pay in cash "if you are OK without getting change, you can pay in cash" and the employee would pay using his own credit card and keep the cash for themselves. A small "profit" may be made, for example is the purchase cost $19 and the customer paid with a $20 bill then the employee gets the $1 difference.

What laws may be broken? Does it matter if everyone does it or if management knows about it?

To add to the hypothetical scenario, employees are at liberty to give 20% off discounts. What if the discount was applied, after the customer had been told the price and paid in cash? From the example it would be 19 x 80% = $15.20 and they pay with the $20 so it would be $4.80 profit instead of $1.

Tips in the form of coins and bills are accepted, so in a sense it could be argued that it's a tip.

Answer 1

An employee is an agent of the employer when working and owes a duty of loyalty to the employer.

One of the obligations associated with a duty of loyalty is to refrain from receiving anything other than the employer authorized compensation for the work, rather than benefitting personally from work done on behalf of the employer.

By appropriating additional benefit from the customer in a way that is unauthorized by the employer (the employer would be within its rights to sanction and authorize this conduct if desired), an employee who does not turn the profit in this transaction over to the employer has breached a fiduciary duty to the employer for which the employer would have a right to sue the employee for the amount by which the employee was unjustly enriched in the transaction.

Would it actually play out this way in real life for these sums of money?

Probably not. The stakes involved wouldn't justify the time and money of a lawsuit.

But, breaching a fiduciary duty of loyalty to your employer in this context probably constitutes good cause to terminate the employment of the employee without paying severance that would otherwise be payable under Canadian employment law (in theory anyway, I've never seen a reported court case on point).

Answer 2

One particular issue. If

employees are at liberty to give 20% off discounts.

they are presumably expected to do this for the benefit of the customers, and for the benefit of the employer in that customers receiving the discount will be more likely to be repeat customers. Taking the discount for the employee's benefit sounds like unjust enrichment and perhaps theft by deception.

That aspect seems quite likely to be unlawful and grounds for discharge even if no one thinks it worth filing charges or a lawsuit.

If management, acting on behalf of the owner, not only knows this is going on but approves it, why then it would be legally OK, although I doubt management would approve the use of the discount even if it did approve the "capture of change". It would probably in that case be in the same category as tips, and the employee would be legally required to report this as income, although that requirement is often violated and not enforced.

Answer 3

Is it illegal for a store employee to do this with payment?

It depends on employer's consent. The reason here is not fiduciary duty, but the principle of [employer's] freedom of contract. I assume the employer's policy of cash refusal is lawful and I will not address that item.

Fiduciary duty is not at stake here, since it is not clear that the arrangements you describe harm the employer's interests. Quite the contrary, a priori these agreements between employee and customer advance the employer's interests to the extent that customers' inability or refusal to pay in cash might dissuade them from buying at that store. As long as the employer obtains the compensation he required in the price tag, his interests are fully met.

These agreements between employee and customer are tantamount to reselling, which is not illegal in Canada except for some goods the Consumer Product Safety Act categorizes as dangerous. Likewise, resales of some goods might be subject to other restrictions. Example: Resale of tickets additionally requires the secondary seller (here the employee) to show the purchaser its origins and face value price, a condition which your description satisfies beforehand.

Instead, it is within employer's freedom of contract to refuse to enter contracts (i.e., to transact) with its employee(s). Using the employee's credit card evidences that the transaction is between employer and employee regardless of whether the employee uses or transfers the item(s) to a third party.

The employer might have valid reasons for refusing to enter these contracts with its employees. For instance, a customer might not fully understand the legal implications of transacting with a reseller, who happens to be an employee, when it comes to refunds insofar as the invoice reflects the reseller's credit card. The customer's misunderstanding and subsequent frustration --especially if the reseller/employee is uncooperative-- could lead the customer to conflate roles and ultimately have an unfairly negative opinion of the employer.

It is noteworthy that the refund scenario with uncooperative reseller is not actionable under a theory of fiduciary duty. It is not even actionable by the employer. It might be actionable --and under other legal theories-- only by the customer, toward whom the reseller/employee owes no fiduciary duty.

employees are at liberty to give 20% off discounts. What if the discount was applied, after the customer had been told the price and paid in cash?

In this scenario the employer has a lower incentive to consent to the arrangements, besides the fact that here the element of employee's discretion can have implications on his fiduciary duty toward the employer.

The employee's intent to maximize his personal profit tends to deter him from giving discounts to others (i.e., not to himself as reseller). The detriment to employer's interests is twofold. First, because the omission of discounts reduces customers' purchasing power which they might otherwise use for acquiring more products from the store.

And second, because a customer's awareness that others get a discount at the store --or lower prices elsewhere-- tends to dissuade that customer (and likely his acquaintances) from ever buying there again.

Although discounts are at employee's discretion, clearly the employer's reason for discounts is to attract customers. Therefore, it is in this hypothetical scenario of discretion-about-discount where the employee has a conflict of interest.

Answer 4

Without the discount, this is almost certainly legal. The discount brings in complications that may make it fraudulent and thus illegal. For instance, if the discount is applied and the goods later need to be returned, the customer needs to know that they will be getting less of their money back.

There may be company guidelines against using the discount for ones own benefit, which might turn that into theft.

I don’t see anything wrong with using your own private card to pay for the customer, but I think the discount falls into the category of too good to be true.