8 Employee Misconduct Examples You Can't Afford to Ignore

Employee misconduct isn't just a compliance headache; it's a significant human-factor risk that threatens an organization's financial stability, reputation, and operational integrity. Traditional, reactive approaches like internal investigations often begin only after substantial damage has occurred. This reactive posture leads to costly legal battles, lost revenue, and eroded trust among stakeholders. The true cost of misconduct goes far beyond a single incident, impacting morale, productivity, and long-term business viability. To effectively manage and mitigate these risks, organizations must have clear reporting mechanisms, such as a dedicated online code of conduct violation report form, to ensure all breaches are addressed promptly.

This article moves beyond theory, breaking down eight common employee misconduct examples to provide actionable insights for risk and compliance leaders. We will analyze the specific business impacts of each type of misconduct, from subtle time theft to major data breaches. More importantly, we'll discuss the critical shift toward a proactive, ethical, and EPPA-aligned standard for preventing human-factor risk before it escalates. The goal is not to police employees with invasive surveillance, but to build a resilient, integrity-driven workplace. This guide offers a framework for identifying vulnerabilities and implementing preventive controls that protect your assets and reinforce your corporate governance strategy.

1. Theft and Embezzlement

Theft and embezzlement represent a significant category of employee misconduct examples, involving the unauthorized taking of company assets for personal gain. This can range from seemingly minor offenses, like stealing office supplies, to sophisticated, large-scale financial schemes. Embezzlement is a specific form of theft where an employee misappropriates funds or property they were entrusted to manage, often hiding their actions by manipulating financial records.

This type of misconduct exposes organizations to direct financial loss, reputational damage, and severe compliance failures. The notorious case of Rita Crundwell, who embezzled over $53 million from the city of Dixon, Illinois, highlights how unchecked internal controls can become a critical vulnerability. Her actions went undetected for years, demonstrating the failure of reactive systems that only catch fraud after catastrophic losses.

Strategic Breakdown and Prevention

Proactive prevention is far more effective and less costly than reactive investigation after a loss has occurred. A multi-layered approach combining procedural controls and AI-driven human risk mitigation is essential.

• Segregation of Duties: Ensure no single individual has control over all parts of a financial transaction. For example, the person who approves payments should not be the same person who issues them or reconciles the bank statements. This simple division creates an immediate check and balance.

• Mandatory Audits: Implement regular, unannounced audits of financial records and high-risk areas like inventory and petty cash. These audits serve as a powerful deterrent and can uncover anomalies before they escalate.

• Dual Authorization: Require two authorized signatures for significant financial transactions, such as large wire transfers or payroll adjustments. This protocol prevents unilateral fraudulent activity.

By focusing on these preventative measures, organizations can significantly reduce their exposure to internal theft. You can discover more about building a resilient defense by exploring these effective strategies to prevent employee theft.

2. Sexual Harassment and Workplace Discrimination

Sexual harassment and workplace discrimination are severe forms of employee misconduct examples that violate legal standards, professional ethics, and basic human dignity. This category includes unwelcome sexual advances, discriminatory comments, and actions based on protected characteristics. Such behavior can manifest as quid pro quo harassment or create a hostile work environment that poisons company culture and erodes psychological safety.

This misconduct exposes organizations to immense legal liability, reputational ruin, and talent loss. The scandals at major corporations are stark reminders of how a toxic culture, when left unchecked by leadership, can lead to systemic harassment. The subsequent legal battles and public outcry result in massive financial settlements and forced executive departures, demonstrating that ignoring such behavior is not a viable risk management strategy. It underscores the critical need for proactive, ethical risk management to prevent harm before it occurs.

Strategic Breakdown and Prevention

A proactive and preventative stance is the only effective defense against harassment and discrimination. This requires building a culture of respect supported by robust policies and clear, consistently enforced procedures.

• Comprehensive Policies and Training: Develop and regularly update a zero-tolerance anti-harassment policy. Reinforce it with mandatory annual training for all employees and managers, ensuring everyone understands what constitutes misconduct, its consequences, and their role in prevention.

• Clear and Accessible Reporting Channels: Establish multiple, confidential avenues for employees to report concerns without fear of retaliation. This should include reporting to HR, a direct manager, and an anonymous ethics hotline.

• Prompt and Fair Investigations: Ensure all complaints are investigated swiftly, impartially, and thoroughly. A well-defined process protects all parties involved and signals that the organization takes every report seriously.

By implementing these measures, organizations can foster a safer, more inclusive environment. You can learn more by exploring this guide on how to conduct employee investigations in a compliant and effective manner.

3. Attendance and Time Theft

Attendance and time theft is a form of employee misconduct where individuals deliberately misrepresent their work hours to receive unearned compensation. This common issue extends beyond simple tardiness and includes practices like consistently arriving late, leaving early, taking extended breaks, or the more coordinated act of 'buddy punching'. These actions directly translate into payroll fraud and a significant loss of productivity for the organization.

This type of misconduct erodes profitability and damages morale, as diligent employees often have to bear the extra workload. For instance, in industries with remote or field-based staff, employees might log a full day's hours while working for another company or attending to personal matters. Such behavior not only constitutes theft but also represents a fundamental breach of the employment agreement. Unlike embezzlement, which might be a one-person scheme, time theft can foster a toxic culture of shared dishonesty if left unchecked.

Strategic Breakdown and Prevention

Addressing time theft requires a combination of clear policies, modern technology, and consistent enforcement. A proactive stance prevents minor infractions from escalating into widespread cultural problems and significant financial drains.

• Implement Modern Time-Tracking Systems: Replace outdated sign-in sheets or swipe cards with biometric systems to eliminate buddy punching. For field or remote employees, use GPS-enabled mobile apps that verify location upon clock-in and clock-out.

• Establish and Enforce Clear Policies: Your employee handbook must explicitly define attendance expectations, break times, and the consequences for time theft. Ensure every employee acknowledges these policies and apply disciplinary actions consistently to all violators, regardless of role.

• Conduct Regular Payroll Audits: Periodically review timesheet data against project outputs, security access logs, or other operational data to identify anomalies. For example, compare a call center employee's logged hours with their actual call time data to spot discrepancies that suggest padded break times.

4. Insubordination and Refusal to Follow Directives

Insubordination and refusal to follow directives are serious forms of employee misconduct examples that undermine management authority and operational integrity. This behavior involves an employee's deliberate defiance of legitimate instructions, policies, or established protocols. It can manifest as an outright refusal to perform a reasonable work assignment, ignoring critical safety procedures, or consistently challenging leadership in a disruptive and non-constructive manner.

This type of misconduct goes beyond simple disagreement; it actively obstructs workflow, creates a toxic work environment, and can pose significant safety and compliance risks. For instance, a production worker who repeatedly ignores mandatory quality control checks not only challenges their supervisor but also exposes the company to product recalls, reputational damage, and financial liability. Similarly, an IT professional who circumvents data security directives creates vulnerabilities that could lead to a catastrophic data breach. Addressing insubordination is crucial for maintaining order, safety, and a culture of respect.

Strategic Breakdown and Prevention

A proactive and well-documented approach is essential to manage insubordination effectively and fairly, minimizing legal and operational risks. Prevention begins with clarity and consistent enforcement of workplace policies.

• Issue Clear, Written Directives: Ensure all significant instructions, especially those related to safety, compliance, or major process changes, are documented in writing. This eliminates ambiguity and creates a clear record of expectations.

• Implement Progressive Discipline: Follow a structured disciplinary process. Start with a verbal warning, escalate to a formal written warning, and then consider suspension before termination. This demonstrates fairness and gives the employee opportunities to correct their behavior.

• Document Everything: Meticulously record every instance of insubordination, including the directive given, the employee's response, and any witnesses. This documentation is vital if disciplinary action is challenged.

By establishing clear expectations and applying consequences consistently, organizations can deter insubordinate behavior and reinforce a culture of accountability. You can learn more about fostering a compliant workplace by exploring resources on effective HR risk management strategies.

5. Violation of Data Security and Confidentiality

Violating data security and confidentiality protocols is a critical form of employee misconduct, encompassing the unauthorized access, disclosure, or misuse of sensitive company information. This can range from simple negligence to malicious acts such as selling trade secrets or customer data. This misconduct directly exposes the organization to severe financial penalties, legal liabilities, reputational harm, and the loss of competitive advantage.

The 2013 case involving Edward Snowden remains a powerful example of an insider threat. As an NSA contractor, Snowden used his privileged access to leak a massive volume of classified documents. This incident demonstrated how even highly secure environments are vulnerable to human-factor risks, where authorized access is weaponized. It underscores the vital need for controls that go beyond perimeter security, focusing on an AI human risk mitigation strategy that can identify precursor behaviors without resorting to invasive surveillance.

Strategic Breakdown and Prevention

Preventing data-related misconduct requires a comprehensive strategy that combines technical controls, clear policies, and continuous employee education. The goal is to create a security-conscious culture where protecting data is a shared responsibility.

• Implement Role-Based Access Control (RBAC): Restrict access to data and systems based on the principle of least privilege. Employees should only have access to the information absolutely necessary to perform their jobs. This minimizes the potential attack surface an insider can exploit.

• Conduct Regular Security Awareness Training: Educate employees on recognizing phishing attempts, understanding data handling policies, and the consequences of a breach. To mitigate risks associated with information security, it's crucial to implement effective data breach prevention strategies.

• Deploy Data Loss Prevention (DLP) Tools: Use DLP software to monitor, detect, and block unauthorized data transfers. While useful, these tools are reactive and should be part of a broader, proactive internal threat detection framework.

These proactive steps help fortify an organization's defenses against both accidental and malicious data exposure. After a breach, understanding how to respond is just as critical; learn more about building a modern defense with a robust data breach response plan.

6. Substance Abuse and Being Under the Influence at Work

Substance abuse in the workplace, another critical category of employee misconduct examples, involves reporting to work under the influence of drugs or alcohol, or using such substances on company time. This behavior significantly impairs judgment, reaction time, and overall performance, creating severe safety hazards. It poses direct threats to the individual, their colleagues, and the organization's operational integrity.

This form of misconduct is particularly dangerous in safety-sensitive industries. For example, in transportation, an impaired pilot or driver can cause catastrophic accidents. Similarly, in healthcare, a medical professional diverting or using prescription drugs puts patient lives at immediate risk. Beyond the obvious safety liabilities, this behavior leads to decreased productivity, increased absenteeism, and reputational harm. The challenge for employers is balancing a zero-tolerance policy for impairment with a compassionate, non-punitive approach to addiction as a health issue.

Strategic Breakdown and Prevention

A proactive and clearly communicated policy is the foundation for managing substance-related risks. Prevention requires a combination of clear expectations, support systems, and consistent enforcement to protect the workforce and the business.

• Develop a Comprehensive Policy: Create and distribute a clear, written substance abuse policy that explicitly defines prohibited conduct, outlines testing procedures (pre-employment, reasonable suspicion, post-accident), and states the consequences of violations. This policy removes ambiguity and sets a firm standard.

• Train Supervisors on Identification: Equip managers and supervisors to recognize the signs of impairment, such as changes in behavior, poor coordination, or slurred speech. This training is crucial for invoking reasonable suspicion testing protocols fairly and legally.

• Implement Employee Assistance Programs (EAPs): Offer confidential EAPs that provide resources for counseling, treatment, and rehabilitation. Promoting these programs shows a commitment to employee well-being and can help individuals address substance abuse issues before they escalate into disciplinary problems.

By combining firm policies with supportive resources, organizations can mitigate the severe risks associated with workplace substance abuse and foster a safer, more productive environment.

7. Workplace Violence and Threatening Behavior

Workplace violence and threatening behavior are among the most severe employee misconduct examples, encompassing physical assaults, intimidation, verbal threats, and any action that creates a hostile or dangerous environment. This category is not limited to overt physical acts; it includes subtle intimidation and destruction of property. Such conduct shatters the sense of security essential for a productive workplace and poses an immediate threat to employee safety and well-being.

This form of misconduct exposes organizations to catastrophic liabilities, including legal action, reputational ruin, and profound operational disruption. Tragic events like workplace shootings often follow a pattern of warning signs—such as verbal threats or behavioral changes—which are either missed or inadequately addressed. This highlights a critical failure in reactive risk mitigation and the urgent need for a proactive approach to human-factor risk.

Strategic Breakdown and Prevention

Preventing workplace violence requires a zero-tolerance policy backed by a robust, proactive framework for identifying and de-escalating potential threats before they materialize. This approach prioritizes psychological safety and clear protocols.

• Implement a Threat Assessment Program: Establish a dedicated team trained to evaluate the severity of reported threats. This program should provide clear, confidential channels for employees to report concerning behavior without fear of retaliation.

• Provide De-escalation and Conflict Resolution Training: Equip managers and employees with the skills to recognize warning signs and safely manage tense situations. This training transforms the workforce into an active part of the organization's human-factor risk defense.

• Maintain a Secure and Controlled Environment: Implement physical security measures like controlled access points, visitor logs, and adequate lighting. These steps act as a deterrent and provide crucial response time in an emergency.

By creating a culture where every threat is taken seriously and addressed through a structured process, organizations can protect their most valuable asset, their people. For more insights on building a secure work environment, review this guide on mitigating insider threats.

8. Falsification of Records, Credentials, and Performance Data

Falsification of records is a critical form of employee misconduct that involves the intentional misrepresentation of official information. This can manifest in various ways, from fabricating educational credentials on a resume to manipulating sales data for higher commissions. These actions fundamentally undermine the integrity of an organization's hiring processes, performance metrics, and financial reporting.

This type of misconduct exposes an organization to significant risks, including hiring unqualified individuals, making poor business decisions based on flawed data, and facing legal penalties. A high-profile example is the case of Marilee Jones, the former Dean of Admissions at MIT, who resigned after it was revealed she had fabricated her own academic degrees for 28 years. Her deception highlights how a single act of falsification can erode trust and damage the reputation of a world-renowned institution.

Strategic Breakdown and Prevention

Preventing data and credential falsification requires a proactive, verification-focused approach. Diligent verification is essential to mitigate the human-factor risk associated with misrepresentation.

• Rigorous Credential Verification: Do not rely on applicant-provided documents alone. Directly contact educational institutions to verify degrees and professional licensing boards to confirm certifications. This step should be a non-negotiable part of the pre-employment screening process.

• Systematic Audits of Records: Implement regular, random audits of employee-submitted data, including expense reports, timesheets, and performance metrics. Comparing reported figures against primary source data (like receipts or system logs) serves as a powerful deterrent.

• Skills-Based Assessments: Supplement resume and interview claims with practical skills testing or assessments. This ensures that a candidate’s purported abilities align with their actual capabilities, adding an objective layer to the hiring decision.

By building these verification checkpoints into standard operating procedures, organizations can create a culture where integrity is expected. You can strengthen your defenses by learning more about conducting a comprehensive fraud risk assessment.

8-Point Employee Misconduct Comparison

Misconduct	Mitigation Complexity 🔄	Resource Requirements ⚡	Expected Outcomes 📊	When to Prioritize 💡	Key Advantages ⭐
Theft and Embezzlement	🔄 High — covert schemes, long detection horizons	⚡ Moderate–High — audits, access controls, surveillance	📊 Reduces financial loss and fraud frequency; recovery often partial	💡 Prioritize for finance, inventory, or high‑value assets	⭐ Strong legal definitions and mature prevention controls
Sexual Harassment & Discrimination	🔄 High — sensitive investigations; power dynamics	⚡ Moderate–High — training, reporting channels, investigations	📊 Improves culture and reduces liability when enforced; legal risk if mishandled	💡 Prioritize after complaints, in high‑exposure or public‑facing roles	⭐ Clear legal frameworks and effective training programs
Attendance & Time Theft	🔄 Low–Moderate — systematic but detectable	⚡ Low–Moderate — time systems, supervisor oversight, audits	📊 Restores productivity and payroll accuracy quickly	💡 Prioritize in hourly, remote, or large shift workforces	⭐ Cost‑effective prevention with modern tracking tools
Insubordination / Refusal to Follow Directives	🔄 Low–Moderate — procedural, often behavioral	⚡ Low — documentation, managerial action, progressive discipline	📊 Restores authority and process compliance if handled consistently	💡 Prioritize when safety, quality, or deadlines are affected	⭐ Clear documentation enables justified management actions
Data Security & Confidentiality Violations	🔄 High — stealthy, technical and human factors	⚡ High — RBAC, DLP, encryption, monitoring, compliance	📊 Prevents breaches and regulatory fines; detection may lag	💡 Prioritize where sensitive customer, IP, or regulated data exists	⭐ Strong technical and legal remedies available
Substance Abuse / Impairment at Work	🔄 Moderate — medical/privacy complexity	⚡ Moderate — EAPs, testing protocols, supervisor training	📊 Increases safety and retention when combined with treatment	💡 Prioritize in safety‑sensitive or high‑risk operations	⭐ Treatment programs and legal testing frameworks exist
Workplace Violence & Threatening Behavior	🔄 High — urgent, unpredictable escalation risk	⚡ High — security, threat assessment, emergency planning	📊 Immediate safety improvement; reduces catastrophic risk	💡 Prioritize on credible threats or warning behaviors	⭐ Zero‑tolerance policies and security responses protect people
Falsification of Records/Credentials	🔄 Moderate — often discovered via verification or audit	⚡ Moderate — background checks, credential verification, audits	📊 Prevents liability and ensures competence; reduces fraud risk	💡 Prioritize for safety‑critical or credential‑dependent roles	⭐ Evidence‑based investigations and termination grounds are clear

Adopting the New Standard in Proactive, Ethical Risk Prevention

Navigating the landscape of employee misconduct examples reveals a clear and urgent pattern: organizations that wait for incidents to happen are already behind. Reactive forensics, post-incident investigations, and traditional surveillance are not just inefficient; they are costly, damaging to morale, and fraught with legal and ethical pitfalls. Surveillance-based systems that spy on employees are particularly problematic, creating a culture of distrust and violating regulations like the EPPA. The old model of "catch and discipline" is broken.

The true cost of misconduct isn't limited to the direct financial loss from theft or the legal fees from a harassment claim. It extends to eroded institutional integrity, damaged reputations, and a culture of fear that stifles innovation. The common thread in preventing these diverse forms of misconduct is a strategic shift from reaction to proactive prevention. This requires moving beyond outdated, intrusive methods that treat employees like suspects and adopting a modern approach grounded in ethical, AI-driven risk management.

Key Takeaways for Proactive Risk Mitigation

To effectively transition your organization, focus on these critical pillars of the new standard in internal risk prevention:

• Human-Factor Risk is Central: Technology and processes are important, but every example of misconduct ultimately stems from human decisions and behaviors. Your strategy must be human-centric, focusing on identifying risk indicators before they escalate into policy violations.

• Ethical Prevention Outperforms Invasive Surveillance: The future of internal threat detection is not about more monitoring; it's about smarter, ethical insights. An EPPA-compliant platform provides a powerful alternative to surveillance, protecting employee dignity while delivering precise, actionable risk intelligence. This fosters a culture of respect, not suspicion.

• Early Identification is the Ultimate Defense: Instead of analyzing the damage after an incident, the goal is to identify the potential for misconduct early. By leveraging advanced analytics with a Risk Assessments Software, organizations can pinpoint vulnerabilities and address them preemptively, turning high-risk situations into manageable, non-events. This is the core of effective ethical risk management.

Your Next Steps Toward a More Secure Future

Mastering this proactive approach is no longer optional; it's essential for maintaining compliance, protecting your brand, and building a resilient organization. The financial and reputational stakes associated with employee misconduct examples are simply too high to ignore. By embracing an AI-driven, non-intrusive framework like E-Commander, you empower your risk, HR, and compliance teams to become strategic guardians of your organization’s integrity, rather than internal investigators cleaning up after a crisis. This shift allows you to invest resources in growth and innovation, confident that your greatest asset—your people—is also your most protected.

---

Ready to move beyond reacting to employee misconduct examples and start proactively preventing them? Discover how Logical Commander’s E-Commander platform sets the new standard for ethical, EPPA-compliant human-factor risk management.

• Get Platform Access: Request your personalized demo today and learn how our AI-driven insights can protect your organization from the inside out.

• Join our PartnerLC Program: Become an ally and integrate the new standard of risk prevention into your B2B SaaS offerings.

• Contact Us: Speak with our team about enterprise deployment and building a more resilient, compliant future.