Your Employee Took Kickbacks From a Vendor: Civil Claims and First Steps in California

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

Your company has civil claims against both the employee and the supplier. The manager breached his duty of loyalty, and under Labor Code section 2860 whatever he acquired by virtue of his job belongs to the employer. The supplier can be liable for helping that breach, for fraud, and for unfair competition, and contracts won through the payments may be rescinded. Kolmogorov Law, P.C. pursues these civil remedies for business owners in Orange County, Los Angeles, and across California; criminal charges are for prosecutors.

Call (909) 235-6116 or contact us online to discuss payments between a vendor and someone inside your company.

How these schemes look when they surface

Nobody labels a kickback as one.

A buyer approves every invoice from a single packaging supplier, and that supplier pays "consulting fees" to an LLC owned by the buyer's brother-in-law. A facilities manager awards maintenance contracts without bids and takes paid trips from the contractor. A purchasing agent receives a percentage of each order in cash, described between the two of them as a rebate.

The owner usually learns by accident. A new controller questions a price. A rival vendor complains that it could never get a quote considered. A bank record shows up in a divorce file.

What commercial bribery is under California law

California defines the conduct in the Penal Code. An employee commits commercial bribery by soliciting or accepting money or anything of value from someone other than the employer, corruptly and without the employer's knowledge or consent, in return for using his position for that person's benefit. The person who offers or gives the payment commits the same offense. (Pen. Code, § 641.3, subd. (a).)

Three details matter for the civil case. The statute does not apply where the thing of value is worth $250 or less. "Employee" includes officers, directors, agents, and partners. And "corruptly" means a specific intent to injure or defraud the employer or a competitor. (Pen. Code, § 641.3, subds. (b), (d).)

The section sets criminal penalties. It does not spell out a damages remedy for the employer, so the civil lawsuit is built from the claims below, with the criminal statute as the measuring stick for what was unlawful.

Claims against the employee

Breach of the duty of loyalty is the core claim. An employee who takes money from a vendor to steer the employer's business has acted against the employer while on its payroll, which our page on the employee duty of loyalty covers in detail.

Fraud by concealment usually accompanies it, because the employee hid a fact he was bound to disclose each time he recommended the vendor.

Two statutes then reach the money itself. Everything an employee acquires by virtue of the employment, other than compensation due from the employer, belongs to the employer, whether acquired lawfully or unlawfully. (Lab. Code, § 2860.) And a person who gains a thing by fraud, violation of a trust, or other wrongful act holds it as an involuntary trustee for the person who would otherwise have had it. (Civ. Code, § 2224.) Together they let the company trace the payments into accounts, vehicles, or property.

Claims against the vendor

The vendor is often the defendant with the means to pay.

A supplier that knowingly paid an employee to betray the employer can be liable for aiding and abetting the breach; our conspiracy and aiding and abetting page explains what must be shown. The supplier may also be liable for fraud in its own right if its invoices or bids concealed the arrangement.

The Unfair Competition Law adds a statutory claim. It reaches any unlawful, unfair, or fraudulent business act or practice, and a court may order the return of money acquired by means of the practice. (Bus. & Prof. Code, §§ 17200, 17203.) A payment that meets the Penal Code definition can supply the unlawful act, and the overcharges are the money the company lost.

Then there are the contracts. Agreements the vendor won through the payments may be subject to rescission, which can matter more than damages when a long-term supply deal is still running. Where the scheme involved outright theft, Penal Code 496 may add treble damages. A scheme repeated across several customers sometimes raises a civil RICO question as well.

What the company can recover

Start with the payments themselves. They belong to the employer. They are also evidence of the overcharge, on the common-sense inference that a vendor builds the cost of a kickback into its prices.

Next come the overcharges: the difference between what the company paid and what a clean bid would have cost. That takes pricing data from other vendors or from the period before the scheme began.

Other items depend on the facts. They can include bonuses paid to the employee while the disloyalty was hidden, the cost of the investigation, and punitive damages where fraud is proved by clear and convincing evidence.

First steps when you find the payments

Preserve first. Copy the employee's email, the vendor file, purchase orders, bid records, and approval logs before anyone is confronted. Messages get deleted within hours of a difficult meeting.

Investigate quietly. Compare the vendor's prices with competing quotes, check who added the vendor to the system, and look for shared addresses, phone numbers, or relatives.

Handle the employment decision carefully. If you terminate, pay final wages on time and do not offset what you believe was taken; our duty of loyalty page explains why.

Check your insurance. Many commercial crime and employee dishonesty policies cover losses of this kind, and they often have short notice and proof-of-loss deadlines.

Reporting a crime is your right, but demanding money in exchange for silence is different: a threat to accuse someone of a crime is among the threats the extortion statute lists. (Pen. Code, § 519.) A lawyer also may not threaten criminal charges to gain an advantage in a civil dispute, so our demand letters state the civil claims and nothing else.

The fraud claims generally must be filed within three years after the company discovered, or reasonably should have discovered, the facts. (Code Civ. Proc., § 338, subd. (d).) Our page on employee theft and embezzlement covers related remedies when money was taken directly.

What to bring to the first meeting

Whatever first revealed the payments: bank records, emails, a tip, an audit note.
The vendor's contracts, invoices, and payment history.
Bid files and competing quotes for the same goods or services.
The employee's job description, approval authority, and any conflict-of-interest acknowledgment.
Your commercial crime or employee dishonesty policy.

Frequently asked questions

I found out my purchasing manager has been getting paid by a supplier to steer orders. What civil claims does my company have?

Against the manager: breach of the duty of loyalty, fraud by concealment, and recovery of the payments, which California Labor Code section 2860 treats as the employer's property. Against the supplier: aiding and abetting, fraud, and unfair competition under Business and Professions Code section 17200. The company may also seek to rescind contracts the supplier obtained through the payments.

Is commercial bribery a crime in California?

Yes. Penal Code section 641.3 makes it a crime for an employee to take money or anything of value from a third party, corruptly and without the employer's knowledge or consent, in return for using the position to benefit that party. The payer is equally covered. The statute excludes items worth $250 or less.

Can I sue the vendor that paid my employee kickbacks?

Usually, yes. A California vendor that knowingly paid an employee to favor it can be sued for aiding and abetting the employee's breach of loyalty, for fraud, and for restitution under the Unfair Competition Law. The vendor is frequently the more collectible defendant, and its own emails and payment records tend to be the strongest evidence.

The supplier says the payments to my employee were consulting fees and gifts. Does that defense work?

Labels do not decide it. Under California Penal Code section 641.3 the questions are whether the payments were made corruptly, without the employer's knowledge or consent, and in return for the employee using his position for the supplier. Real consulting work that the employer knew about and approved points away from bribery. Undisclosed "fees" that track purchase volume point toward it.

Should I report the employee to the police?

That is the company's decision, and it can be made alongside a civil case. A California prosecutor controls any criminal charge, and a civil lawsuit proceeds on its own track with a lower burden of proof. What a business should avoid is using the threat of a report as a bargaining chip in settlement talks.

Talk to a California business fraud attorney

If someone inside your company has been taking payments from a vendor, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents business owners in Orange County, Los Angeles, and throughout California.

This page provides general information about California law and is not legal advice. Outcomes depend on the payments, the records, and the court.