To prevent this situation the peons should be given the benefit of the doubt by the courts.

In this case, either (1) the peon was lying about reported hours, the boss didn't notice, and then the peon reported himself... or (2) everything happened just like you said.

Aren't there bounties for reporting things like this? At the very least winning should include reimbursement for legal expenses.

They do get the benefit of the doubt, but when you're a defendant in a criminal trial, simply having the benefit of the doubt on your side will not mean that you're going to have a great experience with it.