If you’re a business owner, CEO or CFO, you probably think that you have the right to deduct from any employee’s paycheck who happens to owe the company money, for whatever reason. But in light of recent events, you may need to inject some caution into such a decision ...because that God-given “right” (as they view it) may be far more constrained than you think.
Let’s take a specific case. Say your business uses company-owned trucks for product and service delivery. John Jones, one of your best employees, smacks up one of those trucks one day, and your investigation reveals that he was primarily at fault. Now, because he has been on balance a good worker, you don’t want to let him go; and you know it would be futile to demand restitution of the damage amount in a lump sum. So in a mutual review of the situation, you steer John to agreeing to a small voluntary payroll deduction until the damage amount is repaid.
A win-win, right? John stays employed and the company gets its money back. You’re so pleased with the outcome that you send John off for a 3-day driver safety course, on the company nickel. A textbook example of enlightened management, you think... should be written up as a Harvard B-School case. It doesn’t cross your mind that there could be any sort of legal issue with such a terrific, mutually-satisfying outcome. Except for one little detail...
It all depends where your business is.
If your business is in a state with workplace laws no more restrictive than the Federal code, you’d be in the clear. The US Fair Labor Standards Act allows employers to make deductions for damages to employer property if such deductions do not bring the employee’s pay for time worked below the minimum wage in any given workweek.
But if you are a Massachusetts business, your nifty little arrangement just broke the law! ...in this case, Section 148 of the Massachusetts Wage Act. A recent case before the Massachusetts Supreme Judicial Court virtually mirrored our example ...except, that company had worked similar arrangements with 27 John Joneses, and had deducted $21,487.96 from their wages over a 2-year period. The Court required the company to make full restitution to those employees, and in addition assessed a civil penalty of $9,140. And then they took the opportunity to clarify the law, as follows:
“An arrangement where (the company) serves as the sole arbiter, making unilateral assessment of liability as well as amount of damages with no role for an independent decision maker, much less a court, and apparently, not even an opportunity for an employee to challenge the result within the company, does not amount to ‘a clear and established debt owed to the employer by the employee.’”
And of course, the fact that the employee agreed to the deduction has no weight, since the validity and amount of the supposed debt was never properly established.
A couple of morals here...
- You need to be up on all the laws (national and state) affecting treatment of employees, know where to find these laws, have a payroll service to help you with these matters ...and/or you need backup from a good workplace attorney.
- Do not assume that because a planned action would fly with common reason or even Federal laws, it will be equally acceptable under your state’s code.
For more on the Mass case referenced above, you might look at Constangy’s Client Bulletin #434. For more on what companies should do to stay clean on this issue, see the post by David Casey and Vanessa Hackett in The Littler blog.