The pitfalls of deducting expenses caused by lost or broken equipment from employee pay

Published on


We regularly receive inquiries from dealership clients as to whether they can deduct from an employee’s pay the expense caused by the employee’s loss or damage to Company equipment. This question often comes up in relation to electronic devices issued to employees by the dealership, (such as phones and other mobile devices), as well as vehicles and other equipment that employees use to perform their jobs. If the employer believes that the employee was careless or negligent in causing the damage or loss of the equipment, it may be tempting for the employer to simply deduct the expense or loss from the employee’s paycheck. But doing so is risky!!

Generally an employer may only deduct from an employee’s paycheck deductions specifically allowed by law, such as taxes or garnishments, or for benefits deductions that the employee authorized in advance. And generally, the employer must cover the cost for losses and other expenses arising out of the employee’s performance of the job. The applicable Wage Order sets forth an exception to this general rule and suggests that such a deduction may be proper where the employer can show that the loss or expense is caused by a dishonest or willful act, or through the employee’s gross negligence. But this is usually difficult for an employer to prove and must be thoroughly investigated before acted upon. Moreover, the courts have not been asked to determine whether this Wage Order exception is enforceable. Even if the employee agrees in writing to a deduction from their pay for such a loss or expense, such an agreement would be unenforceable unless an exception applied under the law. So employers should be very careful before making any such deductions and consult with counsel first.

In Coffee Break episode 11, Chris and Jennifer review the limitations on employers who want to deduct the cost of broken equipment from their employee's paychecks.