An employer cannot deduct from an employee's wages any amount to compensate the employer for damages caused by the employee's negligence.
Employee Debts Cannot Be Deducted
An employer cannot deduct from the employee's check a debt owed by the employee to the employer. This deduction cannot be made even if the paycheck is a final check, and even if there is a written agreement between the employee and employer to pay the debt in this manner. Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1.
Damages Due to Negligence
An employer cannot deduct from the employee's check amounts for damages caused by the employee's negligence.
Damages Due to Gross Negligence, Willful Misconduct, and Dishonesty
The California Division of Labor Standards Enforcement has previously taken the position that deductions can occur for gross negligence, willful misconduct, and dishonesty. That position, though, is in doubt as on February 24, 2003, the DLSE admitted in an opinion letter that the authority for an employer to deduct for damages in these circumstances is doubtful.
However, in Kerr's Catering Service v. Dept. of Industrial Relations (1962) 57 Cal.2d 319, the court upheld section 8 of Order No. 5-57 of the Industrial Welfare Commission (8 Cal. Admin. Code, ยง 11380), which provided: "No employer shall make any deduction from the wage of an employee for any cash shortage, breakage, or loss of equipment, notwithstanding any contract or arrangement to the contrary, unless it can be shown that the shortage, breakage, or loss is caused by a dishonest or wilful act, or by the culpable negligence of the employee."Damages Due to Negligence
If an employer believes that the employee owes them money, the best practice may be to file a small claims or other court proceeding to recover the amount, instead of deducting the amount from an employee's pay. If the employer is incorrect about the amount owed, or incorrect that there was gross negligence, willful misconduct, or dishonesty, the employer may owe the employee significant penalties for failing to pay all wages in a timely manner.