It happens to everybody, you’re working away and you break something, or you come up short on your register, or, most commonly, you lose a tool or something of value that belongs to your employer.  The boss then tells you that he’s sorry but the cost of that damage or loss is going to come out of your paycheck. Can he do that?

In most cases the answer is “NO”.  Case law and orders of the Industrial Welfare Commission (IWC) make it clear that : Absent a showing of dishonesty, willful acts or gross negligence, an employer may not deduct for ordinary losses caused by an employee (e.g., for cash shortages, breakage or loss of equipment Kerr’s Catering Service v. Department of Industrial Relations (1962) 57 C2d 319. 326–330, Truck driver’s sales commissions not subject to reduction for cash shortages; see also Prachasaisoradej v. Ralphs Grocery Co., Inc.,(2007) 42 Cal. 4th 217. 229 “The law precludes the employer from using wages to shift business losses to employees, or to make employees the insurers of such losses … ” Prachasaisoradej . supra, 42 C4th at 238,  So if you lose that nice new power saw, crash the company truck, or drop a rack of dishes its on the employer’s dime, not yours.

The rationale for this principle is that losses due to an employee’s simple negligence, such as cash shortages and breakage or loss of equipment, “are inevitable in almost any business operation” and must be borne “as expenses of management.” The employer is better able to absorb the loss and can recoup the loss by passing the cost on to the customer or by lowering the wages of all employees. Kerr’s Catering Service, supra,, 57 C2d at 329.  Moreover, employees rely on the wage rate paid by the employer and “To subject that compensation to unanticipated or undetermined deductions is to impose a special hardship on the employee.” Id.

The term “deduction” means any action that deprives you of the full compensation promised: “The employer takes a ‘deduction’ … when it subtracts, withholds, sets off, or requires the employee to return, a portion of the compensation offered, promised, or paid … so that the employee, having performed the labor, actually receives or retains less than the paid, offered, or promised compensation, and effectively makes a forced ‘contribution’ of the difference.” [Prachasaisoradej, supra, at 227]

 If the employer does engage in self help and deduct wages for the loss, you are entitled to reimbursement and waiting time penalties as well as other damages depending on the circumstance.

These protections apply to rank and file workers.  Technically, they do not apply to management level employees.  At the management level, an employee may indirectly be responsible for loss.  For example, a manager who is paid partly on a commission based on store profits may have his commission effectively lowered when loss and breakage are offset against profits.  In such a circumstance the courts have found the wage reduction to be lawful. Ralphs Grocery Co. v. Sup.Ct. (Swanson) (2003) 112 CA4th 1090, 1106,