Articles Posted in Wages and Compensation

An employer may not deduct from employee’s wages moneys lost due to ordinary losses, such as cash shortages, breakage or loss of equipment, etc.) in the absence of showing of dishonesty, willful acts or gross negligence. As the court noted, the law prevents the employer from using wages to shirt business losses to employees, or to make employees insurers of such losses. (Prachasaisoradej v. Ralphs Grocery Co., Inc.)

An employer who resorts to “self-help” in deducting wages of his employees for ordinary losses does so at his own risk. If the employee is found not to have engaged in a dishonest, willful or grossly negligent act, the employee will be entitled to recover the amount of wages withheld, plus any waiting time penalties due.

The above rule applies seems to apply to non-exempt employees only. There is no prohibition on deductions from the earnings of exempt (management level) employees, many of whom work on incentive plans entitling them to a share of profits. Their incentive plan computation of profits properly includes a full range of revenue and expense items, including cash and inventory shortages.

In the ever increasing occurrence of mergers, dissolutions and restructuring of businesses it is not uncommon for an employee to face a situation where he/she is owed wages for work performed, but these wages are unpaid because the entity that purchases the original employer is not willing to pay the wages due or is unable to pay compensation because of dissolution, bankruptcy and/or claims of creditors who argue that they have priority in repayment over other claimants.

Under the circumstances where the assets of a company are sold or transferred, employees may have a priority lien over other creditors for the proceeds of the sale or transfer of assets of a company under California Civil Code section 1205. Under that section all wages earned during the 90 days prior to corporate dissolution or other “not ordinary” business event have priority over virtually all other claims and must be paid first from the proceeds of the sale and transfer. One court noted that wage earners will prevail over other statutory lien holders, including secured creditors such as mortgage lien holders (Myzer v. Emark Corporation (1996)).

In 2007, the California Supreme Court addressed the issue of reimbursement of mileage expenses incurred by traveling employees under California Labor Code 2802 in the case of Gattuso v. Harte-Hanks Shoppers, Inc. The court held that when calculating costs that an employee incurred using his or her automobile, for purpose of statute requiring employers to indemnify employees for costs necessarily incurred in discharge of their duties, use of mileage is permissible, even though it is less accurate than calculating actual expenses incurred. But if employee can show that reimbursement by mileage is less than actual expenses, the employer must make up the difference.

In calculating reimbursement amount due to employee under the labor code section 2802, the employer may consider not only actual expenses that employee incurred, but also whether each of those expenses was “necessary,” which in turn depends on the reasonableness of employee’s choices.

Thus, the employer will probably not be obligated to reimburse employee for lavish or extravagant expenses such as five-star hotels, extravagant dinners, etc.

Under California Labor Code section 221, an employer may not take back any wages from an employee after they are earned. The statute provides: “It shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.” The labor code section 200 defines wages broadly to include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation. The statute illustrated California’s strong public policy favoring the protection of employee’s wages.

Some employers and especially retailers have the “chargeback” policy under which the employees’ incentive that is to be paid, is charged back if the consumer of the products/services returns the purchased product to the store. It is important to note that such a policy is only valid and legal if agreed upon by an employee in writing. If the worker does not expressly agree to the chargeback policy in writing, it will likely be found to be unlawful.