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New Law Allows Employers to Recover Costs of Unreturned Property by Canon B. Hill
Have you ever been frustrated by a former employee who refuses to return your business property? From cell phones to uniforms, employers often struggle in their attempts to recover property that an employee keeps when they are discharged or resign. Too many times, employers throw up their hands and simply replace the property, chalking it up to “the cost of doing business.”
The West Virginia Legislature has attempted to make it easier for employers to get their property back – or at least recoup the cost – by amending West Virginia’s Wage Payment and Collection Act. Signed by the governor on February 23, 2018, and effective May 15, 2018, House Bill 2546 now allows employers to recoup replacement costs associated with unreturned property in certain situations.
Under the new legislation, an employer is permitted to deduct the replacement cost of unreturned property under the following circumstances: (1) the property was provided while performing the employer’s business; (2) the value of the employer-provided property is more than $100; and (3) the employee signed a written agreement at the time the employer-owned property was provided to him or her. At a minimum, this agreement, which requires the employee’s signature, must identify the employer-owned property and replacement cost, clearly notify the employee the property must be returned upon separation, and clearly inform the employee that if he or she fails to return the specified item, the replacement cost of such item may be recovered from the employee’s final wages. See W. Va. Code § 21-5-4(f)(1)(C).
The new code sets forth specific notice provisions and other protections for the employee that must be followed before the money claimed reverts to the employer.
While the new legislation is very helpful, in light of applicable federal laws which cannot be overlooked, employers need to carefully consider their options when holding employee’s accountable for the cost of unreturned employer-owned property. The Fair Labor Standards Act (FLSA), for instance, has provisions addressing an employer’s ability to recover the cost of lost or damaged equipment from both exempt and non-exempt employees, and the U. S. Department of Labor (U.S. DOL) has provided guidance on this issue as well.
There are provisions in the federal law that prohibit an employer from requiring certain employees to pay for an expense of the employer’s business if doing so would reduce the employee’s pay below any statutorily-required minimum wage or overtime premium that is due to the employee. U.S. DOL March 10, 2006 Wage and Hour Opinion Letter; See also 29 C.F.R. § 531.35. Stated differently, “tools of the trade and materials or equipment incidental to carrying on the employer’s business are considered business expenses of the employer that may not be transferred to employees if doing so cuts into their statutory minimum wage or overtime premium pay entitlements.” U.S. DOL March 10, 2006 Wage and Hour Opinion Letter; See also 29 C.F.R. §§ 531.3(d), 531.32(c).
In its March 10, 2006 Opinion Letter, the U.S. DOL addressed deductions from exempt employees for lost or damaged items and reasoned that deductions from exempt employees’ paychecks are not permissible regardless of whether the employee signed a written agreement authorizing such a deduction. Specifically, the U.S. DOL stated the “deductions from the salaries of otherwise exempt employees for the loss, damage, or destruction of the employer’s funds or property due to the employees’ failure to properly carry out their managerial duties (including where signed “agreements” were used) would defeat the exemption because the salaries would not be ‘guaranteed’ or paid ‘free and clear’ as required by the regulations. Such impermissible deductions violate the regulation's prohibition against reductions in compensation due to the quality of the work performed by the employee. Consequently, any deductions made to reimburse the employer for lost or damaged equipment would violate the salary basis rule.” Id.
In light of the FLSA provisions and as with the passage of any new law, you should seek legal counsel to analyze the applicability of the new law to your specific situation. At Bowles Rice, we are here to help when you need assistance.