Builders and Contractors Exchange
Weekly Bulletin: 04 Jan 2006
Watch Out For Sticky Fingers
By: Heather M. Kofron
Virginia employers often inquire whether or not an employer has the right to withhold funds from an employee’s paycheck. This question often arises in the context of an employer’s attempt to recoup losses incurred by the employer due to the employee’s misconduct (theft, loss of revenue due to poor performance of employee) or for benefits provided (education and training to benefit the employee, materials, and uniforms) during the course of employment relationship.
A little known statute in Virginia provides the answer for employers. Va. Code § 40.1-29 prohibits an employer from deducting legitimate employment debts (except where required by law) unless the employer has first obtained the employee’s signed written consent to make such withholdings. An employee’s agreement to allow withholdings must be voluntary and not a condition of employment. Va. Code § 40.1-29 provides in part that upon termination of the employment relationship:
…An employee shall be paid all wages or salaries due him for work performed prior thereto; such payment shall be made on or before the date on which he would have been paid for such work had his employment not been terminated.
...No employer shall withhold any part of the wages or salaries of any employee except for payroll, wage or withholding taxes or in accordance with law, without the written and signed authorization of the employee.
….No employer shall require any employee, except executive personnel, to sign any contract or agreement which provides for the forfeiture of the employee’s wages for time worked as a condition of employment or the continuance thereof, except as otherwise provided by law….
At the heart of § 40.1-29 is the requirement that an employer must absorb some losses as part of the cost of operating a business. Thus, Va. Code § 40.1-29 requires an employer to pay an employee his or her final wages after termination; unless the employer has obtained the employee’s written and signed permission to make such withholdings. An employer who violates Va. Code § 40.1-29 “willfully and with intent to defraud” is guilty of a misdemeanor and may be subject to civil penalties and attorney’s fees.
While Virginia courts are more likely to view an employee’s agreement to allow withholding of funds to recoup costs of materials, education, training or repayment of personal loans as voluntary, Virginia courts may be less inclined to view an employee’s agreement to repay losses incurred as a result of the employee’s theft as truly voluntary if the employee agrees to repay those losses after the theft has occurred. However, nothing within § 40.1-29 prohibits an employer from taking disciplinary action, including termination, of an employee who engages in theft.
Employers should be mindful that under the Fair Labor Standards Act (“FLSA”), an employer may not make deductions which cause the employee’s wages to fall below the minimum wage level. Thus, even if the employer obtains an employee’s consent to make withholdings; an employer could never withhold an employee’s entire pay. Further, recent amendments to the FLSA provide specific grounds for an employer to dock an employee’s pay without compromising an employee’s exempt status.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.