HR Management & Compliance

Employee Theft: Do We Have to Pay a New Employee Who Stole from Us?

We recently had a new employee—on his second day of work—steal one of our company checks, use the signature stamp, and attempt to cash it for $7,000.00. The clerk at the check-cashing store suspected something and called us. We contacted the police and filed a report requesting the employee’s arrest. Our question is, do we still have to pay him for the two days of work that he performed? If he had been successful in cashing the check, what would our options have been? — Thomas, HR Manager in Tulare

The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

Generally, California law requires employers to pay earned wages promptly to employees and does not allow employers to deduct from an employee’s wages to compensate for cash shortages or other similar losses. This is because such losses are assumed to be an ordinary cost of doing business and an employee may not be made an insurer of the employer.

The state Wage Orders contain an exception to that general rule, however, if an employer can prove that a loss was caused by the dishonest or willful act of the employee or the employee’s gross negligence.

In the situation described in your question, the employee certainly acted willfully and dishonestly but was prevented from cashing the $7,000.00 check. Thus, despite the employee’s theft, the employer suffered no actual cash shortage or money loss, and although it seems anomalous, the exception allowing a deduction from wages will not apply. The employer owes the employee wages for the two days of work.

If the employee had cashed the check successfully and actually stolen the money, the Wage Orders would have allowed the employer to seek reimbursement from the employee or to recover the amount lost with a wage deduction. But an employer should tread carefully in this situation, as the employer would bear the burden of proving the misappropriation, dishonesty, or gross negligence of which it is accusing the employee.

The state agency charged with enforcing the state’s wage and hour laws, the Department of Labor Standards Enforcement, has consistently taken a narrow view as to when it might be appropriate to deduct from wages. An employer’s mere assumption that a loss is caused by employee dishonesty, willfulness, or gross negligence is not likely enough to justify a deduction. An employer found to have wrongfully deducted an amount from an employee’s wages can be liable to the employee for wages and waiting time penalties–and an employer that has wrongfully accused the employee of stealing could be liable in a defamation action as well. If the employer can prove the dishonesty or willful act with hard facts and evidence, a wage deduction will stand a far better chance of being found appropriate.

Bear in mind, however, that even if a wage deduction is authorized under state law, federal law can still prohibit the deduction. An employer is forbidden under federal law from deducting an amount that would reduce the employee’s pay to below minimum wage unless an employee actually has been convicted of theft or misappropriation of the employer’s funds.

Given the heavy burden on the employer to establish an employee’s wrongdoing, and the very strict standards imposed by both federal and state law, employers would be well advised to contact their employment attorney before making a wage deduction for a cash shortage or other loss.

Sandra Rappaport is a partner at the San Francisco office of the law firm Hanson, Bridgett, Marcus, Vlahos & Rudy. Trent Latta is a summer associate at the same firm.