Benefits and Compensation, HR Management & Compliance

More Money, More Problems (When You Terminate an Employee)

One of the most common questions we receive is what an employer can do when an employee is terminated and owes the company money. In response, our clients hear one of the most common phrases in this area of the law—no good deed goes unpunished. Below are some guiding principles regarding employer benefits and employee termination.termination

What Are We Talking About?

There are many ways employers attempt to support employees or smooth rough spots in their lives. Some of the most common are employer-subsidized purchases of company-branded clothing, work shoes, and electronic equipment, and loans of work vehicles.

Employers also frequently grant advance leave to their employees. Many leave policies provide for accrual of leave over the course of the calendar year, but it’s becoming more common to permit employees to take leave before they have accrued it, especially when they or their immediate family members fall ill early in the calendar year.

While all of these actions are inspired by the best of intentions, they often leave the employer in a difficult situation when an employee abruptly resigns with little or no notice.

What’s the Issue?

Under the Delaware Wage Payment and Collection Act (WPCA), for example, employers are prohibited from making deductions from employee paychecks, except in the following circumstances:

  • They are required or empowered to do so by state or federal law;
  • The deductions are for medical, surgical, or hospital care or service—without financial benefit—and are openly, clearly, and in due course recorded in their books; and
  • They have an authorization signed by the employee.

All of the employer benefits we’re talking about here fall into the third category, meaning that an employer must obtain a written, signed authorization from the employee before making any deductions from the last paycheck.

How Do We Do It?

Unfortunately, by the time an employee has resigned, it’s almost always too late to deal with his debts. He’s almost never going to be willing to sign away the value of his last paycheck on the way out the door. In these circumstances, the only real option is to file a lawsuit in court. Based on the example above, you can frequently do this in Delaware Justice of the Peace Court, which specializes in small claims of this type.

The better option, whenever possible, is to deal with negative outcomes before they happen. At the time any benefit is conferred, you should consider having the employee sign an acknowledgement that includes authority for you to deduct the value of the benefit from his last paycheck.

Keep in mind that this doesn’t fully resolve the issue. Unless the employee is very highly compensated, you won’t be able to deduct the full value of a $4,000 laptop from his last paycheck. But you can recoup the value of advance leave, uniforms, and similar smaller-value items.

Bottom Line

Employment relationships are like marriages—it’s best to plan for their demise while everything is new and fresh. When everyone is happy and getting along, it’s much easier to agree to the exchange of money. So, when your company undertakes its next handbook review, consider all of the benefits you provide to your employees and whether it may be wise to obtain written authorizations to recover the value of those benefits from their last paychecks.

Perhaps it’s not worth it to the company. But perhaps it is. And you’ll be glad you planned for the situation if an employee quits with no notice and walks off with $800 worth of company equipment!

Lauren E.M. Russell—an attorney with Young Conaway Stargatt & Taylor, LLP in Wilmington, Delaware and editor of Delaware Employment Law Letter—can be reached at lrussell@ycst.com.