‘You Break It, You Bought It’ Policy Can Buy Employers Lawsuits

September 24, 2013

Every year, local, state, and federal governments add more rules, regulations, and restrictions on employers. With high-profile politically charged laws like the Affordable Care Act (ACA) on everyone’s minds, it’s easy to lose track of employment laws from the last century. However, ignorance of those older laws can cost employers dearly. It’s time to dust off the law books and look at Wisconsin’s law governing wage deductions.

Wisconsin Law Limits Wage Deductions

In 1931, the Wisconsin Legislature enacted Wis. Stat. § 103.455. This Depression-era law was intended to protect employees from their employers unilaterally withholding wages for faulty workmanship. The law was amended in 1943 and expanded to include deductions relating to lost or stolen property.

Subject to three exceptions, the statute provides: “No employer may make any deductions from the wages due or earned by any employee, who is not an independent contractor, for defective or faulty workmanship, lost or stolen property or damage to property.” According to the Wisconsin Supreme Court, the law “is aimed at preventing employers from using coercive economic power to shift the burden of a work[-]related loss from the employer to the employee.”

There are three exceptions to the general prohibition on wage deductions. First, deductions can be made if the employee “authorizes the employer in writing to make that deduction.” That seems pretty easy. You can just require employees to authorize wage deductions as part of their conditions of employment, right? Not so fast.

The statute goes on to say that “any agreement entered into between an employer and employee that is contrary to this section shall be void.” The Wisconsin Supreme Court has held that “blanket authorizations” at the time of hiring don’t satisfy the exception. Rather, consent must be “given in writing after the loss has occurred and before the deduction is made.” Therefore, you cannot get around the statute by requiring employees to authorize a deduction before any loss or damage occurs, and you cannot condition their compensation on a written authorization.

The second exception in the statute occurs if an “employer and a representative designated by the employee determine that the defective or faulty workmanship, loss, theft or damage is due to the employee’s negligence, carelessness, or willful and intentional conduct.” This exception allows an employee to challenge your determination that a loss or theft was his fault. If you and the employee still disagree, you must submit the dispute to the Wisconsin Department of Industry, Labor and Human Relations (DILHR) before appealing to a court.

Similarly, the third exception allows a wage deduction in cases in which a court of competent jurisdiction has found that the loss or damage is due to the employee’s “negligence, carelessness, or willful and intentional conduct.”

Courts have generally frowned on employers that try to find “creative” ways to make wage deductions other than the three methods allowed by the statute. For instance, you cannot avoid the statute by splitting an employee’s compensation into “wages” and “commissions” and automatically making deductions to the “commission” portion of her compensation if there’s a loss, theft, or damaged product. Likewise, when an employee is guaranteed a minimum hourly rate but compensated on a piecework basis, you cannot make unilateral decisions about the quality of the piecework as it comes off the line and take wage deductions without following the statutory procedures.

Statute Applies Only to Wages Earned

Courts have given employers some leeway, however, and generally don’t allow employees to take advantage of the statute when they haven’t “earned” the wages that are being reduced. For instance, the Wisconsin Court of Appeals has held that an employee didn’t fall within the protections of the statute when she was terminated after she failed to notify her employer that because of a bookkeeping error, she was receiving wages for work she didn’t actually perform. The court of appeals explained that the purpose of the statute is to protect an employee’s earned wages. If the wages were never earned, the statute doesn’t apply.

Likewise, the Wisconsin Supreme Court has held that the statute didn’t apply when an employer and an employee had a disagreement over travel expenses and the employee was fired after refusing to agree to future wage deductions to cover the alleged improper expenses. The court ruled that the “statute does not reach every potential deduction by an employer from an employee’s wages” and the employer couldn’t be faulted for “self-help.”

Finally, the first sentence of the statute clarifies that it doesn’t apply to independent contractors.

Employers May Be Liable for Double Damages

Section 103.455 provides that an employer is liable for double damages in any civil action brought by an employee to recover withheld wages. The statute also incorporates the protections in Wisconsin’s Fair Employment Act (WFEA) and prohibits an employer from discharging or otherwise discriminating against an employee who attempts to enforce his rights under the wage statute or files a civil action alleging a violation of the wage statute. Thus, an employer that terminates an employee after he complains about a wage deduction may face a wrongful termination lawsuit and be liable for back wages and other penalties. Those damages may far exceed the original amount of the disputed deduction.

Bottom Line

Although § 103.455 has been on the books for close to a century, the law still has teeth and may be a trap for unwary employers. The law doesn’t prohibit you from holding employees responsible for damaged, lost, or stolen property; rather, it prohibits you from doing so without giving the employee a chance to contest the deduction.

To avoid running afoul of the statute, conduct a thorough investigation after a loss occurs before you make any wage deductions, document statements from other employees, and preserve any video surveillance showing the loss is the fault of a particular employee. Once the investigation is complete, present your findings to the employee and attempt to convince him to agree to a wage deduction in the face of evidence that the loss was his fault. If the employee refuses to sign a wage deduction authorization, then you must either negotiate with the employee’s representative or submit the matter to DILHR or a court.

A thorough and well-documented investigation provides employers with another option. Neither § 103.455 nor the WFEA prohibits you from disciplining or terminating an employee for dishonesty or failing to follow company protocol. Therefore, if you have evidence that a loss was caused by an employee’s failure to follow protocol or a violation of company policy, you may find it more attractive to impose appropriate progressive discipline (including a suspension without pay). Likewise, if an employee is dishonest about the reason for a loss, you may take corrective action.

This article was featured in the September 2013 issue of the Wisconsin Employment Law Letter, which is edited by Axley Brynelson Attorney Troy Thompson and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.

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