Sections Supplements

Voluntary Wage Deductions

Make Sure They Fall Within the Parameters of State Regulations

Benjamin Bristol

Benjamin Bristol

An employee damages property while at work. The employer offers to waive disciplinary action for the mishap if employee pays for damage through wage deductions. Sounds reasonable, right?
As reasonable as this may seem, the Mass. Supreme Judicial Court (SJC) recently declared that one such policy, which had been used by ABC Disposal Inc. (ABC), violated the Massachusetts Wage Act.
ABC is a solid-waste and recycling trucking business whose drivers had, on occasion, damaged ABC’s trucks as well as property of third parties. To promote safety and discourage careless driving, ABC implemented a policy where it would evaluate each instance of damage to see if it could have been prevented. If ABC found that the damage was preventable, it would then offer the driver two choices: pay for the damage or be disciplined. The drivers who chose to pay for the damages would authorize the employer, in writing, to deduct payments from their wages. The average amount that was deducted was $15 to $30 per week. ABC’s policy successfully reduced its property-damage costs. In fact, ABC’s costs relating to damage done to company vehicles and third-party property dropped by 78%.
Apparently, at least one ABC employee did not like this arrangement, because the Mass. Attorney General’s Office received an anonymous complaint concerning the policy in 2006. In response, the attorney general launched an investigation and ultimately concluded that ABC’s policy violated the Massachusetts Wage Act by creating ‘special contracts.’
A special contract is an arrangement where an employee agrees to accept less than his or her total amount of earned wages, and thereby circumvents the Wage Act’s purpose: to protect employees’ right to their earned wages. After the attorney general arrived at this conclusion, a civil citation was issued ordering ABC to pay $21,487.96 in restitution and a penalty of $9,410.
ABC filed a lawsuit in state court to annul the attorney general’s citation and uphold the validity of its policy. ABC argued that it was not engaging in special contracts, but was instead making deductions that were ‘valid setoffs,’ which are permitted by the Wage Act. The attorney general disagreed, and argued that the valid-setoff provision of the Wage Act has a very limited scope and did not apply to ABC’s policy.
All valid setoffs under the Wage Act, according to the attorney general, “implicitly involve some form of due process through the court system, or occur at an employee’s direction and in the employee’s interests.” The trial court sided with ABC, and the attorney general appealed to the SJC.
The SJC gave deference to the attorney general’s interpretation of the Wage Act and found that ABC’s policy did not entail valid setoffs. The SJC explained that valid setoffs exist only where there is a “clear and established debt” owed by the employee to the employer. The SJC stated that ABC’s policy did not create clear and established debts due to the one-sided method of assessing whether the employee was responsible for the damages and how much the damages would cost. Instead of a valid setoff, the SJC viewed ABC’s policy as creating special contracts where the employee had to choose from two “unpalatable” options: wage deductions or disciplinary action.
The SJC agreed with the attorney general that this policy contravened the purpose of the Wage Act. As a result, the SJC declared ABC’s policy unlawful and required ABC to pay the restitution and penalty costs. Although the restitution and penalty that ABC was ordered to pay may appear costly, employers should note that this amount can be much higher, especially if an employee files a lawsuit on their own.
Indeed, not only does the Wage Act give the attorney general the authority to penalize employers who violate its terms, the Wage Act also allows employees to file lawsuits on their own and on behalf of others. If the employee prevails, the court will take the amount the employer owes for lost wages and benefits — and triple it. Clearly, these numbers can begin to add up quickly, particularly if multiple employees join in and institute a class action.
Now that we know how the SJC and attorney general view voluntary-deduction agreements like the one discussed above, employers must remain cautious when contemplating whether they can take such deductions, even when the employee assents.
The good news is that the SJC’s ruling does not prohibit wage deductions altogether; employers just need to make sure their deductions fall within one of the Wage Act’s narrow exceptions, such as a valid setoff. However, even if you believe that your policy may fit within one of these narrow exceptions, the safer course is to consult with counsel to see if your policy qualifies. Such a preventative measure is well-worth the time, especially if an employee questions your policy and contacts the attorney general to evaluate its validity.

Benjamin Bristol, Esq. specializes exclusively in management-side labor and employment law at Royal LLP, a woman-owned, boutique, management-side labor and employment law firm; (413) 586-2288; [email protected]

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