Massachusetts Highest Court Rules Employers May Not Deduct Property Damage Expenses from Employee Paychecks

On January 25, 2011, the Massachusetts Supreme Judicial Court (“SJC”) sided with the state’s Attorney General, ruling that the Wage Act prohibits employers from deducting wages from an employee’s paycheck to cover property damage caused by the employee. Camara v. Attorney General, SJC-10693.

Background
ABC Disposal Service Inc. (“ABC”), which employs truck drivers to collect and dispose of trash and recycling, had an employment policy to offset costs the company incurred when its drivers caused property damage. If the company found the employee “at fault” for causing property damage, the employee could either: (i) accept the company’s disciplinary action; or, (ii) agree to have the costs of the damage deducted from his weekly paycheck. Under the policy, the company’s safety manager, in consultation with management, determined whether the property damage resulted from a “preventable accident.” Employees could not appeal the safety manager’s decision with respect to liability (i.e. whether the accident was preventable) or the cost charged to the employee as a result of the damage.
In 2006, the Attorney General’s office received an anonymous complaint alleging that ABC was deducting from its drivers’ wages the costs of damage to company trucks or property. After investigating, the Attorney General found that the policy violated a key provision of the Massachusetts Wage Act, G.L. c. 149, s. 148, which requires prompt and full payment of wages due, and which also prohibits employers from entering into “special contracts” with employees to circumvent the Act’s requirements. ABC appealed the Attorney General’s finding, and in November 2010, argued to the Supreme Judicial court that the Wage Act entitled employers to "valid set-offs" for costs the company incurred as a result of the truck drivers’ negligence. (The term “valid set-off,” used in the Wage Act, is not defined).

The Ruling
The SJC disagreed, ruling that a company may “set-off” an employee’s debt only when the company shows “a clear and established debt owed to the employer by the employee.” Here, the Court ruled that ABC had not made such a showing because:
1. ABC served as the “sole arbiter” in determining liability and the amount of damage;
2. The company did not consider input from either an “independent decision maker” or a “court;” and,
3. the employee was not permitted to challenge the safety manager’s conclusion.
The SJC concluded that ABC’s policy of deducting employee wages to pay for property damage amounted to a “special contract” to circumvent the Wage Act requirement that employees be paid for the work they perform. The SJC reiterated earlier rulings that such “special contracts” are impermissible, even if ABC employees had voluntarily elected the set-off in lieu of accepting company discipline.

Take-Aways
The Camara opinion not only describes impermissible set-offs – it also cites to examples of what the Attorney General considers “valid set-offs”:
• an undisputed loan or wage advance from the employer to the employee;
• a theft of the employer’s property by the employee; and
• the value of the employer’s property, when the employer has obtained a judgment against the employee for the same.
The SJC emphasized that this list was not exhaustive, and that other valid set offs may exist, such as an agreement under a collective bargaining agreement, if it were shown that the parties voluntarily agreed to a process for determining both the existence and the amount of the debt owed by the employee to the employer.
Camara also reminds employers that they cannot resort to “special contracts” or “self-help” to recoup costs associated employee negligence – particularly because a successful plaintiff is entitled to triple damages, plus attorneys’ fees and costs.