For New York Employers, “You Break It, You Pay For It” Policies May Create Problems

By: Joan B. Lopez

Employers expect their employees to execute their job duties properly. However, the reality is that accidents happen or, worse, employers end up hiring employees who consistently exhibit substandard performance. A worker’s poor job performance can sometimes cause a company to incur costs to fix mistakes. While larger corporations may be inured to such “cost of doing business” expenses, smaller employers may be less tolerant. For example, if a delivery driver regularly incurs traffic or parking violations, those expenses can add up and may tempt the employer to try to make the driver bear those costs. This post addresses legal issues under New York law when these concerns arise.

Can an employer in New York State dock an employee’s pay or require the employee to reimburse the company for the expenses incurred? 

No. Under New York Labor Law (NYLL) § 193(2), employers are prohibited from charging against wages or requiring an employee “to make any payment by separate transaction,” unless such charge or payment is permitted as a deduction from wages under the NYLL. The permitted deductions are:

a. those made in accordance with the provisions of any law or any rule or regulation issued by any governmental agency; or

b. those that are expressly authorized in writing by the employee and are for the benefit of the employee, provided that such authorization is kept on file on the employer's premises.

The deductions authorized by law are limited to payments for insurance premiums, pension or health and welfare benefits, contributions to charitable organizations, payments for United States bonds, payments for dues or assessments to a labor organization, and similar payments for the benefit of the employee. 

Conspicuously absent from this list is any monetary penalty imposed by an employer for an employee’s substandard performance, presumably because such penalty is not for the employee’s benefit. In fact, under the New York Department of Labor’s regulations, specifically N.Y. Comp. Codes R. & Regs. tit. 12 § 195-4.5, “prohibited deductions” include “repayment of employer losses, including for spoilage and breakage, cash shortages, and fines or penalties incurred by the employer through the conduct of the employee” and “fines or penalties for tardiness, excessive leave, misconduct, quitting without notice”.

How about suing an employee? Can a New York employer sue an employee for reimbursement of expenses incurred due to the employee’s negligence or substandard performance? 

The answer is still no. Courts in New York have held that NYLL § 193 precludes employers from pursuing damages based on an employee's negligence or poor job performance, because permitting such a claim would allow the no-deduction rule to be circumvented. Note, however, that the statutory prohibition on lawsuits against an employee for negligent behavior at work is not applicable to the “faithless servant doctrine,” which can cover misconduct ranging from fraudulently overreporting of one’s hours worked to intentionally charging personal expenses to a company issued credit card. 

Employers would be well advised to reconsider monetary penalties against employees for sub-par performance and instead adopt and enforce clear, comprehensive written policies that govern employee conduct.

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