By Aubree Manley

So, you two are splitting up, going separate ways. I am not talking about your significant other and you—your employee and you decided to terminate their employment.

If the employer issued the employee company equipment, such as a uniform, cell phone, or laptop, asking for it back at or after the time of termination can be tricky and sometimes futile. This blog will walk you through the best way to ensure the company equipment’s value is returned in North Carolina, even if the equipment itself is not.

North Carolina DOL – Deductions of Wages

North Carolina has a law that touches on this issue directly, even if a working relationship goes sour. Under this law, an employer may withhold a portion of an employee’s wages to recover the value of unreturned company equipment from an employee ONLY under certain very specific circumstances. The employer has the right to deduct the value, to the extent the wages cover it, of the equipment from the employee’s last paycheck if the employer follows the established rules.

In order to use this law and withhold wages from the employee’s paycheck, whether to recover the value of unreturned equipment or for other reasons, the amount to be deducted should be set forth in a written notice in advance, like an employment agreement or acknowledgment, that includes three major requirements:

1. The employee’s consent in the form of a signature on or before the withholding of the wages in question;
2. The reason for the withholding; and
3. The dollar amount of wages to be withheld.

Let’s walk through an example. Let’s say Genco Pura Olive Oil hired Robert De Niro on January 1, 1922. Genco issued Robert a work cell phone valued at $500 during his first month of employment at the company. The same day Robert is given the cell phone, he signs and dates a payroll deduction authorization that reads:

I, Robert De Niro, have received a cell phone valued at $500 to use for work with Genco Pura Olive Oil. I understand that if I fail to return the cell phone upon my separation of employment, a $500 deduction (or a then-current value established by the company in its reasonable discretion) will be deducted from my final paycheck.

Signature: Robert De Niro                                             Date: January 15, 1922

This wage deduction is allowed under North Carolina law because it meets the three requirements above:

(1) the employee, Robert, consented to the withholding and signed the agreement before any withholding of wages;

(2) the agreement stated the reason for withholding wages would be for the cell phone’s value, and

(3) the amount of withholding from the paycheck was listed at $500.

The withholding of the $500 is valid regardless of if Robert quits after one month or years later, as long as he does not return the cell phone. Moreover, the employer is not required to provide additional notice about withholding the $500, even if the wage withholding occurs much later. Lastly, Robert cannot withdraw his authorization because the withholding is for the company’s benefit. That said, certain consents to deductions or withholdings may be rescinded by the employee if the deduction is for the benefit of the employee, so employers do need to tread carefully.

Please also note that any such withholding or diversion of wages owed for the employer’s benefit must comply with the following requirements:

(1) In non-overtime workweeks, an employer may reduce wages to the minimum

wage level;

(2) In overtime workweeks, employers may reduce wages to the minimum wage

level for non-overtime hours; and

(3) No reductions may be made to overtime wages owed.

If an employee will not consent to a withholding that the employee believes is proper, unfortunately, the employer cannot make the desired deduction unless the employer potentially pursues a claim for stolen property as described below.

What if you suspect the employee “stole” cash or property?

If you believe an employee has stolen cash or equipment, there are other options available in addition to the option above. An employer may ONLY withhold or divert a portion of an employee’s wages for cash shortages, inventory shortages, or loss or damage to an employer’s property ONLY after obtaining the written consent above and giving the employee written notice of the deduction seven days in advance if the employee is being retained.  If the employee is being terminated, then the seven-day notice is not required.

If the employer cannot obtain a written consent to the deduction from the employee regarding potentially stolen property or cash shortages, the only other option available to the employer for making a deduction from wages is if a criminal process has been issued against an employee, an employee has been indicted, or an employee has been arrested for a charge related to the suspected theft.  If those actions have occurred, then an employer may withhold or divert a portion of the employee’s wages in order to recoup the amount of the cash shortage, inventory shortage, or damage to the employer’s property, without the written consent required above. If the employee is not found guilty, then the amount deducted must be reimbursed to the employee by the employer.

Protecting Your Assets

In conclusion, always consider having an employee sign an agreement early in the working relationship to ensure your company protects its equipment value. As we’ve noted in a previous blog post, How to Protect Your Business After an Employee Leaves, employers must protect their assets, including business information and equipment. For more information, contact the employment lawyers at Venn Law Group to learn more about how to safeguard your business.

Aubree Manley is an associate at Venn Law Group. Before joining the firm, Aubree attended the University of South Carolina School of Law, where she was the school’s American Bar Association representative, a Student Bar Association representative who led the Peer Mentor Program and Social Committee, and a member of Women in Law.