Published on: March 13, 2013

It can be an unpleasant consequence of doing business: your employee damages property or impermissibly consumes your property and the bill comes to you, the employer.  What can you do about it?  For those condominium associations and management companies who are considering a policy of a wage set-off for their employees who damage property during the scope of their employment or impermissibly consume employer property, recent developments in Massachusetts employment and wage laws should give you pause.

The Massachusetts Wage Act, G.L. c. 149 § 148, provides that employers shall pay their employees’ earned wages on a weekly or bi-weekly basis, and that the employer cannot by “special contract” exempt itself from this requirement.  In April, 2011, a new law affecting the garnishment of wages went into effect.  In essence, the Massachusetts Supreme Judicial Court (“SJC”) held for the first time that valid set-off of wages under the Wage Act refer to circumstances where there exists a clear and established debt owed to the employer by the employee.  See Somers v. Converged Access, Inc. 454 Mass. 582, 593 (2009).  The key terms are “clear” and “established” debt.

In Camara v. Attorney General, 458 Mass. 756 (2011) the SJC scrutinized a disposal company’s policy that gave its employees who had damaged property during the scope of their employment an option of either accepting disciplinary action or entering into an agreement to set off the damages against their wages.  The purpose of the policy made sense:  the disposal company wanted to promote safety and decrease careless driving.  And the policy worked:  after three years, the company’s costs attributable to damage caused by its employees were reduced by 78%.  Moreover, of those employees who agreed to permit a wage setoff, none had their wages fall below minimum wage levels.

However, the SJC found that the above-referenced policy was unlawful and, specifically, was prohibited by the Wage Act.  While the Wage Act permits a “valid set-off” against employee wages, the SJC in Camara found that the employer went too far with its wage set-off policy.  The SJC reasoned that because the policy put the employer in the position of the “sole arbiter” of its employees’ liability and amount of damages owed without any avenue for the employees to appeal, this policy was a prohibited “special contract” under the Wage Act.  Specifically, the SJC held that:

An arrangement whereby [the employer] serves as the sole arbiter, making a unilateral assessment of liability as well as amount of damages with no role for an independent decision maker, much less a court, and, apparently, not even an opportunity for an employee to challenge the result within the company, does not amount to “a clear and established debt owed to the employer by the employee.”  See [Somers 454 Mass. 582], 593… [(2009)].  The option afforded [the employees in this case] to choose “voluntarily” to accept either wage deductions or discipline offers them only unpalatable choices. This procedure does not come close to providing an employee the protections granted a defendant in a formal negligence action.   458 Mass at 763.

What does this mean for condominium associations and management companies who are considering a similar policy of wage set-offs for their employees who either impermissibly consume the employers’ property – e.g., using employer credit cards or petty cash for personal use, taking employer supplies for personal use, etc. – and/or damage property during the scope of their employment?  It means that you must tailor this policy to meet the parameters of the SJC’s finding in Camara, or seek an alternative solution.  Thus, an employer faced with a wage set-off situation should ask itself the following three questions:

1.      Has it been clearly established that the employee owes a debt to the employer?

2.      Has the amount of the debt been clearly established; and

3.      Has the determination as to the existence and amount of the debt been fairly established?

In connection with asking these questions, what follows are several options for your consideration that take into account the Court’s ruling in Camara.

First, you may consider a similar wage set-off policy as the disposal company had in Camara, with the exception of building in provisions for an independent review process – e.g., by employing an independent arbitrator or mediator – to determine liability and, if the employee is found liable for the damage, the amount of damages to be recouped from the employee.  This policy should also provide a means for the employee to appeal any decision, either through arbitration/mediation or through the courts.  In some cases, the costs of this process will outweigh the benefit.  So you should use your judgment as to when to go down this road.

Second, you can pay your employee’s wages in full, and consider pursuing litigation to recoup the debt, and then/or negotiate a settlement agreement with the employee to resolve the damages claim expeditiously.

Third, if the employee has engaged in egregious conduct you may consider paying the employee’s wages in full, terminating the employee, and pursuing litigation to recoup your costs for that employee’s property damage.

In conclusion, the Camara decision is something to be aware of when you are considering implementing any policy to seek reimbursement from your employees for damage employees have caused during the course of their employment or for employees’ impermissible personal consumption of employer property.  While wage set-off policies are arguably still available to the employer, these policies must go farther than the policy struck down in Camara by having an independent reviewer determine liability and the measure of damages, and by also providing a means for the employee to appeal any adverse decision.

As always, employers should seek the advice of counsel to ensure that existing policies are legally compliant.