Employers Generally Cannot Withhold Payment From An Employee’s Paycheck.
One of the questions that our employment lawyers receive most often from our employment law clients is whether an employer is permitted to deduct from an employee’s check any amount that the employee owes the employer. As a general matter, the employer has very limited rights to take any money out of its employee’s pay check. First, section 221 of the California Labor Code provides that “[i]t shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.” The exceptions to this rule are set forth in section 224 which provides as follows:
The provisions of Sections 221, 222 and 223 shall in no way make it unlawful for an employer to withhold or divert any portion of an employee’s wages when the employer is required or empowered so to do by state or federal law or when a deduction is expressly authorized in writing by the employee to cover insurance premiums, hospital or medical dues, or other deductions not amounting to a rebate or deduction from the standard wage arrived at by collective bargaining or pursuant to wage agreement or statute, or when a deduction to cover health and welfare or pension plan contributions is expressly authorized by a collective bargaining or wage agreement.
California’s Department of Industrial Relations summarizes these statutes as follows:
“An employer can lawfully withhold amounts from an employee’s wages only:
- when required or empowered to do so by state or federal law, or
- when a deduction is expressly authorized in writing by the employee to cover insurance premiums, benefit plan contributions or other deductions not amounting to a rebate on the employee’s wages, or
- when a deduction to cover health, welfare, or pension contributions is expressly authorized by a wage or collective bargaining agreement.”
In addition, there have been several court decisions that significantly restrict an employer’s ability to take an offset against an employee’s wages. See, e.g. Barnhill v. Sanders, 125 Cal. App. 3d 1 (1981) (Balloon payment on separation of employment to repay employee’s debt to employer is an unlawful deduction even where the employee authorized such payment in writing); CSEA v. State of California, 198 Cal. App. 3d 374 (1988) (Unlawful to deduct from current payroll for past salary advances that were in error); Hudgins v. Nieman Marcus, 34 Cal.App.4th 1109 (1995) (Deductions for unidentified returns from commission sales unlawful).
However, an employer may legally advance commissions to its employees prior to the completion of all conditions for payment and, by agreement, charge back any excess advanced commissions against any future advance, should the conditions not be satisfied. Koehl v. Verio, Inc., 142 Cal. App. 4th 1313 (2006) (an employer may legally advance commissions to its employees prior to the completion of all conditions for payment and, by agreement, charge back any excess advance over commissions earned against any future advance should the conditions not be satisfied). This is because while certain contractual terms must be met before an employee is entitled to a commissions (Steinhebel v. Los Angeles Times Communications, 126 Cal. App. 4th 696 (2005)), salaries are not conditional, and are earned immediately.