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Wage & Hour – Development & Highlights To Highlight Recent and Noteworthy Developments In Cases And Regulations on Wage and Hour Laws That Affect Large and Small Businesses

The Danger In Docking The Pay of Exempt Employees

Posted in Class Actions

Last week, the Southern District of Texas denied a motion by Power Line Services Inc. (“Power Line”) to dismiss a class action alleging that the company improperly docked employee paychecks.  The claim arises out of a company policy permitting Power Line to make payroll deductions for any charges made on a corporate credit card for which an employee fails to provide an itemized receipt.  The lawsuit is entitled Thurmon, et al. v. Power Line Services Inc., et al., and was brought under the Fair Labor Standards Act.

The complaint alleges that Power Line regularly made improper deductions from the paychecks of exempt employees for failing to comply with its receipt policy.  These deductions range from $3.44 for a lost receipt from a convenience store to $2,500 for repairs to a company issued truck. The named plaintiff in the lawsuit, Jerry Thurman, claims that these payroll deductions evidence that he, as well as other individuals, were improperly classified as exempt employees.  As a result, Thurman is seeking to recover unpaid overtime.

This lawsuit highlights the danger of docking an exempt employee’s pay.  In 2006, United States Department of Labor (“DOL”) issued an opinion letter stating that “any employer policy that requires deductions from the salaries of its exempt employees to pay for the costs of lost or damaged tools or equipment” constitutes an “improper deduction,” thereby invalidating the exempt status of any affected employee.  While the opinion letter only addressed deductions based on lost or damaged equipment, employers can expect the DOL to take a similar stance with respect to any deductions resulting from infractions of company policy.  Put simply, the DOL will likely prohibit any payroll deduction that can be viewed as a penalty.

As discussed in my earlier posting on this subject, employers are best served by maintaining a policy of disciplining, rather than docking, employees who are responsible for lost equipment or a violation of company policy.  Employers should consider that the potential liability for the loss of an employee’s exempt status will likely far outweigh the cost of any lost or damaged property.