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$43.49 Deduction Costs $2,525.24 +

A part-time employee told her employer she was quitting at the end of the pay period. The employer paid the wages due and rewarded the employee with a bonus to thank her for service to the business. The employer then deducted $43.49 that the employee owed to the employer from the bonus paid.

What happened next? The employee sued. The employee claims that the $43.49 deduction from the additional, unearned, discretionary bonus was an improper payroll deduction under Oregon's wage & hour laws.

Payroll Deductions
Payroll deductions are permitted only in the limited instances described in wage & hour statutes. These are instances where required by law or when authorized by the employee in writing. In Oregon the law is ORS 652.610.

In this case, there was no written authorization by the employee. The employer could have reduced the discretionary bonus by $50 and told the employee that in addition to receiving a lesser bonus, she was also receiving a credit for the amount she owed. Unfortunately, this is not what the employer did. Instead, the employer's records show the amount of the bonus and then a payroll deduction of $43.49.

You may ask where did the employer go wrong? The employee was paid 100% of the wages she was due and then some. Although the employer did not owe a bonus to the employee, once the bonus was announced and documented in the employer's records, the employer was obligated to pay the bonus without the impermissible deduction.

Final Paycheck
Since the improper deduction was made in connection with a final paycheck, the employer is liable for 30 days penalty wages in an amount that is eight times the employee's hourly rate. This is found in ORS 652.150.

It does not matter that this was a part-time employee working only two days per week. It would not matter if the employee had only worked two and half hours per day. The penalty for paying anything less than the full amount due in a final paycheck is the employee's hourly wage, multiplied by eight hours, multiplied by up to 30 days. That is how the $43.29 deduction cost the employer $2,525,24.

Attorney Fees
In this instance, the employer made things worse. If an employee gives notice before bringing a wage & hour suit, the employee can also recover his or her attorney fees. The employee's attorney in this case sent the required notice to the employer. The employer naively believed that simply sending a reply explaining that wages had been paid in full and the deduction came from an additional discretionary bonus would solve the problem. It did not. Instead, the employee's attorney ignored the employer's letter, waited the required number of days set by statute and then brought suit for the statutory penalty and attorney fees.

The attorney in this case specializes in milking wage claims for all they are worth. The attorney filed suit and began the process of filing any and every motion that could be filed, even before the employer filed an answer to the complaint in the suit. So now, instead of merely asking for $2,525.24 in penalties for a $43.49 deduction, the attorney is seeking many thousands of additional dollars as attorney fees. This extra money goes to the attorney, not his client.

Is this just? No, of course not. Unfortunately, however, there are attorneys waiting to exploit employers who unknowingly violate technical employment law requirements.

There are a number of lessons you can learn from this employer's experience.

Don't: Don't make payroll deductions unless you know with certainty that the deductions are proper and have been properly documented under appropriate wage & hour statutes.

Don't: Don't assume you can fix a problem described in a demand letter by an attorney. Remember the statement "anything you say may be used against you?" It can be just as true in private civil disputes as it is in criminal cases.

Do: Do consult with an experienced attorney knowledgeable in employment law if you want to make a deduction from an employee's paycheck.

Do: Do check, recheck and check again to make sure that every penny you are required to pay is included and properly documented in final paychecks.

Do: Do contact an attorney immediately if you are contacted by an attorney on behalf of a current or former employee or job applicant.

More Tips
In addition to the points set out above, there is more that a careful, proactive employer can do to prevent employee lawsuits.

Do: Do carefully comply with wage & hour laws and have a payroll deduction form signed by employees if you are making payroll deductions.

Do: Do include a generic payroll deduction authorization in a document signed by employees in the event you fail in a specific instance to have a specific employee sign a specific payroll deduction authorization. This general authorization approach may work in an emergency but should not be a substitute for specific authorizations. This general authorization can be as simple as a statement added at the end of an employment application (applies to new hires but not current employees). A statement in an employee handbook, however, will not be adequate.

Do: Do enter into agreements with all employees that all disputes will be resolved by an internal complaint process followed by mediation and if necessary arbitration. Doing so will prevent many of the tactics used by the attorney described above. These agreements must be in a document signed by each employee. A provision in an employee handbook will not suffice. We do, however, have a new, unique, original, no-one-else-in-the-country-is-doing-this-yet way of implementing this strategy.

Do: Do adopt policies that require your employees to notify you of any payroll errors or discrepancies.

With the complexity of state, local and Federal laws, some applying to particular businesses and others applying to all businesses, it is important to learn from mistakes. Mistakes, however, can be very expensive as this issue of LegalBriefs demonstrates. That is why you must learn not only from your own mistakes but from the mistakes of others. I will continue to alert you to lessons that can be learned.

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