What to Include in Policies Regarding Damage to Equipment

Allen Smith, J.D. By Allen Smith, J.D. October 14, 2020
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​When employees damage their employer's property—whether it's a laptop used while working from home during the pandemic or machinery in the employer's facility—how should the company respond? The answer depends partly on the company's policies about its property, as well as whether exempt or nonexempt employees damaged the property and whether the damage was caused by negligence or willfulness.

As for former employees' damage to equipment or failure to return company property, employers will have to weigh the costs of litigation versus the likelihood of recouping expenses.

Policies

A policy regarding company property should emphasize that any equipment provided to the employee remains the sole and exclusive property of the company, said Emily Mack, an attorney with Burr & Forman in Nashville, Tenn. The policy also should require that employees maintain the equipment and use it only for its intended function in work-related activities, she added.

Workers should be required to notify a company representative within a specified time in the event of any damage, theft or other loss of company property, Mack said. This is particularly important for electronic devices, such as cellphones, computers and tablets, that may contain confidential company information.

The policy should provide notice to employees of any disciplinary action that could result from failing to safeguard company equipment. Mack also recommended that the policy define the circumstances in which the employee would be required to pay for the cost of repairing or replacing the property, such as intentional misconduct or failing to return property at the end of employment.

Exempt vs. Nonexempt Employees

A policy on charging employees for damage to or destruction of company property must differentiate between exempt and nonexempt employees, said Greg Grisham, an attorney with Fisher Phillips in Memphis, Tenn.

Deductions from an exempt employee's salary for damage to or destruction of employer's property would violate the Fair Labor Standards Act's salary-basis requirement, he said.

"Care is essential because an employer that deducts from an employee's salary improperly risks nullifying the exemption and creating exposure to overtime claims," said Andrew Sherrod, an attorney with Hirschler in Richmond, Va.

For nonexempt employees, the policy must prohibit deductions if those deductions would reduce the employee's pay below any statutorily required minimum wage or overtime pay that is due.

"Nonexempt employees should also sign an agreement at the beginning of employment that authorizes a deduction from wages for destruction of the employer's property," Grisham said.

Negligence vs. Willfulness

An employer may be required by state law to make a distinction between property destruction caused by a nonexempt employee's negligence and destruction caused by a willful act. "Some states, like California, prohibit deductions for simple negligence but permit deductions for destruction caused by a dishonest or willful act or through the gross negligence" of a nonexempt employee, Grisham said.

The policy also should address disciplinary actions, said Tim Garrett, an attorney with Bass, Berry & Sims in Nashville.

"The policy should retain flexibility to match the level of discipline with the level of seriousness," such as negligence, recklessness or willfulness, he said. "Often, the policy will contemplate that the company will do some form of cause analysis upon learning of an incident that resulted in damage or destruction" of company equipment.

Mack said that in enforcing their policies, "employers should remember that accidents happen. Ordinary wear and tear or losses that occur in the normal course of business are simply a cost of doing business."

She recommended that employers be able to demonstrate that an employee was at least negligent in failing to properly safeguard the property before holding the worker personally responsible for the cost of the losses.

Abad Lopez, an attorney with Dykema in Chicago, said, "Willful destruction, in appropriate circumstances, would be treated more harshly, including immediate termination."

[Need help with legal questions? Check out the new SHRM LegalNetwork.]

Former Employees

When departing employees don't return equipment, one option some employers are tempted to resort to is withholding final paychecks entirely until all company property is returned.

"As appealing as this may sound, many states have laws that require that final paychecks be paid within a specified time," Mack said. "Employers who violate these laws—regardless of the reasons—subject themselves to civil liability, as well as criminal liability. As such, it is never acceptable to condition the delivery of a final paycheck on the return of property."

If state law prohibits deductions from final paychecks, the employer can seek a reimbursement agreement or resort to civil or criminal remedies, she added.

Tim Garrett, an attorney with Bass, Berry & Sims in Nashville, shared, "I am aware of a situation in which an employee was terminated for sabotaging a production line with a wrench to avoid having to work overtime. Surveillance cameras captured the activity, and the employee was prosecuted criminally for such behavior and was forced to pay the damage caused as part of the criminal punishment."

But, Garrett said, reports to the police for willful destruction of property are rare because willfulness is difficult to prove.

RyAnn McKay Hooper, an attorney with Epstein Becker Green in New York City, cautioned, "If the employer files a police report accusing an employee of willful property destruction, which could be criminal conduct, and it turns out that the employer was incorrect, the employer could be liable for defamation."

Pursuing a lawsuit against a former employee may have unintended consequences. The person may file a discrimination charge or other counterclaim against the employer, Grisham said.

Ensure that an employer's rightful claims in response to property destruction aren't perceived as retaliation in response to an employee pursuing claims for civil rights, wage and hour, occupational safety and health, or other statutory protections, said Christina Janice, an attorney with Barnes & Thornburg in Chicago.

In addition, an employer should always consider whether an employee or former employee is able to pay a judgment before considering litigation, said Eric Ruden, an attorney with Duane Morris in Miami.

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