September 10, 2021

Employment Law

May an Employer Deduct From My Paycheck for Any Reason?

Minnesota law allows employers to make deductions to employee paychecks to recover for “faulty workmanship, loss, theft or damage” or “other claimed indebtedness.” But only if the employee agrees to the deduction in writing after the loss or claimed debt occurs. Minn. Stat. § 181.79. Exceptions apply, such as where the employer has obtained a court judgment against the subject employee for the debt or where a collective bargaining agreement provides otherwise.

Separate from employer-employee debts, Minnesota law also allows for deductions by written agreement for benefits and expenses including healthcare premiums, life insurance premiums, union dues and the like. Minn. Stat. § 181.06. An employer may charge its employees for the cost of uniforms and certain work equipment, which must be reimbursed to the employees once the employment relationship ends. Minn. Stat. § 177.24, subd. 4.

Can an employer deduct tips for losses?

The court in the Hagen decision cited to its prior decision, Kari v. Uptown Drink, LLC  (2013), a suit brought by wait staff against a defendant restaurant that took from the plaintiff employees’ gratuities to make up for register shortages, walkouts (a.k.a. “dine-and-dash” patrons) and unsigned credit-card receipts. The court found that tips and gratuities meet the statutory definition of wages, no differently from their hourly pay. As a result, the deductions, for which no written consent was obtained, were subject to Minn. Stat. § 181.79.

The upshot: employers may not take from employees’ tips for losses without a written agreement concerning the same. Although as a practical matter, statutory compliance may be problematic because, technically, the written agreement must be signed after the claimed indebtedness arises.

Can an employer deduct commissions from future paychecks?

Many sales employees are compensated in whole or part through commissions. Where an employer pays its commissioned salesforce a commission following a sale, but the customer returns the item and receives a refund, the employer may recoup the paid commission by deducting an equivalent amount from future paychecks. This flows from the fact that the commissions were not “earned” or “due” to the employees in question, under the reasoning of the Minnesota Court of Appeals in Meyer v. Mason Publ’g Co. (1985).

What about rent credits?

The wage deduction law creates interesting questions when applied to specific factual circumstances. In a recent case Hagen v. Steven Scott Management, Inc. (2021) the Minnesota Supreme Court addressed alleged wage deductions in the context of on-site property caretakers whose compensation consisted, in part, of “rent credits”—a set, weekly amount applied as an offset to their monthly rent in employer’s apartment complex in exchange for their work on an “on call” basis at least once a week. In its ruling, the court concluded that rent credits do qualify as a form of “wages” under Minnesota law, no differently than funds in a paycheck. On this basis, the court determined that the credits were not a subtraction or deduction from pay, subject to the written notice requirements of the wage deduction statute, but rather the opposite: an addition to pay.

May an employer assess an extra healthcare charge if I choose to be unvaccinated?

An employer may reward employees with financial incentives for obtaining a COVID-19 vaccination and, with limited exceptions, may require its employees (even ones working remotely) to be vaccinated against COVID-19 as condition of continued employment. But what about penalties in the form of wage deductions for the unvaccinated? No court in Minnesota has yet to address the question.

The answer may come down to one of definitions. Are the penalties or fees actually a deduction or reduction from pay, or an addition to health care premiums? If the latter, could they be subject to Minn. Stat. § 181.06 (addressing pay deductions for health insurance and other benefits), and therefore require employee consent?

On the other hand, at will employees are subject to reductions in pay at any time for any reason, so, in theory, an employer could achieve the same result by cutting an unvaccinated employee’s pay by some certain amount. To avoid an unlawful discriminatory effect, such a policy may require an exception for individuals who remain unvaccinated owing to a sincerely held religious belief or medical necessity. The answer to these questions remains to be seen and will turn on the specific facts of the case.

Contact Our Minnesota Employment Lawyers

If your employer is making deductions from your wages without your written consent, contact the experienced employment lawyers at Ballion Thome PLC for a free initial consultation.