Q. We recently discovered that one of our employees has been falsifying her timecards. When we confronted her, she admitted it but said that she only began doing this recently. An internal investigation showed that this has been going on for several years. Over the past two years our company overpaid her at least $5,000 as a result of her fraud. She resigned. Her final paycheck, including wages and accrued paid time off, is $1,500. Can we refuse to pay her final paycheck and use that money to offset the $5,000 she owes us? How do we recover the remaining $3,500?
A. Minnesota law generally prohibits an employer from making a deduction from an employee’s wages for lost or stolen property, damaged property or to repay an employee’s debt unless the employee signs a written authorization stating the amount to be deducted.
Assuming that your company’s policy requires paying the employee for any accrued paid time off, that money also would be subject to the Minnesota law requiring authorization for deductions from the paychecks of departing employees.
The safest response to your problem may be to have the employee sign a written agreement authorizing you to deduct as much of the debt as you can from her final paycheck. You also could try to negotiate a repayment schedule for the remainder of the debt.
Another approach you may want to consider: Take the position that you owe this employee no wages because she breached her duty of loyalty by stealing from the company. There are cases in Minnesota in which courts have held that employees who steal from their employers forfeit their rights to payment of wages.
Under this theory, you could recover not only the $5,000 that she wrongfully took from the company, but also all the compensation (including the value of the benefits) that she received during the period she was breaching her duty of loyalty.
Do not take this step lightly, as it could entail asserting legal claims against a former employee (which often invites legal claims back by the individual). However, in cases in which the fraud is significant and has occurred over a long period of time, it is worth considering.
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