A recent California Court of Appeals decision serves as a reminder to employers about the limitations on withholding an employee’s final paycheck. The case was brought by a former police officer of the City of Oakland, who agreed at the time of hire to reimburse the City for training costs if he left before completing 5 years of service. The reimbursement agreement authorized the City to deduct any training costs owed from the officer’s final paycheck. When the officer resigned after completing only one year of service, the City withheld his entire final paycheck. The court held that the employer’s actions were unlawful under the federal Fair Labor Standards Act (FLSA), which requires employers to pay non-exempt (hourly) employees at least the statutory minimum wage for all hours worked. Thus, the police officer should have been paid at least minimum wage for the final pay period worked.
The lesson of this case is clear. If an employee owes your organization money, you cannot withhold the employee’s entire paycheck as an offset against that debt, even if the employee has signed an agreement authorizing such a withholding. The employer can, however, reduce the employee’s pay to the statutory minimum wage.