Contributors

Jennifer Woo Burns

Of Counsel

Can California employers require employees to cover the cost of lost or damaged company property? Many organizations implement policies or agreements holding employees financially responsible for lost keys, uniforms, or equipment. However, California law imposes strict limitations on an employer’s ability to recover such losses.

Employer responsibility for business losses

In most cases, employers cannot require employees to reimburse them for financial losses incurred in the normal course of business. California law recognizes that mistakes, accidents, and simple negligence are inevitable in any workplace, and as such, these losses are considered a cost of doing business. This includes broken equipment, cash shortages, and financial miscalculations.

Limited exceptions

There are narrow circumstances under which an employer may lawfully seek reimbursement. Employers must establish clear proof that the loss resulted from:

• Dishonesty, such as theft or fraud
• Willful misconduct, where an employee intentionally causes harm
• Gross negligence, defined as an extreme departure from reasonable care, demonstrating indifference to the consequences

The burden of proof rests with the employer. The Department of Labor Standards Enforcement (DLSE) has made clear that a mere accusation is insufficient—an employer must provide concrete evidence before making any deductions from an employee’s pay.

Legal and financial risks of non-compliance

Employers who improperly withhold wages or require reimbursement may face wage claims, statutory penalties, and litigation. In most cases, disciplinary action or termination is the only lawful recourse when an employee’s carelessness results in financial loss.

A blanket policy making employees responsible for business losses is likely unenforceable. Each case should be evaluated individually, ensuring compliance with California law and minimizing legal exposure.

Looking ahead

Before implementing policies regarding employee liability for lost or damaged property, employers should carefully consider:

• Establishing Gross Negligence – What level of evidence is required to demonstrate that an employee’s actions went beyond simple error?
• Voluntary Repayment Agreements – If an employee agrees to reimburse the company, how should the arrangement be documented to prevent wage disputes?
• Final Paychecks and Unreturned Property – What are the employer’s legal options if an employee fails to return company property after termination?

Given the potential legal ramifications, employers should exercise caution in assigning financial responsibility to employees. A misstep in policy enforcement could ultimately prove more costly than the initial loss.