Focus on Misappropriation Deductions

The Mayhue's Super Liquor Stores case merits a special look because it illustrates how a court can signal that common sense should prevail in certain situations. In Mayhue's, the Fifth Circuit ruled upon an employer's policy of making employees, as a condition of continued employment, sign agreements to make "voluntary" repayments of cash register shortages. The Court held that such agreements were not voluntary and that such deductions are illegal to the extent that they reduce an employee's wages below minimum wage for the pay period in question. The Court had the following observation, however, regarding the difference between making deductions to cover cash register shortages, which violates the FLSA if the wage goes below the FLSA minimum, and deductions to cover money wrongfully taken by the employee himself or herself:

...If the agreement required only repayment of money that the employee himself took or misappropriated, it obviously would not collide with the Act. As a matter of law, the employee would owe such amounts to the employer, and as a matter of fact, the repayment of moneys taken in excess of the money paid to the employee in wages would not reduce the amount of his wages...In such a case, there would be no violation of the Act because the employee has taken more than the amount of his wage and the return could in no way reduce his wage below the minimum...

The Fifth Circuit's dictum in this case has never been questioned in a published court opinion; on the contrary, a number of cases around the country have expressly supported it (see Brennan v. Veterans Cleaning Service, Inc., 482 F.2d 1362, 1369 (5th Cir. 1973); Brennan v. Heard, 491 F.2d 1 (5th Cir. 1974); Conklin v. Joseph C. Hofgesang Sand Co., Inc., 407 F.Supp. 1090, 1093 (W.D. Kentucky 1975); Marshall v. Gerwill, Inc., 495 F. Supp. 744 (D. Md. 1980); Marshall v. Hendersonville Bowling Center, 483 F.Supp. 510, 516 (M.D. Tennessee 1980); Donovan v. 75 Truck Stop, Inc., 1981 U.S. Dist. LEXIS 15449 (M.D. Fla. July 20, 1981); and Phillips v. Trans Health Mgmt., 2004 U.S. Dist. LEXIS 30945 (S.D. Tex. July 15, 2004)). Of course, the employer's ability to require repayment of misappropriated money would depend directly upon its ability to prove that the employee was, in fact, guilty of taking the money. A further cautionary note would be that this rule would apply only in the case of misappropriated money; no court has suggested it would apply to misappropriated materials, supplies, equipment, or other similar assets that might belong to a company. Finally, keep in mind that this kind of wage deduction must be authorized by the employee in writing to be valid under the Texas Payday Law. Item 7 in the sample wage deduction authorization agreement in this book suggests one example of how a company might obtain such authorization.

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