Damage to company property can result in unwanted costs, lost time and reduced working capacity.
Employees can be entrusted with many different types of company property in the course of their employment, from company uniform, to laptops, mobile phones and company cars. While accidents can happen, employers may be able to recoup the cost to fix or replace the item if the damage is the result of an employee’s wilful act, carelessness or negligence.
Whether you have the right to make employees pay for damage depends on a number of factors. It helps to be clear on when you can – and cannot – make an employee pay for damages, to avoid unnecessary friction in your working relationship and potentially a legal complaint if you take the money from wages without the right to do so.
Employers can pursue an employee for the cost of damage to company property, whether caused accidentally or intentionally, only if there is provision in the employment contract allowing them to do so, or if they have the employee’s consent to recover the amount.
What employers can and cannot do in these circumstances is determined by the law on wage deductions.
The law sets out specific situations where an employer is allowed to automatically make deductions from an employee’s wages. Wages can be automatically and lawfully deducted where it is:
This is a finite list and does not allow for any deductions that have not been previously discussed or agreed with the individual. This includes cases of theft, failure to return a uniform, property damage, or failure to return company equipment.
Additionally, if there is a contractual clause allowing deductions, or the employee gives written consent, deductions made cannot reduce the employee’s wage sufficient for it to fall below the national minimum wage, unless:
Unlawful deductions from wages are grounds for legal complaint and the employee may be able to bring a claim against you. If the tribunal finds against the employer, they will make an order to recover the amount of the deduction. An employee has three months from the date of the last deduction to make the claim. Section 11 of The Employment Rights Act 1996 (ERA) deals with protection against unlawful deductions from wages. The Act protects employees, including workers who have entered into other contracts to perform work and/or services. There is no minimum requirement of service in order to bring a claim for unlawful deduction of wages in an ET.
To establish if a deduction would be allowed, you should first look at the employee’s contract of employment and identify if there is a clause or term allowing you to deduct money from their wages, and in which circumstances, such as in relation to both purposeful damage and accidental damage. Sample wording could include:
“All employees must maintain their working environment in an orderly fashion and must ensure company property is used and maintained in accordance with the rules. Any employee who has neglected or misused company property will be subject to disciplinary action. This may include termination. Company property, including cars, smartphones, laptops, uniform, etc, are for business use only. The company reserves the right to pay part or none of the costs to replace or repair damaged property. This applies if an employee misuses company property. Misuse of company property is grounds for disciplinary action. Remedies include immediate termination and possible criminal action.”
If it has been written in an employee’s contract, the employee must pay an accurate reflection of the cost of the damage. These costs should not be an arbitrary penalty charge and must be fair. An employer can never claim back more money from the employee than the actual cost of the damage, this is regardless of any agreement within their employment contract.
Employers must also act reasonably regarding how much they take from their employee’s wages. The amount deducted per pay period must be reasonable with respect to the employee’s earnings. What is considered being ‘reasonable’ is determined on a case-by-case basis, and largely depends on the employee in question.
If you have looked at the contract and cannot find any similar style of worded clause, the second option is to seek the employee’s written consent to cover the costs of the damage. In practice, this is likely to be difficult. Repair or replacement may be extremely expensive and the employee could be reluctant to pay, particularly if the damage resulted from an unfortunate accident. If you obtain their consent, this should be recorded in writing, signed and dated. You should also keep a record of the agreement.
The ERA provides a wide definition of what it constitutes as ‘wages’, and includes sums payable to the employee in connection with their employment, including but not limited to any fee, bonus, commission, holiday pay, or other payment connected to the employee’s work, whether or not that is payable under a contract. This includes Statutory Maternity Pay (SMP), Statutory Sick Pay (SSP), Statutory Paternity Pay, Statutory Adoption Pay, and Statutory Shared Parental Pay (SPP), as well as payments surrounding when an employee is entitled to time off to attend antenatal care, or adoption appointments. Sums paid during suspension on medical grounds or payable from reinstatement or re-engagement orders from an ET, payments regarding time spent on garden leave, and commission payments after termination of employment.
Case law and the ERA have also set out circumstances where payments are not classed as ‘wages’. Generally, these payments are not made in connection with the provision of services during employment.
The organisation’s conduct or disciplinary policy should state what is considered to constitute misconduct. This could include wilful or deliberate damage to company property or gross negligence that has caused substantial loss or damage.
Before any disciplinary action should be taken by the employer, there should be an investigation in line with the organisation’s disciplinary procedure. If after conclusion of the investigation process, the decision is that the employee has committed misconduct in damaging company property, this may result in disciplinary action. Where gross misconduct has been established, this can result in dismissal without notice or payment instead of notice.
A specific company car policy is recommended, stating how employees are responsible for the vehicle. Clauses may include:
For instance, if the vehicle becomes damaged, the log report can support evidence of its original condition. If any vehicle is damaged, it must be repaired immediately or be taken out of use until it is. Employers have a duty to remove a vehicle from operation if it has been found to be unsafe.
Workplace policies help to protect both the employer and the employee. In relation to company property, it is advisable to have policies for use of company property, and depending on your organisation, it may also be appropriate to have a policy specifically for use of company vehicles. In addition, the conduct and disciplinary policy should specify if and bow damage to company property would be considered misconduct.
A use of company property policy should be implemented to state expectations and responsibilities in the event of damage. This includes how to determine, and in what circumstances, damage to company property leads to deductions from employee wages. This could include Many businesses have policies outlining what they class as wilful damage, or when accidental damage can amount to negligence.
It is also advisable to ask employees to sign an agreement form when issuing company property, such as laptops and mobile phones, to confirm the condition of the item when received and returned by the employee.
Employers should also ensure their workforce is aware of the policies and the rules when using company property.
The employee’s contract of employment forms an essential reference point when asking them to cover the costs of any damage. If an employer cannot provide a signed agreement, such as a contract of employment, then they may be unable to make any deductions from wages.
An employer can only make an automatic deduction from wages in limited circumstances, such as where the contract of employment allows for reasonable costs to be taken to make good any loss or damage to property caused by the employee’s wilful act, carelessness or negligence. If the employer does not have this contractual right, they have to obtain the employee’s written consent to cover the costs.
Employers cannot automatically ‘dock’ an employee’s pay for damages unless it is expressly written in their contract of employment, or the employee has subsequently provided their written consent for deductions to be made.
Employers are typically liable for risks generated by company activity under vicarious liability rules, but employees are generally liable for damage to company property caused by their own any wilful, careless or negligent acts.
Regardless of fault, an employer may pursue an employee for the cost of damage caused accidentally, either by relying on a contractual term allowing automatic deduction from wages or by obtaining agreement from the employee that they will cover the cost.
Last updated: 15 June 2023
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
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The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct at the time of writing, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.
