Reimbursement for Lost and Damaged Department Issued Electronic Devices and the FLSA

Today’s FLSA Question: I am a fire chief for a small full-time fire and EMS department. The folks at town hall just announced a new town-wide policy that requires all senior-level administrative staff [including myself and my assistant chief] be financially responsible for any costs associated with the loss, theft, or damage of any department issued electronic device. This includes cell phones, tablets, and portable radios. The new policy allows the town to deduct the total cost of any loss from our paycheck. However, the policy caps the amount that can be deducted from any one paycheck to $500. The new policy does not include any exceptions. When I questioned whether the law allows for this type of deduction, the human resource manager stated that the FLSA permits it, provided that the employee’s wages do not fall below minimum wage. Several members of the police department and my assistant chief have stated they no longer plan on taking their department issued cell phones and portable radios home after work to avoid the possibility of loss or damage.  I can understand their concerns. Our portable radios alone cost over $7,000 to replace. I conducted some research on the topic and came across your article on reimbursement of training costs. Based on that article, it looks like the HR manager may be correct. Is he?

Answer: This new policy, while most likely well-intentioned, raises operational challenges and potential legal issues that the town’s HR manager likely does not fully grasp. From an operational point of view, what is the HR manager’s plan when senior town public safety personnel are unable to be reached while off-duty in an emergency? I understand the manager’s concerns and I am sure there is a story behind this new policy, however sometimes we need to look at the overall impact that such a policy could have on all departments prior to issuing a blanket rule with zero exceptions like this. The article you referenced, “Repayment of Training Costs and the FLSA” is helpful in some respects, but the situation you describe is slightly different than the facts presented in that post. As a result of these differences, we need to perform a slightly different analysis and will likely lead to a different overall outcome.  

First, what the FLSA will allow—or more accurately, does not forbid— is only part of this analysis. Many states have wage payment laws that restrict the ability of an employer to dock an employee’s paycheck absent a court order or other legal authorization. Additionally, at least one state forbids the taking of any wages when an employee loses or damages an employer’s property. Remember the FLSA represents the ground floor when it comes to wage and hour laws. States and even municipalities frequently enact more enhanced wage and hour laws intended to protect workers. In those instances, the state or local law would in essence trump the FLSA. In other words, just because the FLSA allows a particular action does not necessarily mean that it would survive a legal challenge. Your town’s attorney needs to review this policy to ensure that state and local law does not prohibit this type of action.  

Second, the HR manager most likely does not understand the overall FLSA implications from making the type of deduction allowed under the new policy. The FLSA does not per se prohibit the reduction an employee’s paycheck to re-coup the costs associated with lost equipment or other reasons. This presumes that the employee receives all overtime due and is paid at the least the federal minimum wage for all hours worked in the workweek in question. In theory, docking the chief’s paycheck by $500 likely won’t bring him or her down below minimum wage. Collective bargaining, city personnel rules, and local policies may prohibit such a reduction, but not the FLSA. However, whether the FLSA allows such deductions for high-level senior fire officers [like chiefs, deputy chiefs, etc.] requires us to dig a little deeper.

Most senior staff chiefs are classified as overtime exempt executive employees. This powerful FLSA exemption allows the employer to avoid both minimum wage and overtime pay for bona-fide executive employees. One of the primary requirements of the executive exemption is that the employee is paid on a salary basis. That requires the exempt employee receive the same compensation every payday regardless of the quality or quantity of the work. As a general rule, exempt employees can only have their salary docked for very specific reasons. The loss of a computer or portable radio is not on the list.

Now, let’s swing back to your question. If either yourself or any other hi-ranking public safety personnel are salaried overtime exempt executive employees, the possible deduction in wages sought by the town would extinguish this exempt status. Regardless of the employees actual job duties. This factor alone will undoubtedly complicate any effort to dock any senior town official’s paycheck in the future.

Let’s offer the following hypothetical. The town seeks to access your assistant chief $7,000 for accidental loss of a portable radio. The town deducts $500 from 14 consecutive paychecks… The assistant chief will no longer meet any of the “white-collar” overtime exemptions during this period. In theory, that chief would need to be paid for all hours “suffered or permitted” to work. This could include off-duty emails, phone calls, response to incidents after-hours, and many other work-related activities. What would be the financial and operational repercussions from such a requirement? Sometimes even the most well-intentioned policies can lead to unintended consequences. It is often best to think these things through.