If They Break It, Do They Replace It?

08/10/2021

If they break it, do they replace it?

A common question asked is whether an employer can make an employee pay to replace work equipment/materials that they have damaged.

While each situation will need to be assessed on its own facts, generally, an employer can seek payment from an employee for damage caused to property if:

• the employee’s conduct is in breach of their employment agreement;
• the breach caused the employer loss; and
• the consequences of the breach were reasonably foreseeable.

If an employer is comfortable that the above three criteria are met, when objectively assessing the relevant circumstances, employers must also be careful not to breach minimum entitlements or the Wages Protection Act 1983 when making the necessary deduction from an employee’s wages.  An employer cannot, for example, unilaterally make a deduction from an employee’s wages to recover the loss without the employee’s consent.

The Wages Protection Act 1983 provides that an employee’s wages may only be deducted in certain circumstances, such as deductions required by law (for example PAYE tax and child support repayments) or if the employee has provided written consent. Consultation prior to making such a deduction is always required.

When consulting with an employee on a proposed deduction from their wages as a result of damage to property, employers may find that the damage is disputed and the employee withdraws their consent for the employer to take the deduction. A thorough investigation into the source and nature of the damage/loss (in consultation with the employee) can assist when determining whether the deduction is appropriate.

If an employee has acted negligently, rather than breaching the terms of their employment agreement, and in doing so has caused damage to equipment/materials, the answer is not as clear.

A House of Lord's judgment has been used to support the argument that where an employee’s negligent actions caused an employer to suffer loss, the employee could be held liable as there is an implied contractual term that an employee’s duties must be performed with proper skill and care; and that there was no obligation on an employer to indemnify the employee against such claims. This case has had mixed reactions in New Zealand.

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