Is this opinion by the Wage & Hour Division, disallowing fines/salary deductions for lost & damaged property, generally applicable to US employers?

Question

FLSA2006-7 is a letter from the Wage & Hour Division (WHD) to an unnamed employer, published on the Department of Labor's website. It is an opinion on the employer's proposed policy "to impose a fine on its exempt employees who damage equipment they use in performing their jobs, such as cellular telephones and laptop computers." The opinion is pretty unequivocal that this is not permissible (emphasis added):

[A]ny employer policy that requires deductions from the salaries of its exempt employees to pay for the cost of lost or damaged tools or equipment issued to them would violate the salary basis requirement, thereby necessitating an evaluation under 29 C.F.R. § 541.603 to determine the effect of the improper deduction. It would not matter whether an employer implements such a policy by making periodic deductions from employee salaries, or by requiring employees to make out-of-pocket reimbursements from compensation already received. Either approach would result in employees not receiving their predetermined salaries when due on a “guaranteed” basis or “free and clear” and would produce impermissible reductions in compensation because of the quality of the work performed under the terms of the employer’s policies, contrary to 29 C.F.R. § 541.602(a).

(It also notes that such policies may be impermissible for non-exempt employees, if the deduction would drop pay below minimum wage or overtime floors.)

However, it seems that employers are still instituting policies such as these. For example, in a question from 2015 on The Workplace.SE the asker (from Utah) states that they had just been required to sign a new contract:

The contract states, among other things, that if the employee loses their key, they will have to pay the whole cost of re-keying each door which the lost key worked on. The cost per door is estimated at $100.

This kind of deduction for lost property seems to be exactly the kind forbidden in the WHD opinion, but none of the answers to that question mention it or state that the policy is legally problematic—the accepted answer specifically states that the policy is legal. So I'm wondering whether the opinion is not actually binding (other than, presumably, on the employer to whom the letter was originally directed), or if it is not applicable in this specific type of case for some reason (assuming that the OP was salaried). Or, of course, if it is "the law" but just not well known.

On the second possibility, if Utah law explicitly allowed for this kind of deduction, would that trump the federal regulation? I know that minimum wage laws are generally interpreted in the employee's favor when there is a state/federal difference, but is that true for this kind of employment regulation?

Answer 1

That letter is an opinion letter, stating an administrator's opinion. The Department of Labor can also issue Ruling Letters and Administrator Interpretations. As they say,

rulings and interpretations may be affected by changes to the applicable statute or regulations. Also, from time to time we update our interpretations in response to new information, such as court decisions, and may withdraw a ruling or interpretation in whole or in part.

Rulings and interpretations have a special status:

An interpretation or ruling issued by the Administrator...an official ruling or interpretation.... Such rulings provide a potential good faith reliance defense for actions that may otherwise constitute violations of the FLSA, DBA, or PCA.

"Opinion letters issued by the Administrator may be relied upon". In other words, such a letter should be given due consideration, but lacks the gravamen of a Ruling letter. Note for example the disclaimer in the opinion letter that "This opinion is based exclusively on the facts and circumstances described in your request".

If an actual ruling had been made, there is a question as to what the limits of employee liability would be. The language of the opinion speaks of rules regarding making employees "pay for an expense of the employer’s business", noting that tools of the trade are considered business expenses of the employer. However, the opinion does not address the concept of "liability", whereby a person who wrongly damages someone else's property is liable for that damage. The essential difference is that the employee cannot be required to pay for the company cell phone, but that does not mean that the employee can freely smash the cell phone. Enforcing such a clause would require separate legal proceedings, and almost certainly would require a showing that the employee was negligent in their conduct.