Lien on Me
"Max, here's your mail," Trixie said. "You might want to check out the one marked 'Registered' first," she suggested before turning to leave.
Max didn't even look up from his desk. He just motioned for Trixie to drop the mail in his "in" box. He was immersed in reviewing a major proposal. Max and his partners were feverishly trying to land the Melrose account. If they could get the business, revenues would top $1,000,000 for the year–an impressive feat for a company just rounding its three-year mark.
When Max finished rechecking the figures, he was satisfied that his competition would have a tough time stealing the business. His mind then turned to how he'd get the staff to meet the needs of the job. Right now he and his partners not only ran the business, they also worked alongside their 10-man crew.
Trixie was the only female in the company and Max's only office staff. He marveled at Trixie's ability to balance her responsibilities like a veteran juggler, never dropping a plate. She was responsible for customer service, accounting, collections, payroll, dispatching, and general office functions.
He felt lucky to have her. She had a special knack for dealing with cantankerous customers. The tougher they were, the more she liked them. Max had observed Trixie working her magic on several occasions. Trixie could not only ice down a fiery customer, but also have them thank her as she walked away with a new order. This kind of skill made Harvey McKay and Zig Zigler look like amateurs.
"Sometimes you just get lucky," Max would remind himself every time he thought about Trixie.
As Max scanned his mail, he grabbed the registered letter on the top. He slit it open and blinked several times after he read the first paragraph. He read it again to make sure he hadn't misinterpreted anything. The letter indicated that he owed more than $22,000 in accrued fines and interest based on unpaid state sales tax. The letter indicated they were placing a lien on his home until he satisfied the debt of back taxes plus interest and fines.
"Twenty-two thousand dollars!" he exclaimed. "That's impossible, I've signed forms and checks regularly. There's no way I could owe them this money. There must be some mistake."
Max immediately got on the phone to Garret Cline, his accountant. "Garret, I've got a whale of a problem that just beached on my desk. I need an immediate audit of my books– somebody may be embezzling from me," he said, filled with worry. He explained the circumstances, and Garret asked Max to fax him a copy of the letter from the state.
Garret arrived the next day to personally review the books. After several days he determined that the company accounts showed full payment of state sales taxes. Garret found no discrepancies or anything that appeared unusual or suspicious with the journal entries or the financial statements.
Finally, he verified the bank reconciliation statements for the checkbook. When he compared the statements to the amount listed as cash-on-hand for the month, he noticed the bank statements were higher than the amount recorded in the books. Trixie was responsible for reconciling the checkbook, so Max and Garret asked her about the discrepancy.
"Oh, I can explain that easy enough," she smiled. She opened the bottom left drawer of her desk and pulled out a stack of unmailed forms and signed checks.
"Here they are," she said matter-of-factly.
Astounded, Max asked, "Why didn't you mail them?"
"Because I hate those crumb bums," she replied.
"What?" Max was incredulous. Garret, standing beside him, was equally appalled.
"I just hate paying sales tax," Trixie continued. "It seems so stupid. Why should the state get the money? They didn't do anything to earn it. It just annoys me."
"Didn't you think they'd figure out that we haven't paid them?" Max asked sarcastically.
"I don't know, I figured it was worth a shot, and I could save you a ton of money," she answered innocently.
"Well you figured wrong, Trixie!" Max steamed. "Not only do I have to pay the back taxes, I have over $22,000 in interest and fines. That's $22,000 I was planning to use to buy another service truck so I can meet the demands of the Melrose account. That is, if I live long enough to work the Melrose account. I'll be lucky if your stupidity doesn't cause me to have a stroke," he railed, as he felt his blood pressure rising. "If you wanted to kill me, why didn't you just stick a knife in my heart?!"
The impact of her actions finally dawned on Trixie, and she looked frightened. "Gee, Max, I didn't realize they would fine you and make you pay interest. I suppose I'm fired and I should pack up my things."
"Frankly, I don't know what I'm going to do to you yet. I may call the police, I may fire you . . . I don't know," Max replied, his voice escalating with each phrase. "Right now I just need to figure out how I'm going to pay for this, and I'll deal with you later. In the meantime, keep working, and don't discuss this with anyone."
After some thought Max presented Trixie with an alternative. "Trixie, you have a choice. I'm turning all financial matters over to Garret. His office will handle all money matters, down to petty cash. You can continue your other assignments at no cash to you until you've worked off the $22,000. We'll continue your paychecks as usual. I'll pay your social security, medical, and everything else I normally do, except we'll deduct the net amount of your salary as if it were a loan you are paying back to the company. The way I figure it, you'll have to work for two years to satisfy the debt."
"And what's my second alternative?" Trixie asked weakly.
"I call the police and file charges against you. You hire a lawyer and take your chances against going to jail or being fined," he responded, not knowing whether this was a criminal or civil action. He just knew he was going to get his money somehow.
It didn't take Trixie long to decide. "I'll work," she said, and she continues to work for the company to this day.
It appears that Max allowed himself to be totally reliant on a well-intentioned but naive employee. We believe that Max was negligent. He did not take reasonable steps to either personally monitor the accounting records and bank reconciliations or arrange to have his accountant do it for him. He may also want to consider switching outside accounting firms. If they had been doing their job, the accountants would have been properly auditing the bank statements.
Threatening Trixie was totally inappropriate and was, essentially, blackmail. Max should have either terminated her or kept her on board with the understanding that this was an isolated event. Initially, he should have suspended her to investigate or decide what to do with her, rather than let her continue to work. In addition, by deciding to retain her, Max set a precedent for other and future employees–they can all use poor judgment and gross misconduct, which costs the company dollars. This could come back to haunt him. The employer is responsible for actions of employees. If Trixie did not meet standards, then she should have been terminated.
Since Max chose to retain Trixie, we think he had other alternatives that were both legal and certainly less draconian, such as allowing Trixie to repay the company over a longer period of time. Admittedly, this may be less expeditious and may require some protection in the event Trixie were to leave, or worse, to die. One precaution the company could take would be to require Trixie to take out a decreasing term life insurance policy. By having her list the company as beneficiary, the company would be guaranteed payment. Another solution is for Trixie to take out a loan and pay Max in full immediately.
It astounds us that Trixie accepted his alternative. This means that she would work for nothing for about two years. Obviously, she must have other sources of income on which to live. Most people would not be able to consider such an option.
Here is a situation where the employer thinks it has solved one problem but creates another problem for itself.
Employers should always seek the advice of legal counsel before they attempt to make deductions from employees' wages that are not related to the mandatory payroll withholdings and deductions.
Most states prohibit employers from making deductions from employees' wages except for limited purposes. For example, in New York State, employers may not make any deductions from employees' wages except those made in accordance with government laws and regulations (e.g., social security) or with express written authority by the employee for deductions that are for the benefit of the employee (e.g., payments for health benefits, pensions, or insurance premiums). Thus, in states with wage deduction laws such as New York's, paying off a debt owed to the company through payroll deduction, such as Trixie's debt, would not be lawful. Indeed, it could be a criminal offense.
Employers must also be wary about threatening to file criminal charges. In many states, the threat to file criminal charges in order to obtain payment of a debt would constitute extortion.
Finally, it appears that Max's decision to withhold her salary would violate the federal and state labor laws which require the payment of minimum wage. It would be lawful to have a written agreement with Trixie as a condition of her continued employment that she pay x amount each week to pay off the debt after she receives her pay for that week. This would avoid violating the state wage payment laws and the minimum wage requirements.