An employer's right to deduct for loans or advances is limited in California. The California Labor Code, court decisions, and public policy prohibit deductions from pay without consent from the employee, for any reason other than requirement of law or collective bargaining agreement. Deductions may not reduce wages below the standard wage agreed upon through collective bargaining and should be authorized by the employee in writing (CA Lab. Code, Sec. 224).
Deduction from final paycheck. California courts and the labor commissioner have ruled that an employer may not deduct the full unpaid balance of a debt to the employer from an employee's final paycheck. This means that while employers may deduct installment payments from an employee's paychecks for such a debt with the employee's prior written consent, employers may not set off final wages for the balance of the indebtedness, but only for the normal installment (Barnhill v. Robert Saunders & Co., 125 Cal. App. 3d 1 (1981)).
Employers owed the balance of a loan after the normal installment is deducted from the final paycheck must sue like any other creditor to collect the indebtedness.
Further, employers may not fire a worker in retaliation for complaining about an employer's unauthorized setoff of debts from the worker's pay (Eugene O. Phillips v. Gemini Moving Specialists,63 Cal. App.4th 563 (1998)).