Material liability – what am I liable for?

Quick overview

• An employee is liable to the employer for damages only if he or she has caused the damage culpably in the course of or in direct connection with the performance of his or her duties.
• In the case of ordinary negligence, compensation is generally limited to 4.5 times the average monthly earnings.
• However, the limit does not apply to wilful damage, damage caused by drunkenness or substance abuse, loss of valuables and loss of property in trust.
• You should only sign a material liability agreement once you know what values you are responsible for and whether your employer has conditions in place to protect them.

Not sure if your employer can claim full compensation from you? Send us an employment contract, a material liability agreement or a demand for compensation. We will assess whether the employer’s claim is justified and how you can defend yourself.

The employee is only liable for damages caused to the employer to a limited extent. It must always be damage caused culpably and in connection with work-related acts.

For example, if an employee inadvertently knocks over an important fibre optic cable on a construction site, his employer must pay the victim the full amount of damages and any lost profits. However, the employee can only recover a maximum of 4.5 times his average monthly earnings, no matter how high the damage is.

In practice, we know that employees often sign an acknowledgement of debt or a wage deduction agreement immediately after an incident because they are afraid of losing their job. This is a mistake. Once you acknowledge the damages in writing, you will significantly worsen your bargaining position, even if it later turns out that the employer did not prove you were at fault or that part of the damages were caused by his poor work organization.

The rules are based on the Labour Code, specifically the section governing compensation in employment relationships. For general employee liability, the employer must prove the occurrence of the damage, the breach of work duties, the employee’s fault and the causal link between the misconduct and the damage. It is therefore not enough to allege that the damage occurred during the shift or at a time when the employee was in charge of the section in question.

However, there are exceptions to the rule limiting compensation for damages or lost profits to 4.5 times the employee’s average monthly wage. These exceptions include:

Intentional damages

The 4½ times limitation does not apply if the damage was caused intentionally, while drunk, or after the use of other addictive substances (e.g., marijuana). However, the employer must prove this. This can be done, for example, by calling witnesses from the “wet district” when the employee admits to his colleagues in the evening after his shift that he cut the cable on purpose in order to “embarrass” the employer.

Material liability agreement

What is material liability

A material liability is an agreement between the employee and the employer. In this agreement, the employee agrees to take responsibility for the values entrusted to him by the employer. The subject of the agreement is always only things used for turnover or circulation. Specifically, it may be cash, prizes, goods, materials or other values that are the subject of the work.

For employers, this agreement has two advantages. First, it does not have to prove the employee’s fault. In addition, the employee is liable for the entire loss and the limitation of a multiple of average earnings does not apply.

In practice, the main problem is that more than one person is actually responsible for the cash register, warehouse or goods, but the employer wants the shortfall from one particular employee. In such a situation, it is necessary to examine who had access to the entrusted values, whether a proper inventory was taken and whether the employer set the rules so that the employee could actually protect the values.

The only defence against a reported deficit is to prove that the employee was not at fault (e.g. a nighttime robbery by a third party). If the agreement is entered into by more than one employee (e.g., an entire shift), the increased liability is on the supervisor and his or her designee. They pay a greater share of the total damage.

This agreement must be negotiated in writing and automatically terminates upon termination of employment. It is concluded not only for the main employment but also for agreements. However, it can only be concluded by a person over 18 years of age and with full legal capacity.

Before you sign a material responsibility agreement, check in particular that it defines the values entrusted to you, that you have a realistic possibility of keeping track of them and that the employer carries out inventories. If the agreement is vaguely written or you are responsible for things that other people have access to, this can be a major problem in the future. We can help you review the agreement.

The material liability agreement can be withdrawn, but only in certain cases:

1. The first reason is that the employee performs work other than that for which he or she was hired and which is specified in the employment contract. For example, if the employee was hired to clean the warehouse, but the employer wants him to occasionally cover for the warehouse keeper.
2. The agreement can also be terminated if the employee is transferred to another job or another workplace. Even officially. In this case, the employee must sign a new agreement.
3. If the employee has alerted his employer to defects in the working conditions preventing the proper management of the values entrusted to him. If the employer does not remedy these defects within 15 calendar days of receiving the notice, the employee may withdraw from the agreement.

Agreement on liability for loss of entrusted items

The situation is similar for the agreement on liability for loss of entrusted items. Under the agreement, a specific item (e.g. a laptop) is taken over. Here, the employee also does not have to prove the employee’s fault in the destruction or loss of the item and can claim full compensation without limitation. The employee can only defend himself by proving that he did not cause the destruction or loss of the item (e.g. a colleague destroyed it).

The employee can then make good the damage by getting the employer a similar tool for which he or she accepted responsibility (e.g. an equally old and powerful laptop) or by paying for the damage taking into account wear and tear and the real cost of replacement.

Practical example: an employee lost a work laptop left in the company car. The employer wanted the full purchase price of a new device. In such a situation, it is necessary to address not only whether the employee was at fault for the loss, but also the age and wear of the item, its fair value at the time of loss, and whether the employer set reasonable rules for securing it.

It is also possible to withdraw from the agreement on liability for the loss of entrusted items if the employer has not created the conditions to protect the entrusted items against loss.

Protection of the employer’s property

An employee shall not be liable for damage caused by him in the course of averting a threatened loss to his employer or a danger to life or limb if he did not intentionally create the situation and acted in a manner reasonable in the circumstances.

However, increased caution is also recommended here. The employee has a duty to protect the employer’s property.

Thus, if, for example, an employee rushing home saw strange smoke above the lumber store and did nothing, did not report it, but only mentioned it in the pub in the evening, the employer could indirectly blame him for the damage caused by the fire (here he is liable up to three and a half times his average monthly earnings).

Contributory liability

If the employer also caused the damage, the employee shall only pay a proportionate part of the damage according to the degree of his or her fault. If more than one employee is liable for the damage, each employee shall bear a proportionate share of the damage according to the degree of his or her fault. As a general rule, the court may reduce the amount of damages proportionately for reasons of special consideration. E.g. the employee is of ‘unsound’ mind and in a difficult life situation.

Summary

An employee is not liable for every loss incurred by the employer. For ordinary liability, the employer must prove the damage, the breach of duty, the employee’s fault and the connection between the misconduct and the damage. For negligent damages, compensation is generally limited to 4.5 times the average monthly earnings. However, this limit does not apply to wilful damage, damage caused by drunkenness or substance abuse, loss of valuables and loss of property in trust. Therefore, do not sign a material liability agreement without checking, especially if other people have access to the goods, cash or storage. If your employer requires you to pay compensation, ask for written justification and do not acknowledge the debt before you know whether the claim is justified.

Does your employer require you to pay damages or have they provided you with a material liability agreement? Have an attorney review the documents. We can help you determine whether the agreement is valid, whether the employer can claim the full amount, and what defenses you have.