Employee Liability Agreement: When an Employee Is Responsible for Covering a Shortfall

Quick Overview

• An agreement on responsibility for entrusted assets must be in writing and may be entered into no earlier than at age 18.
• It applies, for example, to cash, securities, goods, or inventory that an employee is responsible for accounting for and may personally dispose of.
• If a shortfall occurs, the employee may be liable for the full amount, i.e., without the standard limit of 4.5 times the average monthly earnings.
• An employee’s liability for a shortfall is not absolute. The employee may be fully or partially relieved of liability if they prove that the shortfall occurred through no fault of their own.
• Laptops, phones, or other items entrusted to an employee on an individual basis fall under a different regime— liability for the loss of entrusted items.

Are you about to sign an employee liability agreement and unsure of exactly what responsibilities it transfers to you? Have a lawyer review the wording. We’ll verify whether it complies with the Labor Code and whether your employer is transferring liability to you that this type of agreement does not cover at all.

Mr. Josef contacted our law firm for assistance after becoming the new warehouse manager at a company that manufactures automation systems. In this context, his employer wanted him to sign a material liability agreement. The agreement, which he would have been the only warehouse employee to sign, included liability for the entire warehouse as well as a company car. However, the client objected, pointing out that the company does not have a standardized system for managing the warehouse and that multiple employees routinely use the keys to it. Mr. Josef asked us for a legal opinion on this matter.

Under the Labor Code, an employee may be held liable for damages under several different regimes. In cases of ordinary liability, the employer must generally prove that the employee caused the damage. If the damage was caused by negligence, compensation is generally limited to 4.5 times the employee’s average monthly earnings. However, this limit does not apply, for example, to damage caused intentionally.

A special regime also applies if an agreement regarding liability for entrusted property has been concluded or if the loss involves entrusted property. In the event of a shortage or loss of entrusted property, the Labor Code stipulates full compensation for damages.

Agreement on Liability for Entrusted Assets

The so-called agreement on financial liability is now referred to in the Labor Code as an agreement on liability for entrusted assets. If an employee enters into an agreement on liability for entrusted property, the employee is liable to the employer for any loss of entrusted property, such as cash in the register, merchandise in the warehouse, and the like. From both a legal and practical standpoint, the employer’s situation is significantly simplified: the employer knows from whom to immediately seek compensation for damages and does not need to prove the employee’s fault if the employee has signed a material liability agreement.

This special liability regime is governed by the Labor Code. According to the Code, the agreement may cover cash, securities, goods, material supplies, and other assets that are subject to turnover or circulation and over which the employee has personal control for the entire period during which they are entrusted to the employee.

When Does an Employee’s Liability for a Shortage Arise?

However, an employee’s liability for a shortage is not absolute. An employee may be fully or partially exempted from the obligation to compensate for the shortage if they prove that it arose, in whole or in part, through no fault of their own. This may be the case, for example, when other employees had uncontrolled access to the warehouse or the employer failed to provide conditions that would have enabled employees to effectively protect the entrusted assets.

An employee can therefore be relieved of the obligation to compensate for the loss only if they themselves prove that they did not cause it: for example, by identifying the culprit or demonstrating that they were not handling the entrusted goods (money)at the time. Another defense may be clear fault on the part of an unknown person, for example, if the facility, store, or warehouse in question was robbed. Depending on these specific factual circumstances, the employee may then be relieved of liability either in whole or in part.

An agreement on liability for entrusted property may be entered into no earlier than the day the employee turns 18 years of age. If the employee’s legal capacity is restricted, a representative may not enter into an agreement on liability for entrusted property on their behalf. The agreement may be entered into not only in the case of an existing employment relationship but may also be negotiated for part-time jobs and short-term work—that is, under an agreement for the performance of work or an agreement on work activity—where the work is performed outside the scope of an employment relationship. The agreement must always be in writing, and the obligation arising from it ends on the date the employment relationship terminates or on the date the employer receives notice of withdrawal from this agreement. This is possible if:

• the employer assigns the employee to different work or a different workplace,
• the employer fails to remedy, within 15 calendar days of receiving written notice from the employee, deficiencies in working conditions that prevent the proper management of entrusted assets,
• an agreement on joint liability has been concluded and either another employee has been assigned to the workplace or another manager or their deputy has been appointed.

In some cases, it is practical for more than one employee to sign an agreement on joint financial liability. Typically, this occurs when there are multiple warehouse workers responsible for warehouse operations. However, the manager’s share of the damages is generally expected to be higher than that of the other employees.

The share of compensation for the resulting shortfall is determined for individual employees based on the ratio of their gross earnings, with the earnings of the manager and his or her deputy counted twice. The share of compensation for individual employees, with the exception of the manager and his or her deputy, may not exceed an amount equal to their average monthly earnings prior to the occurrence of the shortage.

If it is determined that the shortfall or a portion thereof was caused by one of the jointly liable employees, that employee shall cover the shortfall in proportion to the extent of their fault. The remaining portion shall then be covered jointly by all liable employees.

However, an inventory must be conducted before an agreement on financial liability is concluded, as well as upon termination of the agreement due to a transfer to another workplace, a change in job duties, or termination of employment. If an employee does not request an inventory upon leaving and one is not conducted, the employee is liable for any shortfall discovered during the next inventory at their original workplace.

The agreement applies only to certain types of entrusted assets, such as cash, goods in stock, material supplies, etc. However, these are assets that are subject to turnover or circulation and are effectively under the employee’s control. While an employee may also be fully liable for a company laptop, phone, or car, this is based on a different type of agreement.

Is your employer demanding that you cover a shortfall, and do you disagree with the amount or your liability? Before you acknowledge the damage or sign an agreement to compensate for it, have a professional assess whether your employer has met the conditions set forth in the Labor Code and whether you can be fully or partially relieved of liability.

Agreement on Liability for the Loss of Entrusted Items

A similar situation arises with an agreement on liability for the loss of entrusted items. If, under such an agreement, an employee takes possession of certain items (a company laptop, phone, etc.), the employee is liable for their loss or damage unless the employee can prove that the loss or damage was not the employee’s fault. In addition to financial consequences, the employee may face termination or, in extreme cases, immediate termination of employment.

The employee may make up for the damage by providing the employer with a similar or identical item for which they accepted responsibility (e.g., a laptop of the same age and performance, or the same type and brand of cell phone) or by paying for the damage, taking into account normal wear and tear and the actual replacement cost.

Even this liability agreement may not be entered into until the day the individual reaches the age of 18. If the employee’s legal capacity is restricted, a representative may not enter into such an agreement on their behalf.

Of course, a good insurance policy is a viable solution for situations where an employee—regardless of fault—is required to pay damages amounting to hundreds of thousands; such a policy can help minimize damages and avoid lengthy disputes over compensation. However, this should not mean blindly signing anything an employer presents to us; it is advisable to consult with an attorney regarding the wording of the contract.

In Mr. Josef’s case, we proposed several options for resolving the situation. First and foremost, the car—which does not belong in this type of contract—should be excluded from the agreement on financial liability. A separate contract can be entered into for the car, namely the aforementioned agreement on entrusted assets.

As for the proposed financial liability agreement, it’s fair to say that signing it would not be in Mr. Josef’s best interest at this time, and he could theoretically refuse to sign it in its entirety. On the other hand, this type of contract is commonly associated with the position of warehouse manager, and it is quite possible that the employer would attempt to terminate the employee’s employment following a refusal to sign.

In any case, the current situation—in which the warehouse is not adequately secured—could in the future serve as grounds for withdrawing from the material liability agreement, and under such circumstances, it makes no sense to sign it. He could therefore request that the employer provide an agreement on joint financial liability, which would be shared by everyone with access to the warehouse. The ideal solution, however, is to simultaneously adjust the terms of warehouse use so that Mr. Hrdý can truly bear full or increased responsibility for it. Before adopting these changes, it is, of course, appropriate to conduct an inventory.

Summary

An employee liability agreement can have significantly greater financial implications than standard liability for damages. An agreement on liability for entrusted assets applies, for example, to money, securities, goods, or inventory for which the employee is accountable, and in the event of a shortfall, the employee may be liable for the full amount. The agreement must be in writing and can be entered into no earlier than at age 18. However, an employee may be fully or partially exempt from liability for a shortage if they can prove that it occurred through no fault of their own. For individually entrusted items, such as laptops or phones, different rules of liability apply in the event of their loss.