What should you do if an employee fails to return company property upon termination?

If a departing employee fails to return company equipment, such as a laptop or mobile phone you have supplied to them for their role, it can cause a significant cost to your business. We outline below the best precautions to take and how to recover your loss if this issue arises.

Proactive approach

what to do if an employee fails to return company property upon termination

We advise taking a proactive approach by reminding employees whose employment is coming to an end that they must return all company property in their possession on or before their last day.

Property may include a company laptop, mobile phone, computer equipment or keys.

It is best practice to ask the employee to sign a confirmation that they have returned all company property, including all materials and information, and deleted any company data from their personal devices before they leave their employment.

What does the employment contract say?

We strongly advise including the following clauses in the employment contract:

  • Obligations on termination – this clause should require employees to return any company property in their possession upon termination of their employment and confirm that they have done this in writing.
  • Deduction of remuneration – you should reserve the right to deduct from an employee’s salary any money owed to the company, which includes the cost of replacing company property that is not returned upon termination.

Including these clauses in the employee’s contract will give you greater scope to recover your loss if they do not return company property.

Deduction from the final salary

The most straightforward solution would be to write off the amount required to replace the equipment from the employee’s final pay. 

Inevitably this will only be possible if there is still outstanding money owed to the employee when you discover that the property has not been returned.

Deducting from an employee’s wages is only lawful in limited circumstances.

To deduct from an employee’s wages, the deduction must be:

  • Required or permitted under legislation;
  • Authorised by a term of the employment contract; or
  • Agreed to by the employee through prior written consent

If you deduct the cost of replacing company property kept by an outgoing employee from their final pay in the absence of the conditions listed above, the employee may bring an unlawful deduction from wages claim against you.

If their claim succeeds, the employment tribunal will require you to pay the employee in respect of the amount deducted from their wages, and they may also award the employee additional damages to cover any financial loss caused, for example, if the deduction resulted in an overdraft charge.

Therefore, you should only deduct the cost of replacing company property from the employee’s final wages if there is a deduction clause in their contract, which you can rely on, or they have signed a written consent form to approve the deduction.

If an employee has ignored your ongoing requests for them to return the equipment, it is unlikely that they will sign such an agreement.

Any contractual clause should be relied on restrictively and only used to recover your actual loss regarding replacing the equipment second-hand.

Seeking to recover a higher amount would make the deductions clause a penalty clause by putting the employee at a disadvantage, and it will not be legally enforceable in these circumstances.

notice of employee termination and returning company property

Civil claims

Suppose you lack the grounds to deduct the replacement cost from the employee’s final pay, but there is a clause in the employee’s employment contract requiring them to return company equipment.

In that case, you can bring a civil claim in the county court for breach of contract.

This type of claim may result in an award of damages or an injunction requiring the employee to return the equipment.

If you cannot rely on this type of clause either, you can still bring a civil claim for trespass to goods to recover your loss from the individual.

You can only claim your actual financial loss through these civil claims, as no damages are available for the disruption caused to your business.

If you decide to bring either of these claims, the first step would be to send the employee a ‘letter before action’ warning them that you will begin legal proceedings if they fail to return the company property within 7 days.

This may be enough to drive the employee to return the property without any formal action being taken.

Criminal charges

As a last resort, you could report the missing property to the police.

However, it is unlikely that the police will investigate it as a criminal offence of theft, given that you willingly supplied the employee with the equipment at the start of their employment.

Having said this, you could state in correspondence with the employee that you will report the matter to the police in an attempt to urge them to return the equipment.

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About the author 

James Rowland

James is the Commercial Director at Neathouse Partners and regularly writes articles surrounding issues in HR & Employment Law. Outside of the office, James is a keen Cricketer, playing in the Cheshire League for Nantwich CC. He also loves going to watch his football team, Crewe Alexandra. Feel free to connect with James on LinkedIn.

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