Employee's Liability for Damage

Basic Conditions for Employee Liability for Damage

Many employers believe that if an employee "behaves inexcusably" or breaks something, they can deduct any amount from their salary without issue. However, the reality is more complex. For setting internal rules and procedures for claiming damages, it is practically useful to rely on advice in the field of employment law. The Labour Code (Act No. 262/2006 Coll., as amended) clearly defines when and under what conditions an employee is liable at all.

For an employer to claim compensation for damage from an employee, all of the following conditions must be met simultaneously, to the extent stipulated by law.

Occurrence of Actual Damage on the Employer's Side

It is not enough that something simply broke. Damage is understood as a financial loss quantifiable in money, which the employer has suffered. This means a reduction in assets (actual damage) or lost profit, i.e., a lost financial advantage that the employer would have achieved if the damage had not occurred.

In practice: if an employee damages a company vehicle, this is clear actual damage (repair costs). If an employee works more slowly and time is "lost," this in itself is not damage that can be directly claimed.

However, if during this delay the employee culpably breaches their duty, which leads to missing a delivery deadline with a client and incurring a contractual penalty to a third party, then this constitutes specific and quantifiable damage (actual damage, and possibly also lost profit) – which the employer can claim.

The key is that the employer must specifically document the damage: for example, with repair invoices, an expert opinion, accounting records of lost property, or contracts. These documents must show what amounts the company had to pay to third parties due to the employee's mistake.

Breach of a Legal Duty While Performing Work Tasks or in Direct Connection Therewith

The employee must breach a legal duty arising from legal regulations, their employment contract, work rules, or instructions from superiors. The breach must occur during the performance of work tasks or in direct connection with them.

If an employee acts carelessly, disregards instructions, or inadequately prepares their work, they are breaching their duty. Conversely, if there is no breach of a work duty, there is no liability for damage, even if something unpleasant happens. For example, if an employee suddenly falls ill on the way to work and has to return home, this is not a breach of duty.

Causal Link Between the Breach of Duty and the Occurrence of Damage

There must be a direct, causal link between the breach of duty and the occurrence of the damage. The employer must prove that this specific breach directly led to the damage. For example, if a driver ignores an instruction to drive safely and causes an accident, the connection is obvious.

The situation is more complex when multiple factors contribute to the damage – such as faulty equipment, poor communication from management, or the mistakes of another employee. In such a case, liability is divided proportionally. In disputes over who is liable for the damage and to what extent, procedural strategy and evidence are typically addressed, which falls into the area of commercial and court disputes. The employee only pays their share of the damage.

Fault of the Employee

The employee must have caused the damage through fault – either intentionally or through negligence. This means that if the damage was caused by something for which the employee is not responsible (e.g., objective circumstances, employer's error, or force majeure), the employee is not liable for it.

Here, the burden of proof lies with the employer – it is the employer who must prove fault. The employee does not have to prove that they did not cause the damage; on the contrary, the employer must present sufficient evidence (witnesses, emails, records, inspection reports, etc.).

The only exceptions, where fault is presumed and the employee must "defend" themselves, are a deficit in entrusted assets (cash, goods for sale) and the loss of entrusted tools or protective equipment.

This applies if there is a valid written agreement on liability for the protection of assets entrusted to the employee for accounting (a so-called 'material liability agreement') or a written confirmation of receipt of an item. In these cases, the employee can be exempted from liability only if they prove that they did not cause the damage.

What Are the Compensation Limits Based on the Type of Breach

The Labour Code very strictly distinguishes between the nature of the breach. When negotiating with company management, lawyers from the ARROWS law firm often find that companies are not aware of this distinction and are then surprised that they "cannot deduct the full amount of the damage," because the law calculates it differently.

Damage Caused by Negligence – Limit of 4.5 Times the Average Monthly Earnings

If an employee causes damage through negligence (i.e., unintentionally, but they breached a legal duty, acted inattentively, carelessly, violated an instruction, etc.), the employer can demand compensation up to a maximum of 4.5 times the employee's average monthly earnings.

How is the average monthly earning calculated? For the purpose of damage compensation, the average monthly earnings achieved by the employee in the relevant period before the breach of duty that caused the damage are used. The relevant period is usually the preceding calendar quarter.

If the employee's income is irregular (with commissions, bonuses), all components of the wage or salary are taken into account.

Practical example: An employee with an average monthly gross earning of CZK 30,000 forgets to turn off a machine, which overheats and equipment on it worth CZK 200,000 is damaged. The employer can demand a maximum of CZK 30,000 × 4.5 = CZK 135,000 from the employee. The remainder (CZK 65,000) must be covered by the employer's own resources, insurance, or cannot be claimed.

This is very important information – the limit often surprises managers who expected full compensation. The situation is completely different if an employee causes multiple instances of damage successively. Then the limit is calculated for each instance of damage separately. If an employee causes two instances of damage through negligence, the employer is entitled to claim a total of up to 9 times their average monthly earnings (4.5 + 4.5). This also creates significant room for claims.

Intentional Damage, or Damage Caused Under the Influence of Alcohol or Intoxicating Substances – No Limit

If the employee caused the damage intentionally (knowingly and with the aim of causing damage, or at least with the knowledge that damage could occur and being indifferent to it), under the influence of alcohol (if they were in a state where they were unable to properly perform their duties), or under the influence of intoxicating substances (psychotropic or other addictive substances), then the limit of 4.5 times the average monthly earnings does not apply.

The employer can demand full compensation for all damage. Moreover, if the employee acted intentionally, the employer can also claim compensation for lost profit – i.e., not only the costs of repair or purchase, but also the profits that the company objectively will not gain due to this damage.

Practical example: An employee intentionally destroys a valuable contract with a client that they were supposed to archive. As a result, the company loses a contract whose real value to the company is CZK 500,000. The employer can demand full compensation for the lost profit from the employee, provided they can objectively prove its existence and amount.

But beware – intoxication or the influence of intoxicating substances must be proven. If there are uncertainties as to whether the employee was truly "under the influence" in a legally relevant sense, it is advisable to consult with lawyers from the ARROWS law firm. A court will require clear and objective evidence (e.g., a medical certificate, tests, etc.).

Special Cases – Liability Without Limits

The Labour Code provides for situations where the general protection of the employee (the limit of 4.5 times the salary) is unfair to the employer. These are cases where the employee has taken direct control over specific property or money. In these regimes, a so-called presumption of fault applies – it is automatically assumed that the employee is responsible for the damage unless they prove otherwise.

Deficit in Entrusted Assets (cash, valuables, goods, stock – items the employee must account for)

If a valid written agreement on liability for the protection of assets entrusted to the employee for accounting (a so-called 'material liability agreement') has been concluded with the employee, the employee is liable for any resulting deficit in full, without the limitation of 4.5 times the average monthly earnings. Here, fault is presumed – the employer only needs to prove the existence of a valid agreement and the occurrence of the deficit.

The employee can be exempted from liability only if they themselves prove that the deficit was not caused by their fault. This could be, for example, theft by a third party that the employee could not prevent despite all efforts, or a failure in security on the part of the employer.

Loss of Entrusted Items (tools, protective equipment, special equipment)

If an item was entrusted to an employee against a written confirmation (e.g., a professional saw, a laptop, a mobile phone) and this item is lost, the employee is liable for the loss. This is also a case of liability with a presumption of fault.

Important: Items whose value exceeds CZK 50,000 can only be entrusted to an employee on the basis of a written agreement on liability for the loss of entrusted items. In other cases, a written confirmation of receipt is sufficient. The employee can be exempted from liability if they prove that they did not cause the loss.

Procedural Obligations of the Employer – What Must Be Done

Many employers believe it is enough to "call the employee and tell them how much they will pay." The opposite is true. The Labour Code precisely defines how an employer must proceed, otherwise they risk not receiving compensation even in court proceedings.

Notification of the Amount of Damage – Usually Within 1 Month

The employer is obliged to notify the employee in writing of the amount of required compensation for damage, usually within 1 month from the day they discovered that the damage occurred and who is responsible for it. This deadline is a so-called "procedural" one – if not met, it does not automatically extinguish the claim, but it is advisable to respect it to ensure clear and properly documented communication and to prevent the claim from becoming time-barred.

The notification must be specific and substantiated. It includes a specific description of what happened (including time, place, persons), a quantification of the costs incurred (with attachments such as invoices, bills, estimates, expert opinions), a reference to the legal grounds, and a calculation of the required compensation with justification.

If the notification is missing or vague, the employee may feel unfairly surprised, and in the event of a dispute, it will be difficult to convince a court of the legitimacy of the employer's request.

Discussion with the Employee and, if applicable, with the Trade Union

The employer must discuss the amount of damage with the employee. This is not just "notifying," but actually discussing – giving the employee a chance to comment on the matter, present their evidence (e.g., that the breach was not their fault, or that their fault was minor, etc.). It is advisable to make a written record of the discussion.

If the damage exceeds the amount of CZK 1,000, the employer is also obliged to discuss it with the trade union (if one exists in the company).

Written Agreement on Compensation for Damage

The Labour Code prefers that the employee and employer conclude a written agreement on compensation for damage. The agreement must specify the amount of the damage, the employee's acknowledgement of the obligation to compensate for the damage, and the method and deadlines for payment (lump sum or in instalments).

If the employee does not sign the agreement, the employer can still seek compensation in court. However, court proceedings are time-consuming and costly. Lawyers from the ARROWS law firm often assist in negotiating such an agreement so that both parties can reach a reasonable settlement and avoid a lengthy court dispute.

Deductions from Wages – Special Rules

Employers often ask: "Can I simply deduct it from their wages?" The answer is: only with the employee's written consent. If both parties agree that the amount will be repaid through wage deductions, strict rules apply.

Written Agreement on Deductions from Wages

There must be a specific written agreement on deductions from wages, where the employee agrees to the deductions and is precisely aware of the amount and frequency. This agreement must be separate from the agreement on compensation for damage, or it must be part of an agreement on compensation for damage that explicitly provides for wage deductions. A vague oral agreement is not sufficient and is unenforceable.

Non-garnishable Amounts from Wages

The employer may not deduct so much that the employee is not left with the so-called non-garnishable amount (stipulated by Government Regulation No. 595/2006 Coll., on non-garnishable amounts, which is regularly updated). Deductions above this amount are limited.

Simply put: the employee must always be left with a certain amount necessary for basic living costs and family maintenance. This is to ensure that the employee is not existentially threatened.

Deductions Are Not a Priority Claim

Deductions for damage compensation for the employer are not a so-called priority claim. This means that if the employee has other debts (e.g., alimony, taxes, social and health insurance, enforcement orders), deductions for damage compensation from the employer are made only after these priority claims have been satisfied and are limited by the rules on the concurrence of enforcement orders/deductions.

Reduction of Compensation for Reasons Worthy of Special Consideration

If an employee earns little and a deduction would significantly harm them, the Labour Code gives the court the option to reduce the amount of compensation for reasons worthy of special consideration. Typically, this involves the employee's social situation, length of service with the company, etc. This reduction is not automatic, but a lawyer can argue for it in court proceedings.

Special Situation: Deficit in Entrusted Assets

One of the most frequently addressed cases in practice is the so-called "material liability" of employees who work with cash, goods, or other valuable items that are subject to turnover or circulation. Here, the rules of liability change dramatically.

What Are Entrusted Assets?

Entrusted assets are items that the employer entrusts to the employee for accounting. This includes cash (money in the cash register), valuables (cheques, meal vouchers, tickets, postage stamps), goods intended for sale, stocks of material, and other items that are subject to turnover or circulation at the employer's premises and with which the employee has the ability to personally dispose of for the entire time they have been entrusted to them.

Key Element: Written Agreement on Liability for the Protection of Assets (so-called 'Material Liability')

For an employee to be liable for a deficit in entrusted assets, a valid written agreement on liability for the protection of assets entrusted to the employee for accounting (a so-called 'material liability agreement') must be concluded with them. Without this agreement, the employee is protected by the normal rules of general liability for damage (limit of 4.5 times earnings, fault must be proven, etc.).

With the agreement, the situation is reversed: The employer only needs to prove the existence of a valid agreement and the occurrence of a deficit – the rest is up to the employee.

Fault is presumed – the employee is automatically liable unless they themselves prove that the deficit was not caused by their fault (e.g., it was a theft by a third party that the employee could not prevent despite all efforts, or there was a failure in security on the part of the employer).

They are liable for the full amount of the deficit without limit – no restriction to 4.5 times the average monthly earnings applies. The deficit is calculated as the difference between the accounting records and the actual physical state of the entrusted assets.

Practical example: A shop assistant has a valid written agreement on liability for the cash in the register. At the end of the shift, it is found that CZK 10,000 is missing from the register. Without the agreement, the assistant would be liable for a maximum of 4.5 times her salary (and the employer would have to prove her fault). With the agreement, she is obliged to pay the full CZK 10,000 unless she can prove that she did not cause the deficit.

Exemption from Liability – What the Employee Must Prove

The employee is exempted from liability for the deficit if they can prove that the deficit occurred without their fault (e.g., it was a theft by a third party that the employee could not have foreseen and prevented despite duly performing their duties and observing all security measures). Furthermore, if the employer did not provide them with adequate working conditions (e.g., insufficient security of the premises, a non-functional safe, an unreasonable number of people having access to the assets, etc.).

Or if the deficit was caused by a natural disaster (fire, flood – but even here, it would be assessed whether the employee duly performed their duties).

Here, lawyers from the ARROWS law firm often help employees who feel unfairly accused. If an employee is unsure whether an agreement exists or how it applies to them, they should clarify their position with an expert.

Employee Liability Insurance – Practical Protection

Many employers are unaware that employee liability insurance for damage exists (often colloquially called "stupidity insurance"). This is insurance that covers part or all of the compensation amount that an employee negligently causes to their employer.

What the Insurance Covers:

It typically covers damage caused by negligently performed work, damage to vehicles that the employee drives as part of their work duties, and damage to the employer's property caused by negligence.

In some cases, it also covers the loss of entrusted items or tools, if this is explicitly agreed upon and covered in the insurance contract.

When the Policy Pays Off:

If an employee causes damage covered by the policy, the employer makes a claim against the employee, who then asks their insurance company to pay the compensation. The insurance company then pays for the damage (up to the agreed limit, after deducting the agreed-upon deductible).

The employee is not so personally existentially threatened by high deductions, and the employer has at least partial risk coverage without having to claim the full amount of the damage directly from the employee.

It is also a good signal for employees – they see that the employer acknowledges the risks and that the employee is not "without a parachute."

Special Case: Loss of Entrusted Tools and Protective Equipment

Similar to entrusted assets, special liability rules also exist here. When an employer entrusts an employee with tools, protective work equipment (such as construction equipment, personal protective gear, etc.), or other items for performing work tasks against a written confirmation of receipt, and these items are then lost, the employee is liable for their loss.

Special feature: If the value of the entrusted item exceeds CZK 50,000, a written agreement on liability for the loss of entrusted items must be concluded. Without this agreement, the employer cannot demand full compensation for the loss of an item whose value exceeds CZK 50,000. In other cases (value up to CZK 50,000), a written confirmation of receipt is sufficient.

The employee is liable in full without limit (i.e., the restriction of 4.5 times the average monthly earnings does not apply). Fault is also presumed here. They are only exempted if they prove that the loss was not caused by their fault (e.g., theft that they could not prevent despite duly performing their duties).

Final Summary

Employee liability for damage is an area that may seem simple at first glance, but in practice, it contains a number of legal pitfalls and procedural details. Knowledge and adherence to them can either effectively protect the employer or, conversely, expose them to the risk of a legal dispute, financial loss, or suspicion of violating employee rights.

Key points for employers:

• Proving all four prerequisites – The employer must clearly prove the occurrence of damage, a breach of duty, a causal link, and fault. Without meeting all four elements, the claim is not valid (with the exception of special cases of presumed fault).

• Respecting compensation limits – For damage caused by negligence, compensation is limited to 4.5 times the average monthly earnings. Intentional conduct, intoxication, or the influence of drugs lead to full compensation. If the employer ignores this limit, full compensation cannot be enforced in court proceedings.

• Adhering to procedure – Written notification of the amount of damage, discussion with the employee and possibly with the trade union, a written agreement on compensation for damage, and a written agreement on deductions from wages – these are crucial steps. Procedural errors can invalidate an otherwise legitimate claim.

• Considering insurance – For companies where the risk of damage is higher, it makes sense to inform employees about the possibility of arranging employee liability insurance. It saves unnecessary disputes and money on both sides.

• Acting in a timely manner – Do not postpone resolving the damage "for later." The limitation periods are running, and in three to ten (or fifteen) years, the claim will become time-barred and unenforceable.

This period is also important for the employee – they should be aware that they are only liable for damage they have caused through fault, and in the case of negligence, up to the statutory limit. They should arrange for employee liability insurance (if the employer has not arranged it or does not contribute to it) to protect themselves from high deductions and financial difficulties.

If an employer or employee is unsure how to proceed in a specific situation, or whether a claim is legitimate or how to enforce it, it is highly advisable to consult with the legal team at the ARROWS law firm. The lawyers at ARROWS deal with these problems daily and know how to avoid mistakes and effectively defend your interests. Contact us at consultation@arws.cz and we will clarify the situation for you.