Illegal Loan Clauses in Vehicle Sale to Employee?

Q. My employer loaned me $500.00, and per our written agreement was taking $50.00 from each paycheck as an installment payment on the loan. When I quit last week my employer deducted the outstanding loan balance of $250.00 from my final paycheck. Is this legal?
A. No. Although a California court has held that deductions for the periodic installment payments on a loan made to an employee by the employer are permissible when authorized in writing by the employee, the court also concluded that the balloon (lump sum) payment of the outstanding balance to be made at the time the employment relationship ends is not allowed notwithstanding the fact the employee has given his or her written consent to such a payment. When the employment relationship ends, your employer can only deduct the amount of one installment payment from your final paycheck.

The question above is from

An ex-employee gave us a copy of a vehicle loan agreement that WICR wrote up when it sold him a truck for $1,000.

Click here to read it. truck loan documents

Clause in question “I agree that should my employment be terminated the toal outstanding unpaid balance will be due immediately and deducted from any monies due me from WICR, Inc.”

Barnhill v. Sanders (1981) 125 Cal.App.3d 1, (Balloon payment on separation of employment to repay employee’s debt to employer is an unlawful deduction even where the employee authorized such payment in writing)

It appears that the agreement contains clauses that violate California law. What do you think? Let us know your opinion and send us a comment.

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