Employee Cash Bonds and Deposits Under Labor Code 400-410
California generally bars employers from taking a cash bond or deposit from a worker or applicant. Under Labor Code section 402, an employer may accept one only if the worker is entrusted with property of equal value, or regularly receives goods to sell and pay for. Even then, the money must sit in a bank savings account requiring both signatures, under a written agreement. Deposits for keys, laptops, tools, or inventory can trigger misdemeanor liability and PAGA claims if they skip those steps.
When can an employer take a cash bond at all?
Only in two situations. Section 402 says “No employer shall demand, exact, or accept any cash bond from any employee or applicant unless” either “The employee or applicant is entrusted with property of an equivalent value,” or the employer “advances regularly to the employee goods, wares, or merchandise to be delivered or sold by the employee,” is reimbursed at regular intervals, and limits the bond to the value of the goods advanced.
A $500 deposit for a $1,500 laptop may fit the first category. A $200 “training deposit,” a “hiring fee,” or a deposit not tied to any entrusted property doesn’t fit either one. Route-sales and delivery businesses are the main users of the second category.
How must the money be held?
In a joint savings account, under a written agreement. Section 403 says cash received as a bond “shall be deposited in a savings account in a bank authorized to do business in this State, and may be withdrawn only upon the joint signatures of the employer and the employee or applicant.”
The same section requires that “Cash put up as a bond shall be accompanied by an agreement in writing made by the employer and employee or applicant, setting forth the conditions under which the bond is given.”
That’s where most employers fall short. A deposit held in the company’s operating account, or deducted from a paycheck and kept on the books, doesn’t meet the statute, even if the company always returns it.
When must the bond be returned?
Promptly, with interest. Section 404(b) says the money “Shall be returned to the employee or applicant together with accrued interest thereon, immediately upon the return of the money or property entrusted” and “upon the fulfillment of the agreement, subject only to the deduction necessary to balance accounts.”
So the employer can keep only what’s needed to balance accounts, such as the value of unreturned property, and should document that calculation. Holding the whole deposit because an employee quit without notice isn’t a deduction the statute allows.
Does calling it a loan or investment change anything?
No. Section 406 says property put up by a worker “as a part of the contract of employment” is treated as a bond “whether the property is put up on a note or as a loan or an investment and regardless of the wording of the agreement.”
Section 407 goes further for investments. It says “Investments and the sale of stock or an interest in a business in connection with the securing of a position are illegal as against the public policy of the State.” Requiring a new manager to buy into the business as a condition of the job raises this issue directly.
Photographs and bonds required by the employer have their own cost rule. Under section 401, “If a bond or photograph of an employee or applicant is required by any employer, the cost thereof shall be paid by the employer.” A surety bond premium for a bonded position is the employer’s expense.
What exposure does a violation create?
Criminal and civil, including PAGA. Section 408 makes most violations a misdemeanor punishable by a fine of up to $1,000, up to six months in jail, or both, and section 410 says “The Labor Commissioner shall enforce this article.”
The larger civil risk is PAGA. Labor Code section 2699.5(a) lists section 403 and “subdivision (b) of Section 404” among the provisions covered by PAGA’s notice procedure. A company that takes deposits from every new hire can face a representative claim covering the whole workforce.
Bond and deposit rules at a glance
| Rule | Requirement | Section |
|---|---|---|
| When allowed | Entrusted property of equal value, or goods advanced for sale | Lab. Code 402 |
| How held | Bank savings account, joint signatures, written agreement | Lab. Code 403 |
| Return | Immediately, with interest, minus only balancing amounts | Lab. Code 404(b) |
| Loans and notes | Treated as bonds | Lab. Code 406 |
| Investment for a job | Against public policy | Lab. Code 407 |
| Bond or photo cost | Paid by employer | Lab. Code 401 |
When a deposit practice is challenged
- Preserve the deposit agreements, bank records, payroll deductions, and equipment logs for every worker who paid a deposit.
- Calendar the response deadline on any PAGA notice, Labor Commissioner claim, or demand, and check for an arbitration agreement and EPLI notice requirements.
- Identify the managers who collected deposits and make sure no one treats the complaining worker differently because of the challenge.
- Pull the records showing what property each worker received and what was returned, along with any amounts withheld.
- Talk to a lawyer before refunding, changing the practice, or responding to the notice, since how the fix is handled can affect the exposure.
The firm’s page on California wage and hour defense explains how it handles Labor Code and PAGA claims for employers.
Cash bond questions from employers
Can we deduct the cost of unreturned equipment from the final paycheck?
That raises separate wage deduction rules, which are strict in California. The bond statute permits deductions from a properly held bond to balance accounts, but a deduction from wages is a different question. Talk to counsel before withholding anything from a final check.
Is a refundable uniform deposit a cash bond?
Often yes, if the worker pays it as a condition of the job. Section 406 applies “regardless of the wording of the agreement.” Required uniforms also raise separate cost-reimbursement rules, so most employers provide them at no charge.
Can applicants be charged for anything?
Rarely. Section 402 covers “any employee or applicant,” and section 401 puts the cost of a required bond or photograph on the employer. Application fees and similar charges should be reviewed before use.
What if we’ve been holding deposits the wrong way for years?
The practice can usually be corrected going forward, but past deposits create exposure that should be assessed before any change is announced. A rushed refund program without counsel can create admissions or miss workers entitled to interest.
If your company has received a claim over employee deposits
If your company has received a PAGA notice or Labor Commissioner claim over cash bonds, equipment deposits, or similar charges, the deposit agreements and bank records usually decide how serious it is. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving deposits and wage deductions. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Labor Code sections 401, 402, 403, 404, 406, 407, 408, 410, and 2699.5.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.