This is something grabbed from another forum called laborlawtalk. Just random search and is based on California law but here is what i found.......
I will only address the issue of "If I improperly overpaid an employee, can I deduct the overpaid amount from her paycheck?"
From Hudgins v. Neiman Marcus Group, Inc., 34 Cal. App. 4th 1109:
[T]he Labor Commissioner has held that, although employers may deduct installment payments from an employee's paychecks for a debt owed to the employer with the employee's prior written consent, they are not entitled to a setoff for the balance of the indebtedness against the final paycheck of an employee who has terminated his or her employment.
-- End quote
Thus, in order to withhold these overpaid wages, you must either have the employee's written consent or have a valid court ordered garnishment order. The reason is that the garnishment laws provide certain basic minimums that the employee must be paid. However, even if you complied with these basic minumums, you would still need the employee's consent before any deduction was taken.
I will note that there is some authority to withhold clearly unearned portions of pay from an employees check. However, a recurring overpayment lasting years in duration would likely not qualify as "clearly unearned."
Michael Tracy
Attorney
http://www.gotovertime.com
Disclaimer: The above response is a general statement of California law. It only assumes the facts that are stated in the message. The above response does not serve to form an attorney-client relationship.
So basically yes they can deduct it but only....
A. If you agree to it with something you signed during hiring.
B. Signed off stating it was ok to deduct it even if you signed something when being hired.