Can we withhold cost of company equipment from employee's final paycheck, if he doesn't return the items?

Is there a written emplloyment contract that says that the company can use this "self-help" method to recover the cost of its property from its employees? If not, then the company can't, and will have to comply with state labor codes regarding paychecks and regarding recovery via suit for "conversion" (civil theft) of the company's tools.

I agree with Ms. Koslyn.The employment contract should tell you if you can do this (because the employee agreed to that). If you do not have it in your current employment contract, it might be advisable to change it so it would cover situations like this in the future with future employees. In the mean time, if the employment contract doesn't help you, go to court.