While I don't know if it's legal, I say good for your boss. He probably needs to back off a little, but I understand exactly where he's coming from. The mistakes are costing him all his profit and probably more.
We have a very bad problem with nobody filling out their paper work. One form is a check list they are supposed to fill out on the job and if something was missed, fix it before they leave. They haven't been filling it out and then they have to go back a do work that they missed. We have a new policy that just took effect, if they come in without the check list properly filled out they have to go back to the job in their own car, off the clock, and fill it out. Am I a jerk, probably, but there has to be a consequence or they never will do it right.