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Pennsylvania Court Allows Class Action Against Employer Who Used Only Payroll Cards; Holds Payroll Cards Are NOT “lawful money of the United States”

August 17, 2015

By Karen Baillie

In September 2013, SchnaderWorks published “Employers should Proceed With Caution in Using Payroll Cards.” At that time, author Scott Wenner advised that employers should follow the conditions prescribed in the federal Electronic Funds Transfer Act, Regulation E and should be aware that the United States Consumer Financial Protection Bureau (CFPB) takes the position that, “Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer’s choosing.”  In addition, Scott cautioned employers of the need to comply with state payroll laws.

Recently, a Luzerne County, Pennsylvania judge weighed in on the issue.  This decision reiterates Scott’s earlier advice.  In the case of Siciliano v. Mueller, C.A.  No. 2013-07010 (Luzerne County Court of Common Pleas May 29, 2015) employees of a McDonald’s franchise claimed that their employer violated the Pennsylvania Wage Payment and Collection Law  (WPCL) (23 P.S. § 260.3) by mandating that employees receive wages only via a JP Morgan Chase Payroll Card.

The employee-plaintiffs object to the payroll cards because there may be fees incurred in activating and using the cards and because managerial employees are permitted to be paid via direct deposit.  In denying the defendant’s Motion for Summary Judgment, the court noted that the WPCL requires that, “wages shall be paid in lawful money of the United States or check.” The court reasoned that the Pennsylvania legislature did not contemplate payroll cards when the language was adopted in 1961. Further, the legislature did not just use the word “money” but instead used the words, “lawful money of the United States,” which the court found to mean the “bills and coins” approved as legal tender. The court further found that paycards do not meet the legal definition of “check” because they are not “unconditional written orders.”

Although at least half of the states across the country now allow wages to be paid on payroll cards (either by statutory amendment or regulations promulgated pursuant to statutory authority), such laws typically permit the use of payroll cards only if employees are offered other wage payment options and give advance written consent to payment by payroll card. In its decision, the Luzerne County court pointed out that the (currently dormant) proposed legislation in Pennsylvania (Pa. H.B. 2274, 198th General Assembly, 2014 Session (Pa. 2014) (referred to Committee on Labor and Industry May 28, 2014) likewise would allow for payment of wages via payroll cards, only with employee advance authorization.  Interestingly, the court did not mention the CFPB’s guidance on the use of payroll cards and the requirements of Regulation E.  Instead, the court urged the state to provide guidance, “Pennsylvania employers and wage-earners could benefit from the Department of Labor and Industry expressing a formal position on the matter.”

In sum, Pennsylvania employers (especially those in Luzerne County) considering a payroll card system should continue to seek employee advance written authorization to be paid via payroll card (or direct deposit) and should continue to be cognizant of the requirements of EFTA, Regulation E, and of the CFPB’s guidance on the use of payroll cards.

For more information regarding this or other labor and employment issues, please contact Karen Baillie, a member of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

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