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Yet another McDonald’s franchise is in the news again for court drama. This time, the case is regarding a wage and hour class action lawsuit (ref: wage and hour lawsuit) against a chain of 16 locations in Pennsylvania. The case was initially filed back in 2013 after an employee quit due to the outrageous fees associated with the chain’s mandatory pay card system. After quitting, she called a law firm to see if the practices were legal – which they weren’t.
The issue arises from the employers (owners Albert and Carol Mueller) requiring non-managerial employees to accept payment via a JP Morgan & Chase pay card, rather than being issued an itemized check/cash. This violated the Pennsylvania Wage Payment Collection Law (WPCL), which states that “wages shall be paid in lawful money of the United States or check”. Employers will sometimes utilize a payment card system in order to avoid costs associated with printing and distributing checks, which can be expensive. Cash is not usually a practical form of payment for established businesses. It’s difficult to track and itemize. Another reason employers may be shifting towards the option of payment cards is that banks may offer incentives to employers for providing them with new customers, aka the employees.
The courts reasoned that the payment cards are not “lawful money”, though the employers insisted it is a “functional equivalent”. However, the court stated that it was not a “functional equivalent” due to the fees that could be incurred for various reasons such as inactivity. The class action representative, Natalie Gunshannon, chose not to activate her pay card after reviewing the hefty fees, which included $1.50 per ATM withdrawal, $10 per month after 3 months of inactivity, 75 cents per online bill payment, and $1 each time they checked the balance. Additionally, users of the cards were allotted only one free over-the-counter withdrawal per deposit. After the initial withdrawal, a $5 fee was incurred each subsequent time. “I tried to work with the company. They refused. I tried the main office in Clarks Summit. They refused,” Ms. Gunshannon said. “I never activated the card. I refused the fees. I just want it to be fair.” An expert witness in the case stated that between the fall of 2010 and the summer of 2014, the employees were subject to a collective estimate of 47,000 fees.
While this case is set in Pennsylvania, it would most likely fare similarly here in California. The DLSE has opined that pay cards can be legal forms of payment so long as they are voluntary on the part of the employee. This means that the employee must have the option to receive a check or other form of payment if they would prefer. The DLSE states that the alternative form of payment must be “easily turned into cash” without a fee. Because the employees in the Pennsylvania case were not given the option to an alternate form of pay other than the card, the system would still be considered illegal in California. Then, of course, there is the issue with the fees, which also would be considered unlawful and cause to bring a suit or request reimbursement.
An inquiry to the DLSE on this subject was answered back in 2008. Carl Morris and Daniel Schwallie asked whether their payroll services complied with California labor laws. The letter cites the California Labor Code section 212, which reads:
“No person, or agent or officer thereof, shall issue in payment of wages due, or to become due, or as an advance on wages to be earned:
(1) Any order, check, draft, note, memorandum, or other acknowledgment of indebtedness, unless it is negotiable and payable in cash, on-demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument, and at the time of its issuance and for a reasonable time thereafter, which must be at least 30 days, the maker or drawer has sufficient funds in, or credit, arrangement, or understanding with the drawee for its payment.
(2) Any scrip, coupon, cards, or other things redeemable, in merchandise or purporting to be payable or redeemable otherwise than in money.
(b) Where an instrument mentioned in subdivision (a) is protested or dishonored, the notice or memorandum of protest or dishonor is admissible as proof of presentation, nonpayment and protest and is presumptive evidence of knowledge of insufficiency of funds or credit with the drawee.
(c) Notwithstanding paragraph (1) of subdivision (a), if the drawee is a bank, the bank’s address need not appear on the instrument and, in that case, the instrument shall be negotiable and payable in cash, on-demand, without discount, at any place of business of the drawee chosen by the person entitled to enforce the instrument.”
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