United States: New York State Industrial Board Of Appeals Invalidates New Regulation Governing Payment Of Wages By Direct Deposit Or Debit Card

Last Updated: February 21 2017
Article by Eli Freedberg

On February 16, 2017, the New York State Industrial Board of Appeals ("IBA") issued an order revoking changes to New York State's regulation governing employers that pay their employees by direct deposit or debit card. This regulation was scheduled to take effect on March 7, 2017. The IBA is an independent review agency with the primary duty of reviewing the validity and reasonableness of certain rules, regulations or orders issued by the New York Commissioner of Labor. A summary of the invalidated regulation and the IBA proceeding follows.

Summary of the Invalidated Regulation

On September 7, 2016, the New York State Department of State published a final regulation amending the requirements for paying employees by direct deposit or payroll debit card.

Under existing rules, employees could not be forced to accept wage payments by direct deposit or debit card. However, the new regulation required that employers provide written notice to all employees who elected to receive wages by direct deposit or debit card, even those who had previously agreed to be paid that way. This notice had to: (i) describe, in "plain language," all of the employee's options for receiving wages (i.e., by check, direct deposit, and/or debit card); (ii) expressly provide that the employer cannot compel the employee to accept wages by direct deposit or debit card; (iii) expressly inform the employee that she may not be charged any fees for services that are necessary for the employee to access the wages in full; and (iv) if the employer is offering the employee the option to access wages by debit card, provide a list of locations (that must be in "reasonable proximity" to the workplace or residence of the employee) where the employee can access and withdraw the wages at no charge. The new regulation also mandated onerous record-keeping requirements and required employers to issue notice and direct deposit/paycard consent forms in various languages.

The regulation also placed significant limitations on the terms and conditions of payroll debit cards that employers issued to employees. Specifically, the regulation prohibited certain common fees associated with the use of these cards, such as fees for: (i) application, initiation, loading, participation or other action necessary to receive wages or to hold the payroll debit card; (ii) point-of-sale transactions; (iii) overdraft, shortage, or low balance status; (iv) account inactivity; (v) maintenance; (vi) telephone or online customer service; (vii) accessing balance or other account information online, by interactive voice response through any other automated system offered in conjunction with the payroll debit card, or at any ATM in network made available to the employee; (viii) providing the employee with written statements, transaction histories or the issuer's policies; (ix) replacing the payroll debit card at reasonable intervals; (x) closing an account or issuing payment of the remaining balance by check or other means; or (xi) declined transactions at an ATM that does not provide free balance inquiries.

Summary of the IBA Order

A company called Global Cash Card, Inc. ("GCC") filed a petition before the IBA seeking to invalidate the September 7, 2016 regulation. GCC is a payroll debit card vendor that provides custom payroll debit card programs to employers in New York State. GCC argued that the New York State Department of Labor exceeded its authority by issuing the list of prohibited fees set forth in the regulation, because the New York State Department of Financial Services -- which regulates banks, financial institutions, and the fees they may charge for banking services – has exclusive authority to restrict the fees that financial institutions charge their customers. GCC pointed out that at least eight bills seeking to limit the fees associated with payroll debit cards were introduced but failed to pass in the state legislature. GCC also argued that the proposed regulation and prohibitions on assessing different types of fees constituted a significant departure from the New York State Department of Labor's prior positions as expressed in various opinion letters and from the statute that authorizes payment of wages by pay card.

The IBA agreed with GCC's position, finding that the new regulation exceeded the New York State Department of Labor's rulemaking authority and encroached upon the jurisdiction of banking and financial services regulators. Accordingly, the IBA ruled, "[t]he regulations regarding methods of payment of wages adopted September 7, 2016 to be codified as 12 NYCRR part 192 are revoked."

At the present time, it is not known whether the New York State Department of Labor will appeal this decision, and if it does, what the timeframe of any such appeal will be.

Conclusion

Although GCC primarily challenged the sections of the regulation prohibiting fees and restricting the terms of payroll debit cards, the IBA's decision was expansive and appears to have invalidated the entire September 7, 2016 regulation. The IBA, however, did recognize the "well-founded concern that low wage workers without access to traditional bank accounts will be coerced by their employer to receive their wages by payroll debit card at a significantly lower payroll cost to the employer and that employees paid by payroll debit card may be subject to excessive or hidden fees when accessing their wages." The IBA also stressed that Section 192 of the New York Labor Law makes it illegal for an employer to coerce employees to access wages by direct deposit or payroll debit card and further recognized that Section 193 of the New York Labor Law makes it illegal for an employer to make any direct or indirect charge to an employee to receive her wages. This certainly suggests that the notice and acknowledgment provisions of the regulation, if considered in isolation, might have been found properly within the Department of Labor's bounds, and may encourage the Department to promptly re-issue that portion of the regulation.

Unfortunately, the decision comes only several weeks before the effective date of the new direct deposit/debit card regulation and after many employers have taken steps to comply with it. Based on the foregoing, if possible, New York State employers can freeze plans to modify their policies and practices concerning issuing wages by direct deposit or debit card. Based on the IBA's warnings, however, employers should still ensure that the fees associated with use of payroll debit cards are reasonable and that the use of direct deposit or pay cards is in fact voluntary on the part of employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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