Wage Law

Employees who have to pay a fee or incur a delay in getting funds from their paychecks because the checks are written on an out-of-state bank have standing to bring a class action lawsuit against their employer. In March 2006, a class action lawsuit, Fleming v. Dollar Tree Stores, Inc., U.S District Court case no. 06 CV 03409 MJJ, was filed against Dollar Tree Stores, Inc. This complaint arose because Dollar Tree paid its wages in the form of paychecks issued by an out-of-state bank with no in-state address for presentation and no provision for negotiating the paycheck within the State of California. Thus, its employees were required to pay a fee to cash their paycheck or were subject to having a hold placed on their paychecks. In denying a motion to dismiss and motion to strike, U.S. District Court judge Martin J. Jenkins ruled that such a policy runs afoul of California Labor Code § 212.

California Labor Code § 212(a)(1) regulates the payment of wages by check, and requires such checks to be: (1) negotiable, (2) payable in cash, (3) on demand, (4) without discount, (5) at an established place of business in the State, (6) the name and address of which appears on the instrument, and (7) which place of business has been prepared, by the deposit of funds, the establishment of credit, or by some arrangement or understanding, to pay the money called for by the instrument.

Dollar Tree's payroll checks were drawn on Wachovia Bank, which has no locations in California. Hence, section 212 applies to Dollar Tree's payroll.

Dollar Tree attempted to avoid liability by citing to a narrow exception under Section 212(c), exempting bank employers from the requirement of printing the name and address on employees' paychecks. that argument failed. Section 212(c) reads,

"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."

However, both the plain language and the legislative history indicate this exception applies to bank employers and only exempts them from the requirement of printing the name and address on the paycheck.

Dollar Tree also attempted to invoke National Bank Act (NBA) preemption, claiming that section 212 impairs the efficiency of the national banking system, because it requires out-of-state banks doing business with California employers to open California branches. The court rejected that argument, too. The purpose of the NBA is to regulate national banks. Weiner v. Bank of King of Prussia (E.D. Pa.1973) 358 F. Supp. 684, 687. An entity that is neither a national bank, nor a wholly-owned subsidiary of a national bank may not claim preemption under the NBA.

The court also rejected Dollar Tree's claims that section 212 violates the "dormant Commerce Clause" because (i) on its face section 212 does not discriminate between in-state and out-of-state commerce; (ii) section 212 does not have an incidental discriminatory or practical effect on out-of-state employers or banks; and (iii) the burdens imposed are not clearly excessive in relation to the State of California's legitimate local interests in protecting in-state employees.

Finally, the court rejected Dollar Tree's claim that section 212 violates the Equal Protection Clause. Under Equal Protection analysis, state legislation ordinarily is entitled to broad deference from the federal courts and will be sustained so long as it is rationally related to a legitimate state interest. See, e.g., Exxon Corp. v. Eagerton (1983) 462 U.S. 176, 195-96, 103 S. Ct. 2296, 76 L. Ed. 2d 497. There is a rational basis for the State of California to protect its in-state employees, and the state has a legitimate interest in ensuring its in-state employees do not face delay or additional costs in receiving their earned wages.

The court also held that, under California's Unfair Competition Law, a four-year limitations period applies. The recovery of "costs incurred" is a proper form of restitution under California Business and Professions Code § 17200, even though Dollar Tree was not the actual recipient of the lost wages and costs incurred by Plaintiffs, because Dollar Tree profited by unfairly passing costs to the Plaintiffs. Restitution, including restitutionary disgorgement of profits, is a proper relief under section 17200. See Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal. 4th 1134, 1148.

Despite repeated failures to obtain dismissals without any factual determinations regarding class issues or merits, defendants are more frequently filing motions to dismiss, particularly in U.S. District Court, where it is perceived that such motions stand a better chance. The language in Fleming v. Dollar Tree is quite useful to any plaintiff facing such a motion. To read the entire opinion, check 2006 U.S. Dist. LEXIS 67749, 11 Wage & Hour Cas. 2d (BNA) 1633. Our firm does not represent the plaintiffs in this action. The plaintiffs are represented by the Thierman Law Firm P.C., the Law Office of Scott A. Miller, and the Law Office of Steve Miller. With potential penalties of $100 for the first violation and $200 for subsequent violations, on more than 100,000 paychecks per year, Dollar Tree's liability could be substantial, as the company acknowledged when it removed the case to U.S. District Court under the Class Action Fairness Act (CAFA). CAFA only applies to class actions involving claims exceeding $5 million.