Deductions to pay employee credit card charges authorized

The Ninth Circuit Court of Appeals has ruled that deductions for unpaid balances on company-guaranteed credit cards from paychecks issued to terminated employees did not violate the federal Fair Labor Standards Act (FLSA). Key to the court’s decision was the fact that the wages actually paid after the credit card deductions exceeded the FLSA’s overtime and minimum wage requirements.



Carrie Ward filed a lawsuit on behalf of herself and 19 other former Costco employees claiming that Costco violated the FLSA by deducting amounts they owed on Costco credit cards from the paychecks the former employees received on termination of employment with Costco. The credit card program allowed employees to make purchases at Costco using a credit card that was guaranteed by Costco in the event of an employee’s default. Pursuant to authorization agreements signed by the employees, after each of the employees involved in the case terminated employment with Costco, Costco deducted an amount equal to the employee’s credit card balance from a paycheck issued to the employee.

Six of the employees received a single paycheck after their termination, which included both pay for the final pay period and accrued vacation and sick leave pay, reduced by the amount of the credit card balance. Thirteen employees received two separate checks, with the credit card balance deducted from only one of those checks. For five of those employees, both checks included wages. For the other eight employees with two checks, one check included only leave pay, and the credit card deduction was taken from that check. In each case, whether the employee received one or more checks, the credit card deduction was taken from a check that also included leave pay, and the credit card deduction was less than the amount of the leave pay in all instances. Based on those facts, a U.S. district court concluded that Costco did not violate the FLSA’s minimum and overtime wage requirements, because no employee had an amount withheld high enough to invade minimum or overtime wages.

The employees appealed the district court’s decision, charging that the court improperly applied the credit card deductions to the employees’ accrued leave pay.

Deductions authorized


The Ninth Circuit upheld the district court’s decision, noting that the FLSA does not require employees to pay all remaining leave pay to employees on termination. Since the sum of vacation and sick leave pay for each employee exceeded the amount deducted under the credit card agreement, there was no reduction of the employee’s wages. It was undisputed that the hourly wages paid to each employee exceeded the FLSA’s minimum wage and overtime requirements. Therefore, the deductions did not constitute a violation of the overtime and minimum wage requirements. (Ward v. Costco Wholesale Corporation, No. 11-56757 (9th Cir., 1-9-2014.))

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