New regulations addressing compensation of New York employees by payroll debit cards and direct deposit are struck down

March 16, 2017

Employment Law Alert

Author(s): Christopher G. Gegwich, Tara E. Daub, Christopher J. Moro

On February 16, 2017, the New York State Industrial Board of Appeals (the Board) issued a Resolution of Decision revoking the recent regulations issued by the New York State Department of Labor (DOL) limiting the methods by which New York employers may compensate their employees by direct deposit and payroll debit cards. As a result, employers need not comply with the various requirements set forth in the new regulations, but must continue to follow existing laws governing the compensation of employees.

As we previously reported, on September 7, 2016, the DOL issued regulations establishing various notice, consent and recordkeeping requirements for employers using direct deposit and payroll debit cards as a means of compensating employees, effective March 7, 2017 (the Regulations).[1] On October 21, 2016, in response to the Regulations, Global Cash Card, Inc., a payroll debit card vendor, filed a petition with the Board alleging that the Regulations were invalid and unreasonable on a number of grounds. The Board agreed and struck down the Regulations, finding that they exceeded the Commissioner of Labor’s rulemaking authority under the New York Labor Law (NYLL) by attempting to regulate banking services. Moreover, the Board found that the Regulations improperly placed restrictions on financial institutions by seeking to regulate the fees associated with payroll debit cards.

In coming to its decision, the Board focused on the portion of the Regulations concerning payroll debit cards and examined the tortured history of prior iterations of the Regulations, along with nine recently proposed, but unsuccessful, bills seeking to establish laws governing the methods of compensating employees. The Board also noted that several members of the New York State Assembly submitted public comments both in support of and in opposition to the Regulations. According to the Board, this history revealed significant and longstanding concerns that laws and regulations concerning the use of payroll debit cards to compensate employees encroached on banking laws and regulations. The Board concluded that the inability of prior laws and regulations to obtain any traction suggested that this issue is a “[m]atter of public concern being debated within the legislature,” and thus, is beyond the regulatory ambit of an administrative agency. Relatedly, the Board inferred that “[t]he legislature’s failure to amend the statute demonstrates their satisfaction with the current statutory language or their inability to reach consensus on the manner in which payroll debit cards should be regulated under the Labor Law.” Ultimately, the Board found that the Regulations were invalid and revoked them in their entirety.

Notably, while the Board’s opinion chiefly analyzes the portion of the Regulations regarding payroll debit cards, the Board completely revoked the Regulations, including the notice, consent and recordkeeping requirements for employers using direct deposit to compensate employees.

In light of the Board’s decision, New York employers do not need to amend their compensation policies and procedures to comply with the Regulations at this time. Nevertheless, consistent with the existing requirements of the NYLL, employers must obtain advanced written consent from an employee before directly depositing wages into the employee’s bank or other financial institution. The DOL has 60 days to appeal the Board’s decision to the Supreme Court of the State of New York, Appellate Division, Third Judicial Department.


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