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PetSmart settles dogfight over use of prepaid ATM cards for final wages

By Lisa Milam-Perez, J.D.

Earlier this month, PetSmart settled a California Labor Code class action alleging that the retailer improperly paid out employees’ final pay upon termination using a prepaid card that came with user fees attached. A federal district court in California gave preliminary approval to a $1 million settlement resolving claims on behalf of a class of 1,100 former PetSmart employees in the state (Pace v. PetSmart, Inc., January 14, 2015, Carter, D.).

Prepaid paycards. PetSmart offered three options by which employees could receive their wages: check, direct deposit, or prepaid Money Network Paycard. The default payment method is by check, and an employee must submit a specific authorization form to be paid by direct deposit or pay card. However, when an employee is terminated or resigns, PetSmart always pays out the final wages on a pay card, even if the authorized method of pay is direct deposit or check. To access funds on a pay card, employees use the card like an ATM card to withdraw funds or pay for items. An employee can also use three blank checks that are distributed with the pay card. But there are fees associated with both methods.

After her termination, a former PetSmart pet groomer was given her final wages on a pay card, and she incurred fees when she accessed her wages. She filed suit, alleging the use of the cards violated California Labor Code provisions requiring full payment of wages owed upon termination and providing that an employer may not pay wages in any manner that is not “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.”

Class certification. In June 2014, the named plaintiff was granted certification of a Rule 23 class comprised of former PetSmart employees in California who worked at any time from February 2010 through the present and were paid through check or direct deposit during their employment, but were given their final wages upon termination in the form of a pay card. For settlement purposes, the court also conditionally certified a class of such individuals who were employed anytime from July 1, 2014 through the date of preliminary approval. The parties had stipulated to class certification—a fact that was to have no bearing on whether the class should be certified in the event that, for whatever reason, the agreement does not become final.

Settlement terms. According to a declaration by class counsel, the agreement fully releases PetSmart in exchange for a nonreversionary payment of $1 million, or approximately 38 percent of the potential value of the settled claims, calculated at $2.6 million. About $570,000 of the settlement fund would go to class members, after factoring in attorneys’ fees, settlement administration costs and other expenses. Each class member would receive an estimated $475 on average.

The court found that the settlement, on its face, appeared to be “fair, reasonable, and adequate,” its terms well within the “range of reasonableness, and to have been reached through extensive arms’ length negotiations. A finding that the agreement was non-collusive was validated by the fact that a mediator was involved. The proposed agreement had no “obvious deficiencies,” and did not improperly bestow favored treatment to any individual class member, the court found. Consequently, it granted preliminary approval, and also signed off on the proposed class notice.