New Dangers For West Virginia Employers that Advance Wages

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A recent ruling from a judge in the Eastern Panhandle provides that companies that give wage advances to employees must use assignments to recoup the earnings. It is not unusual for employees to go to their employers and say that they are in financial trouble and need an advance on their wages. The employer, trying to be nice, gives the requested advance, but then deducts that amount from the paycheck that the employee receives later that week or month. After all, the employer is only paying the money in advance to the employee that the employer will owe the employee in any event a few days later. The Eastern Panhandle judge held that, if an employer gives the advance, the employer must then use the wage assignment form required by the West Virginia Department of Labor in order to recover the amount advanced. The advance cannot simply be taken from the next paycheck.

An example will perhaps better illustrate the import of this ruling. Say an employee asks for a $500 advance on a Wednesday in order to pay a bill. The employee would otherwise be paid on that Friday. The employer gives the employee the $500 on Wednesday, but then only pays the employee $1,000 of his normal $1,500 salary on Friday. According to the judge, this would be illegal.

Although the Court?s decision does not have the weight of a pronouncement from the state?s Court of Appeals, it sends a clear message that employers who provide employee advances need to examine their procedures. Some background on deductions from wages may be helpful.

West Virginia law states that payroll deductions not specifically authorized by statute may only be made through the use of a wage assignment. Approved deductions without an assignment include amounts required by law such as taxes, as well as union or club dues, pension plans, payroll savings plans, credit unions, charities or hospitalization or medical insurance. While it is well established that deductions for goods and services provided to an employee must be backed by an assignment, this is the first time of which we are aware that this notion has been expanded to include wage advances.
The requirements for a wage assignment in West Virginia are specific. To be valid, the assignment cannot be for a period of more than one year. In addition, it must (1) be in writing, (2) be signed by the employee, (3) be notarized; (4) specify the total amount due, (5) state upon the face of the document that three fourths of the ?personal earnings or wages? of the employee are exempt from assignment, and (6) be signed by the employer indicating acceptance of the assignment.

While these requirements may seem picayune, each one must be scrupulously followed or the assignment may be unenforceable. Opinions interpreting the law have found that "substantial compliance" with the statute is insufficient. Each and every one of the conditions should be met.
If an assignment is found unenforceable, an employer could lose the value of the goods, services or sums advanced and also face liability under West Virginia?s Wage Payment and Collection Act. Penalties under this law can be harsh. If employees demonstrate that wages were inappropriately deducted, they can be awarded not only that amount, but (depending upon the circumstances) also treble damages, interest on the unpaid sum and attorney?s fees and costs if the matter is litigated.

While wage payment lawsuits are bad enough in the context of any single instance of an inappropriate deduction, they are a nightmare if there is a systemic problem with an employer?s wage deduction process. In such cases, counsel for plaintiffs can seek class action status to aggregate multiple claims and increase exposure. With a five year statute of limitations for this type of allegation, it also means that once lawyers start digging for claimants, that there is a long look back period.

This new ruling is a cause for concern for any employer that advances wages, and is another example to show that "no good deed goes unpunished." To be on the safe side, companies should consider using wage assignment forms to ensure that they can recoup these sums and avoid lawsuits. While there is an administrative burden associated with strict compliance, it will almost always be substantially less onerous than the type of "gotcha" litigation that results from minor violations of the Wage Payment and Collection Act.

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(304) 598-8151
Morgantown, WV