Employer’s Final Paycheck Deductions Upheld

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The Ninth Circuit just held that an employer is entitled to deduct from an employee’s final paycheck money an employee owes to the employer. Ward v. Costco Wholesale Corp. Costco issued Ms. Ward a company credit card, but required her to sign a contract allowing Costco to deduct any remaining credit card balance from her unused vacation and sick pay. When Ward was terminated, Costco deducted roughly $1,000 from her final paycheck, all charged against Ward’s unused vacation and sick pay. Ward still received minimum wage and overtime for her final 40 hours of work.

Ward brought an FLSA collective action on behalf of a class of Costco employees, and also asserted violations of California’s termination pay statute. The District Court dismissed the case, and the Ninth Circuit summarily affirmed the decision in a brief opinion. The Ninth Circuit held that nothing in the FLSA requires an employer to pay unused vacation and sick pay, so deductions from those amounts did not violate the FLSA. The Ninth Circuit also held that these deductions did not violate California’s termination pay statute because Ward contractually agreed to forfeit her unused vacation and sick pay with respect to any outstanding credit card balance.

The Ninth Circuit reached the correct conclusion here. The conclusion was, however, driven by the contract in the case.