Beware of Check Cashing Fees

by Vince Gannuscio

Under a little known Labor Code statute, California employers may unknowingly be subjecting themselves to criminal and civil penalties merely by virtue of where they bank. This statute is Labor Code §212. Section 212 prohibits employers and their agents from issuing any paycheck or other form of payment to their employees unless it can be negotiated for cash, “without discount,” at some established place of business within the state. Essentially, this means employers are required to provide a means for employees to cash their paychecks without their having to pay a fee.

Traditionally, employers have been able to meet this requirement through their local bank ... employees, like any other payee of a check, could take the check to their employer’s bank and cash the check without paying a fee.

Recently, two major banks—Bank of America and Wells Fargo—have imposed a $5 charge for non-account holders to cash checks at their branches. If an employer has an account at these two banks, and an employee attempts to cash a check there without having an account at those banks, the employee is subject to a $5 charge to cash that check. Officials from the Department of Industrial Relations, which oversees enforcement of California’s labor laws, have publicly stated that an employer who banks at Bank of America or Wells Fargo are now in violation of Labor Code §212 because employees can no longer cash their paychecks there “without discount.”

The potential penalties for violation of this statute can be quite severe. Under the law, employees who have been subject to the fee can sue their employers to recover the amount of the payment plus a penalty—$100 for the first offense; $200 plus 25 percent of the fee for subsequent offenses. For businesses with even a modest amount of employees, potential penalties can become quite severe.

Further, Labor Code §215 provides that violations of §212 are punishable as a misdemeanor. Although no known employers have yet been prosecuted for violations of §212, an employer could potentially go to jail merely because they do business with the wrong bank!

Fortunately, employers can avoid this obviously harsh result with a few simple steps. The first, and most obvious, is not to do business with banks that charge the $5 fee. To date, only Wells Fargo and Bank of America charge the fee. It is possible that other banks may follow suit. When opening new business accounts or changing banks, an employer should ask if that bank imposes a fee for non-account holders to cash checks.

Employers may also consider alternatives, such as offering in-house check cashing services to employees, or instituting direct deposit payments to all employees (assuming that all employees have bank accounts). Businesses finding it impractical to leave Wells Fargo or Bank of America may also request that the banks eliminate the fee; some large employers (most notably the City of San Francisco) have been successful in doing this.

Roxborough, Pomerance, & Nye LLP has stepped into the battle on behalf of employers. The firm recently filed class-action lawsuits against both banks on behalf of employers who potentially have been placed in violation of the law through the banks’ check cashing policies. The lawsuits ask the courts to stop the practice of charging employees a fee to cash checks, and to warn employers that their check cashing policies may cause them to violate the Labor Code.

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