Paychecks: Decision Underscores That California Employees Must Be Able to Cash Paychecks in State and Without Cost; Violations Can Be Expensive

The Regis Corp. has a
number of subsidiaries that operate hair salons in California. The businesses include Carlton
Hair International, Mia & Maxx, Supercuts, and Mastercuts. Liliana Solis
worked for about a year at a Supercuts in Thousand
Oaks and experienced difficulty cashing her paychecks.
The parent corporation in Chicago was processing
payroll at the time for the subsidiaries, and all paychecks for the
subsidiaries’ California employees were drawn
on LaSalle Bank in Chicago.
On a few occasions, Solis had to pay a $5 or $6 fee to cash her check; at other
times she had a hold placed on the check because it was drawn on an
out-of-state bank, so she couldn’t cash it on the spot.

Class Action Suit Filed
Over Paycheck Issues

After leaving Supercuts,
Solis filed a class action lawsuit against Regis and its subsidiaries on behalf
of several hundred Regis salon employees in California. She charged that the company
violated California Labor Code Section 212, which requires that paychecks be “negotiable
and payable in cash, on demand, without discount [i.e., without a fee],
at some established place of business in the state, the name and address of
which must appear on the instrument.” Regis countered with evidence that some
employees never had to pay a fee to cash their paychecks, and others never had
a hold placed on their checks.

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The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

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Court Finds Paycheck
Violations

A federal district court
in San Francisco has sided with the employees.1 The court explained that
the paychecks Regis issued to California
employees didn’t bear the name and address of a California business where the checks could
be cashed on demand and without discount. This, in and of itself, was a clear
violation of Section 212 as to Solis and the other class members, ruled the
court, regardless of the check-cashing fee or hold issues.

Regis argued that this
violation didn’t make it liable for penalties to all of the class
members. Regis pointed to Labor Code Section 225.5, which authorizes penalties for
Section 212 violations that resulted in wages being unlawfully withheld.
According to Regis, employees who didn’t have to pay check-cashing fees and
didn’t have holds placed on their checks never had their wages unlawfully
withheld, and thus weren’t entitled to penalties. Penalties could be recovered,
argued Regis, only by those employees who could prove that they were actually “injured”
by the out-of-state checks—that they had to contend with a hold on a paycheck
or had to pay a fee to cash it.

The court agreed with
Regis that Section 225.5 penalties can only be imposed when an employer “unlawfully
withholds wages due.” Having to pay check-cashing fees or having a hold placed
on a paycheck falls into this category. In particular, if an employee has to
pay a fee to cash the check, the employee receives less than he or she was
owed, which is tantamount to withholding. Similarly, when a bank hold is placed
on a check, the wages are essentially withheld for those days on which the hold
is active.

 

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It’s not hard to see how quickly these penalties can add up when a number of employees are involved and the errors span many pay periods

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However, said the court,
not printing the required business information on paychecks doesn’t necessarily
result in unlawful wage withholding. Even though such information may be
missing from a paycheck, an employee may still be able to cash the check
without a fee or hold—and receive all of his or her wages—and thus no Section

225.5 penalties would be due.

PAGA Penalties?

The court went on to
point out that even though Section 225.5 penalties may not apply, an employer could
get hit with other penalties under the Private Attorneys General Act (PAGA).
That’s because if the Labor Code itself doesn’t specify a penalty for a
violation, PAGA imposes a penalty for that violation.

Know the Rules

This case puts the focus
on the importance of complying with Section 212 paycheck rules. The penalties for
violations can be steep, whether imposed under Section 225.5 or by PAGA, and
they apply even if the paycheck problems weren’t intentional. Both Section 225.5
and PAGA impose penalties of $100 for each aggrieved employee per pay period
and $200 for subsequent violations. Section 225.5 additionally requires employers
to pay 25 percent of the amount unlawfully withheld for subsequent or willful
violations. These penalties can add up quickly when a number of employees are
involved and the errors span many pay periods.

To comply and avoid
claims, you must ensure that California
employees have a free means of cashing their paychecks here in the state,
although checks do not have to be issued by a California bank. This can be done
through the bank that issued the check, an in-house check-cashing service, or
you can arrange to pay fees on employees’ behalf. Also make sure that the name
and address of the place where checks can be cashed are printed on paychecks.

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1 Solis v. The Regis
Corp., U.S.
District Court (N.D. Cal.) No. C05-03039, 2007