A new case puts the focus on the importance of complying with Labor Code paycheck rules, particularly the requirements that 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) and printing on the paycheck the name and address of where checks can be cashed. We’ll look at what happened.
Paycheck Practices Challenged
The case involved The Regis Corp., which has a number of subsidiaries that operate hair salons in California, including Supercuts. Liliana Solis worked for about a year at a Supercuts in Thousand Oaks and experienced difficulties 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.
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.
Employer Violated Paycheck Rules
A federal district court in San Francisco ruled in the employees’ favor.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.
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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.
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.
Other Penalties May Apply
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.
1Solis v. The Regis Corp., U.S. District Court (N.D. Cal.) No. C05-03039, 2007