Recently, a client sought my advice because an employee who had been discharged did not cash the final paycheck such that it became stale and could no longer be honored by the bank. The client understood that, at the time of separation, it was required to pay the full wages owing (and this included used vacation days pursuant to its employee handbook). Although the employee had not returned a laptop computer provided by the employer, no deduction for its value was taken from the final pay, in compliance with the New York Wage Theft Act; basically, the employer can keep your computer; you cannot deduct from the final wages but may sue for money damages.

The client’s question was whether, having issued the check and having waited 90 days during which it could be negotiated, did the employer fulfill its wage payment obligations---in other words, can it now keep the money?

Surprisingly, the Fair Labor Standards Act does not address this question. Although state laws differ, the general principle is that the employee is responsible for converting the paycheck into negotiable funds. However, if he does not do so, it is possible that the state’s statute of limitations on unclaimed funds could run out, resulting in the employer holding unclaimed property.

So what happens next? And no, the employer doesn’t get to keep the money at that point. An employer possessing unclaimed property is subject to reporting requirements AND is required to turn the property over to the state. Written notice must be sent to the owner of the unclaimed property at the last known address. And, ultimately, the property would escheat to the state. Yes, the state would be the beneficiary! The unclaimed property law imposes substantial penalties on employers in violation.

Whenever an employee does not cash or deposit a check, you should give written notice, preferably by certified or registered mail because the last thing you need is a claim for unpaid wages under the Wage Theft Act from a disgruntled ex-worker who is looking to start a case.
Note: if you are not familiar with the Wage Theft Act, as it is called in New York, or the correlative laws of other jurisdictions, you should be! Mandatory rate of pay notices, annual reporting, etc. are all covered under the act, which places the onus on the employer. It is extremely easy for an employer to simply forget the magic date of February 1, when annual wage reports are due or to fail to issue an updated report when the rate of pay, job title or status (full time or part time) changes. The legal exposure is substantial and the risk is exponentially increased when employers do not have employment counsel on board.

Have a question or comment?
Contact Jennifer at Jennifer@Kirschenbaumesq.com or at (516) 747-6700 x. 302.