I terminated an employee and mailed them their final paycheck. They contacted me a week later saying they did not receive it. I issued a stop payment on the check and reissued them a new check. Both checks were for under $200.



The employee had, in fact, received both checks and took them to a check cashing service. The check cashing service accepted both checks and cashed them. My bank declined payment on the first check (that had a stop payment on it).



When the payment was denied, the check cashing service contacted me, we explained the situation and they said they would pursue the terminated employee. They were unsuccessful and have filed a small claims court case against me. Am I liable for the first check?

I can't see any way in which you would be liable for the stopped check.

Your former employee is liable to the check cashing place. Sounds like the former employee's actions validated your decision to make him/her a former employee.

I don't think you are responsible (I hope you have a copy of the stop order, which is dated prior to the item be cashed), and I would tell the check casher that their issue is with your ex-employee, who, it appears, intentionally tried to defraud you, the check casher, or both of you.
Check cashing is a risky business, and they realize this is one way of many that they can have a loss.

Sorry, but the fact that you stopped payment on the first check does not get you "off the hook" with an innocent holder in due course.

You may have your own opinion of check cashing outlets, but this one apparently cashed the first check in good faith, gave value for it, and was not aware of any claim you had against payment. That makes them holders in due course and able to enforce payment of the original check against you.

Your bank cannot pay the stopped check. But you may have to, and then your only recourse will be against the discharged, dishonest employee.

Only if you can prove that the check cashers knew the first check had been stopped can you prevent them from collecting from you.

But John, the employee knew that payment was stopped on that check. Doesn't that make him a fraudster?

But Fraud Dawg, the obligee defrauded the company, why should a party that was not a party to the underlying transaction and had no notice of the fraud take the loss just because they are providing a service? If it were stamped on the check, they might be considered "on notice." I am not sure how the courts would treat that.

I guess it just burns me that these little creeps can get away with that sort of stuff. And I understand what everyone is saying, however, check cashers know that there are these types of risks involved.