I don't know what the employer might have done besides that. It's a business risk, I know. In simpler times, either the employee would have been honest, or the employer would have know the employee well enough to see his/her dark side. The result of these problems isn't always desirable from every perspective. But the fact of the matter is that the employee is the crook here, and the employer was the party with the most knowledge and the best chance of preventing the fraud.

In theory, too, the employer will be in the best position to know where to find the perp. So, the employer gets left holding the bag unless somehow the employee can be made to repay his/her ill-gotten gains.

Fair? The employer won't think so. Just? Debatable.

They way I understand it, check-cashing companies are putting themselves knowingly at risk, cashing checks that they have not verified the funds for. I don't see how the payer is responsible for them cashing a check that had a stop pay on it.

The law doesn't create a special category of holder for professional check cashers. While they admittedly take on added risk, they are also entitled to use the law for their own protection when it is available to them. Check cashing businesses are well-versed in what their legal rights are, and will exercise them doggedly when they need to.

Unless and until the law is changed (and I don't see that happening), an employer who replaces a "lost" paycheck does so risking that a dishonest payee will rip off the employer by lying about the first check, and cashing both.

You always explain the rationale very clearly, John. How would you explain the liability if the employee reported the check not merely lost but definitely stolen, say, if her purse was snatched on her way to the bank, and the thief was actually the one who got money from a check casher? (After all, there's probably ID in the purse, too.)

In the most fair of all possible worlds, of course, the thief would pay, but that's not going to happen.

Would writing "Third Party Endorsement Prohibited" on the check prevent this type of double-paycheck scam?

Fraudbuster - If the check had been transferred to the check cashing store with a forged endorsement, I think the outcome would be different. The store would not become a holder in due course because the thief would not have been a holder. That's my gut-level response, without a lot of research. In that case, the check cashing store would be left holding the bag, unless able to effect an arrest, conviction and restitution (good luck to the Mets, too!)

I think the only way an employer could prevent such a scam would be to pay employees in cash or cash all of their paychecks on the premises. That's not likely to happen.

This is not an area that I know anything about, but I'm curious - what if the employer would have waited 30 days (or 60 days?) before re-issuing the check? Would that be an option?

The employer might have been concerned about state labor laws that might require that people get paid promptly. But I'm not so sure they would have applied in this case, since the employee did receive the first paycheck. It might have been a good strategy.

Having been there (in the non-banking working world), I have seen some awfully convincing pleas for replacement checks made to some soft-hearted employers. So I can understand how this can happen.

Does anyone know if there is there anything I can write on the checks that I issue to employees that says "Only negotiable at banks" or "not negotiable at non-bank check cashing establishments" or something like that which would make it impossible for a person to cash the check at a check cashing store? That way, I could know that when I issue a stop payment on a check, it will not be cashed.

As John stated above, there is no such language to limit where a check is cashed and they could easily have cashed it at another bank, who also would not have known about the stop payment order.