California employers are breaking the law if they process their paychecks through
banks that charge check-cashing fees to workers who don't hold accounts with
the banks, state officials said this week.
The state Department of Industrial Relations issued the statement in response
to a San Francisco Chronicle column last Sunday that explored such fees.
Since August 2002, Bank of America has required Californians who don't hold
accounts at the bank to pay $5 anytime they want to cash a paycheck issued by
a BofA business client. Wells Fargo plans to follow suit on April 1.
The state Department of Industrial Relations said the charges violate Section
212 of the California Labor Code, which requires that payroll checks "be
negotiable and payable in cash, on demand, without discount."
"It is clear that every employer who has allowed a fee to be charged for
cashing a paycheck is in violation of the labor code," said Dean Fryer,
a department spokesman.
The banks are off the hook regarding Section 212, according to the Chronicle's
David Lazarus, who wrote the original column. That's because a federal court
ruled last year that state laws cannot block a major financial institution from
imposing fees for check cashing.
But the banks do have to worry about another part of the labor code, Section
215. It stipulates that any "agent'' of a California employer who violates
Section 212 is guilty of a misdemeanor. Fryer told Lazarus for a follow-up column
that the department's lawyers are studying whether banks are agents and thus
violating the law in their capacity as payroll processors.
Lazarus notes that employers are required by law to pay a $50 fine the first
time check-cashing fees are levied on employees. All subsequent violations are
punishable by a $100 fine plus 25 percent of the amount deducted.
"We're talking about thousands of companies and tens of thousands of people
whose checks are written on bank accounts," Fryer said, adding that the
issue is now "one of the highest priorities" for the department.
Lazarus said it's unclear exactly how many California workers may be affected,
because Bank of America will not specify its number of business accounts in
the state or how many companies use the bank to issue paychecks. Wells Fargo
also refuses to disclose such information.