Small Business: Finders Keepers: New York's Abandoned Property Law
November 30, 2008
By Philip I. Frankel, Small-Biz Focus, May/June 2008
This article first appeared in the May/June 2008 issue of Small-Biz Focus produced by Support Services Alliance, Inc. (SSA).
Money for Nothing?
Businesses, large and small, routinely issue checks for a variety of reasons, including as payment of wages to their employees and as payment for goods and services rendered by outside vendors. On occasion, these checks are never cashed by their owners. What happens when an employee, for example, is sent his or her paycheck and never cashes it? Is the employer, at some point in time, permitted to keep this amount as a windfall since it was never claimed? The answers to these, and other similar, questions are found in New York State's Abandoned Property Law ("APL"), and may come as a surprise to many businesses.
The APL generally requires organizations holding "abandoned property," which may include, among other items, wages, issued but uncashed checks, escrow payments, gift certificates and vendor checks, to report and pay over such property to the New York State Comptroller's Office on an annual basis. Determining when property becomes abandoned depends on the type of property at issue. For example, unclaimed amounts for services not rendered or for goods not delivered are deemed abandoned after five years. Unclaimed wages are subject to a shorter dormancy period, and are deemed abandoned after only three years. Although beyond the scope of this article, certain other requirements must be met in order for unclaimed wages to be deemed abandoned.
Businesses holding unclaimed funds must conduct "due diligence" by mailing notices to the check holders. The APL specifies when and how any such mailings must be sent. If the party claims the funds prior to the expiration of the applicable time period, the amount is not deemed "abandoned," and is to be paid to the owner. If the owner fails to claim the funds, the company must include this amount on an annual report submitted to the New York State Comptroller's Office identifying all abandoned property it holds. The holder must also remit the abandoned property to the Comptroller's Office. The Comptroller's Office holds these funds as custodian, meaning that owners of abandoned property held by the State forever remain entitled to claim their property. In the meantime, however, the State utilizes unclaimed funds for the benefit of the public at large.
Businesses are not entitled to keep unclaimed funds and other forms of abandoned property that fall within the APL. Failure to comply with the APL can expose businesses to fines and interest.
Businesses are encouraged to consult with their legal counsel regarding whether they may be holding abandoned property, and to assess their compliance obligations. Notably, for those businesses that have not reported abandoned property in the past, the Comptroller's Office offers a Voluntary Compliance Program. This Program allows first-time reporters of abandoned property to begin fulfilling their compliance obligations without being assessed interest or other penalties that would otherwise be imposed in connection with a violation of the APL.