A settlement reached in California in early August 2009 pertaining to gift cards sold in that state is worth reporting. The settlement, between a major coffee retailer and the state, resolved alleged violations of certain provisions that were added to California’s gift card statute in 2008. Specifically, the law in California requires all businesses, upon a customer’s request, to redeem gift cards and certificates for cash, if the remaining balance on the card or certificate is less than $10, provided the card or certificate was not (i) part of an award, loyalty or promotional program, or (ii) sold at a volume discount to employers, nonprofits, or charities for fundraising purposes, if the expiration date on those cards is 30 days or less from the date of such sale.

The settlement terms reached in this case will likely become an inflection point for businesses in this state, and may even dictate a somewhat new modus operandi. In addition to the $225,000 civil fine, investigative and legal costs, and restitution that this retailer was compelled to pay, the state required the coffee retailer to add a button to each of its point-of-sale devices (aka cash registers) that would facilitate the immediate redemption of a customer’s gift card. Moreover, the retailer was required to design, implement and maintain training programs for its employees on how and when to redeem gift cards, and was further compelled by the state to post signs throughout all of its retail locations on consumers’ rights to have their gift cards redeemed when the balance dropped below $10.

Although it is still too early to know which of these requirements will eventually become commonplace among retailers in California, this settlement serves as an important precedent and development that business owners need to know is out there.