It is a legal term. In my example, the check cashing place has a properly endorsed check, no hint of fraud, and you have to honor it. Stop payment, loss claim, does not matter. You have to deal with the employee, and probably, at least at first, have to pay the employee as well as the check cashing place. Your recourse is only with the person the check was made out to... The third party gets PAID no matter what, if it meets the due course rules (and in practice, even if it does not, since it is likely cheaper to pay than to fight).
https://www.law.cornell.edu/ucc/3/3-302
Likely examples and explanations by online search.
Those that work in large payroll offices are familiar with this, as given enough volume and time, they will see it. Came up for me many years ago when a payroll check was :"washed". The party who got the "washed" check could have easily claimed the check met the HiDC rules. Thankfully, was only for someone I was preparing payroll for. The employer ended up paying both the employee (who must have lost the check) as well as the recipient of the washed check. It was a business with high turnover, and the employee turned over shortly after - I have no idea why... I did get to see the washed check. it was done very well. Lost "art" now, since anyone can print checks as long as they have a valid routing and account number. No more "Catch Me if You Can".
Cash is the only way to safely pay employees - safely meaning no later risk of having to pay twice assuming some sort of valid proof of receipt is collected. There are still some who choose this method, and I have not seen any locality where cash is not allowed.
If I were back in the days where I was paying lower paid employees with fair turnover, with my current knowledge, it would be cash payouts for me. (Secondary reason, the local officials would likely give me a concealed carry permit again, with cash carrying being the reason).