Cashing Cancelled Cheques

An employee was given an salary advance cheque which was subsequently cancelled because he did not finish the job. The employee took the cheque and cashed it anyway at a money market and has since disappeared. Now the money market is taking my company and the employee to small claims court. What is my defence? I was told I had none and to settle it out of court as soon as possible before the amount escalates. Your advice is most appreciated. Thanks.

You normally are not required to pay if you properly stopped the check for good reason. Call your banker to discuss as well. They will help you to resolve this.