We have a customer who is typically overdrawn (don't get me started with why the account is still open). When he does issue checks more often than not the payees will come in to cash the checks. Recently I noticed that some are coming in and getting cashier's checks rather than taking the cash (some of his employees live out of state and I can only assume they do not want to carry the cash or do they want to take the chance of waiting to deposit the check - smart cookies). To the best of my knowledge these are not sales - we've had a debate as to whether they are recorded in our automated system and MIL or not. My position is since they aren't sales, they are not entered on the MIL or entered into our automated system.

You are correct.
They are not being purchased with cash.
In other words, no one walked into your bank with cash for the purchase of a negotiable instrument.
This is just an exchange of a check for a cashiers check.

You will want to review your policy for issuing (selling) official checks to non-customers. If your policy states that you will not do so, you will want to consider amending to state that you will sell to a non-customer in lieu of an on-us check.