Many employers aren’t aware that a failure to properly administer a garnishment of an employee’s wages can result in employer liability for a significant amount of money. In most states, an employer that makes even the slightest mistake when administering a garnishment (such as being late on a required disclosure) can become liable to the creditor for the full amount of the judgment that the creditor had obtained against the employee. Many of these judgments are for only a few hundred dollars, and others are for a few thousand—but some rise up to the hundreds of thousands of dollars. In one case, an employer that was 10 days late on its answer was found in default and ordered to pay a whopping $596,000 judgment against the employee.
What Is A Garnishment?
A garnishment is a court order that directs an employer to timely and accurately disclose information about the wages that it pays to an employee/judgment debtor and to withhold a certain amount of those wages from the employee and send it to a creditor instead. Garnishments have rarely drawn much attention within companies, but that has been changing. The reason for the extra attention is the dramatic increase in the number of garnishments issued in the past decade and the increase in the number of employers that have been stung by the garnishment process—a process that seems rigged against employers.
The History of Garnishments
Why is the employer exposed to such financial risk by virtue of a garnishment? The answer may be found in the nature of the garnishment process and its history. Judgment creditors collect their monetary judgments through garnishment, a statutorily-created process that holds third parties responsible to pay the debts of judgment debtors. The garnishment process was created in most states 100 or more years ago (for example, in 1784 in Connecticut and in 1861 in Michigan) to allow creditors to get around a ploy that debtors often used to avoid paying debts: Some debtors would plead poverty while at the same time giving away all of their assets or money to a third party for safekeeping, to be returned later. In this context, the third party was often in cahoots with the debtor. Because of the potential for this kind of duplicity, legislatures believed that rough treatment under the law was warranted.
Over the years, the situation changed dramatically. Employers are not the equivalent of these third parties of yore, safeguarding debtors’ assets or scheming with employees to help them avoid judgment debt payments. While there is less duplicity to worry about in the employment context, garnishment laws have not changed in their severity. As a result, employers are often caught between the employee and the creditor—striving to fulfill their obligations to employees under wage payment laws, and to fulfill their obligations to creditors under garnishment laws.
Tips for Administering Garnishments
The best way for employer to protect their companies from these risks (and the massive judgments that may be lurking out there) is to: (1) become familiar with garnishment statutes and case law; and (2) develop a reliable procedure to timely and accurately process garnishments. Here are some key points that employers should keep in mind when developing a procedure to process garnishments.
Employers should never ignore and always strictly follow a garnishment. It is a court order directing the employer to perform a certain act. Therefore, employers should always answer the garnishment even when the person is not employed or appears not to earn enough money.
Employers should be aware of the varied and complex patchwork of laws that apply. Each state has a unique law (or constitutional provision) and a unique procedure regarding garnishments. Every state other than Texas and South Carolina has a law authorizing judgment creditors to obtain a garnishment of periodic payments, such as wages. (Pennsylvania and North Carolina limit wage garnishments to certain types of debt.) These laws are limited, however, by the federal Consumer Credit Protection Act (CCPA), which protects employees from excessive or burdensome garnishments.
Employers should implement a garnishment issued by a state court where the employer is subject to personal jurisdiction, regardless of where the employee earns the wages (with the possible exception of South Carolina). This means that employers have to be aware of state rules from any jurisdiction where they do business and not just where their employees are located.
Employers should make sure that their policies do not discriminate against an employee because of a garnishment. Both the federal CCPA and most state garnishment laws prevent employers from discriminating on that basis. Determining what is or is not protected under each statute is complex. Some statutes protect employees from being discharged for any single garnishment; other laws protect employees regardless of the number of garnishments on their wages. Under the CCPA, an employee may bring a charge with the U.S Department of Labor’s Wage and Hour Division, but has no private right of action. Under state laws, however, employees have private rights of action.
Employers should be aware that an employer subject to a garnishment can charge a fee for administrating the garnishment. These fees are set by state laws and vary depending on the type of wage attachment: garnishment; support order; or tax levy. An employer, however, may not be able to collect the fee authorized by state law if doing so exceeds the deduction limit set by the federal CCPA.