Chamber Continues Push for Reform to Garnishment Process

June 9, 2014

The State House Commerce Committee has begun hearing testimony on important garnishment reform legislation being pushed by the Michigan Chamber.
 
The wage garnishment process is a growing issue for many Michigan employers and can be time intensive and costly. For a one-time $6 payment, employers are required to process employee garnishments, respond to court orders, calculate and withhold from employee’s paychecks for 91-days, and make payments to creditors. One small administrative mistake potentially exposes employers to the risk of being held liable for the entire debt of an employee or former employee – plus court costs and attorney fees. 

The financial risks associated with the garnishment process most commonly happens because the employer fails to file a garnishment disclosure within 14 days of receiving a garnishment, maybe because the notice wasn’t properly served with Michigan Court Rules or because the notice wasn't served to the right office or appropriate staff. Regardless, if the disclosure is not received within the required period, the creditor may take a default judgment against the employer for the full amount of the debt owed by the employee. To make matters worse, the employer does not get a second notice and the creditor does not have to give advance notice to the employer before entering the default judgment. It is often an uphill battle for the employer to convince the court to set aside the default judgment, which often means the employer is held liable for the full debt of the employee or former employee.

House Bills 5390 and 5391, introduced by State Representatives Kevin Cotter and Michael McCready, would address several the issues with the current garnishment process:

  • First, the bills specify that a Writ of Garnishment would no longer expire 91 days from the date it was issued. Instead, the Writ would continue until the debt is paid off. This provides better certainty for all parties, in that it guarantees continued payment for creditor, provides employees with the certainty that their bad debt will be paid in full, and helps offset issues for employers related to receiving, responding and administering each garnishment over the life of the debt.
  • Second, the bills would increase the fee that creditors pay employers to administer garnishments. Currently a $6 fee is paid every 91 days. Because the garnishment would no longer expire after 91 days, a flat $35 fee would be charged. The current fee does not adequately compensate employers for the staff time associated with administering garnishments; the new fee is more in-line with actual costs.
  • Third, the bills would specify that a Writ of Garnishment would not be valid or enforceable unless it is served on the garnishee (e.g., the employer) in accordance with the Michigan Court Rules. This change is intended to make the service of ganishment consistent with the service of other legal documents.
  • Fourth, the bills would define “garnishment” to help the courts and others better identify what types of court orders qualify as a garnishment, thereby compel a third party or employer to withhold income and remit payment.
  • Fifth, and finally, the bills would put in place a procedure before a creditor may take a default judgment against the employer for the full amount of the debt owed by the employee. The bills would institute a 14-day deadline for the creditor to raise the issue and then given the employer seven days to correct the defect.  If the employer is found liable for an error in administering the garnishment, the maximum liability would be $100 or 60 days of proper withholding, whichever is more, meaning the employer would no longer be liable for the full amount of the employee’s debt due to administrative error. Furthermore, the bills would authorize the employer to withhold any amount paid toward the employee’s debt from his or her future pay.

The Michigan Chamber will continue to advocate for passage of this legislation, which is intended to address the most serious problems and financial risks associated with the garnishment process while still ensuring the right of creditors to collect monies owed to them. Please contact Wendy Block with any questions at wblock@michamber.com.