Mishandled Garnishments Become Direct Liability for Employers

September 15, 2016

Numerous laws require employers to divert wages away from the employee to another person or entity. Judgment creditors, bankruptcy courts, and child support enforcement agencies are just a few. Because there are so many such laws and they differ from state to state, it is a big task for employers to always and accurately comply. Despite the difficulty and administrative cost, laws rarely cut the employer a break.

First, the good news. Effective October 1, 2015, Michigan amended its garnishment statute and wage payment law to do just that – they cut the employer a small break by allowing it to correct mishandling without any direct liability. This change meant that:

  • Instead of a creditor being entitled to a nearly automatic judgment against an employer garnishee for any error and as soon as 15 days after service of a writ of garnishment, the judgment creditor instead must provide repeated written notice and time to comply before a court can enter a judgment against the employer.
  • Additionally, this judgment against the employer can be eliminated or reduced as long as the employer acts quickly to explain the mishandling and show the amount of the missed payments (which may be zero).
  • In addition, the new law also means that employers now receive $35 to process a garnishment – a substantial increase from the previous $6 fee.

Second, the bad news. Most other state laws regarding garnishments remain draconian when it comes to employer mishandling. The area of Income Withholding Orders (IWO) for support are just such an example. The tough stance toward employers starts with the federal law that requires states to have a statute holding the employer liable for any amount which the employer fails to withhold pursuant to an IWO. Michigan has such a provision. It allows the state agency to obtain a contempt of court order imposing liability for missed deductions and penalties. Other states provide for different penalty structures. The applicable Illinois statute contains a per day penalty – that penalty is $100 per day and can grow so large as to ruin many employers. Over the past few years, courts have ordered employers to pay millions in penalties. For instance:

  • In a recent case a court ordered the employer to pay $2.3 million for failing to withhold $7,820 in wages.
  • In another case, a court ordered an employer to pay $1.1 million for failing to remit withheld wage on a timely basis.

To avoid bad outcomes, employers should invest in the processes, programs and employees necessary to accurately and timely comply with garnishments. Doing this will enable employers to comply with the law (for the benefit of judgment creditors and custodial parents owed child support) and reduce or wholly eliminate the direct financial liability that can result.

Contributed by Martin C. Brook, Shareholder, Ogletree, Deakins, Nash, Smoak & Stewart, PLLC.