State House Overwhelmingly Approves Garnishment Reform Legislation

September 22, 2014

The Michigan House has overwhelming approved legislation (House Bill 5390 and 5391) being pushed by the Michigan Chamber to reform Michigan’s wage garnishment system.
 
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 an 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.
 
House Bills 5390-91 would address several of the issues with the current garnishment process. Specifically, the bills would:
 

  • Specify that a Writ of Garnishment would continue until the debt is paid off (current practice requires renewal every 91 days). This change allows for 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;
  • 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 until the debt is paid in full, 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;
  • 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 garnishment consistent with the service of other legal documents;
  • Define “garnishment” to help the courts and others better identify what types of court orders qualify as a garnishment, thereby requiring third parties and/or employers to withhold income and remit payment;
  • Put in place a procedure before a creditor may take a default judgment against the employer for the debt owed by the employee. The bills would provide several notices to the employer of its failure to garnish and give ample opportunity to employers to cure their errors.   

The Michigan Chamber views this legislation as a win-win for employers and creditors as it addresses the most serious problems and financial risks for employers associated with the garnishment process while still ensuring the right of creditors to collect monies owed to them. We applaud the State House for its vote and hope to see the legislation moved through the Senate before the end of 2014.
 
Please contact Wendy Block with any questions at wblock@michamber.com or (517) 371-2100.