Fifteen Minutes of Fame For the Wage Garnishment

Administration of wage garnishments, once a quiet and little-known back office function, like it or not, has stepped into the not so glamorous limelight.  This has been caused by the convergence of several factors.

One factor is that the volume of wage garnishments is growing by leaps and bounds because creditors and entities that have purchased debt are obtaining judgments and wage garnishments like never before.  For example, in certain Michigan district courts, the number of garnishments has increased by nearly 400% between 2000 and 2010.  This growth is causing a corresponding growth in costs employers incur to administer garnishments.

Another factor is that the risks associated with garnishments are increasing not only because of the large volume of garnishments but also because it appears that creditors are pursuing recovery more aggressively than ever before.  As a result, an employer’s risk of financial liability is increasing.  This is happening in two ways.  First, if improperly handled, the employer may be held liable for its employee’s entire debt.  Most states have creditor-friendly garnishment laws that provide for a default judgment for the employee’s entire debt if the garnishee simply misses short disclosure deadlines.  Remarkably, the deadline to answer can be as little as 7 or 14 days after service, which is far shorter than the time permitted to answer a complaint.  This allows creditors to transfer the debt from the uncollectable employee to the deep-pocketed employer.  Second, eager creditors may issue invalid garnishments because they name as garnishee an entity that is not the actual employing entity or fail to properly serve the garnishment.  Despite these defects, and likely in order to avoid the risk of default and the cost to overturn the default, some employers are accepting improperly served garnishment writs and processing invalid writs.

Another issue complicating garnishee compliance is the practice of some creditors who send fake, but official-looking garnishment documents to trick unsuspecting employers into deducting from employee wages.  This unlawful garnishment practice is the subject of a lawsuit filed by the Federal Trade Commission on September 6, 2011 against several payday lenders.  Federal Trade Commission v. Payday Financial, LLC, Case No. 11-3017, (U.S. Dist. Ct. S.D.).  On September 7, 2011, the parties stipulated to preliminary injunction to halt the alleged unlawful garnishment practices.  Having to be wary of fake and invalid garnishments seriously complicates garnishee compliance, especially since taking unauthorized deductions from employee pay may run afoul of state and federal wage and hour laws.

Further, in Georgia as of September 12, 2011, only a Georgia-licensed attorney can sign the garnishee disclosure on behalf of a company.   This change arose from a June 4, 2010 opinion from the Georgia State Bar Association Unauthorized Practice of Law (“UPL”) Committee.  The UPL Committee reasoned that the garnishee disclosure was practicing law because it must be filed with the clerk of courts and because late or inaccurate disclosures expose garnishees to significant legal consequences.  As a result of this conclusion, non-attorney employees or agents of a garnishee company who sign and file a garnishee disclosure are engaged in the unauthorized practice of law.  The Georgia Supreme Court issued an opinion agreeing with the UPL Committee on September 12, 2011.  This ruling has turned on its head the well-established and long-standing practice that payroll departments, or their outsource providers, file garnishee disclosures on behalf of their employer.  More worrisome for employers is the possibility that other states could follow Georgia’s lead.  This is possible because only a few states provide explicit authorization under statutory or court rule for companies to directly answer garnishments – leaving open the possibility that other state UPL Committees may follow Georgia’s lead.  

Therefore, to address the growing compliance challenges and risks, prudent employers would evaluate processes used to administer garnishments.  And, even if an employer has only one wage garnishment from Georgia, it will need knowledgeable and timely Georgia-licensed legal representation to file the garnishee disclosure.