An order for a wage garnishment is surprisingly complex to administer and very risky for employers. For instance, if an employer does not answer a garnishment within 14 days or do any other act required by the court, it is subject to a judgment against it for the full amount of the employee’s debt. The employee’s debt may be small, in the range of several hundred or several thousand dollars. But they are not all small—in one case a court entered a default judgment against an employer for being late on a disclosure in the amount of $596,000.
On March 4, 2014, Representative Kevin Cotter introduced House Bill 5390 and Representative Mike McCready introduced House Bill 5391 in the Michigan House of Representatives, which, if passed, would accomplish comprehensive wage garnishment reform. The reform is intended to reduce the administrative burden on employers, compensate employers appropriately for administering garnishments, and limit the liability that employers can face for administrative errors. But at the same time, the reform is intended to protect a creditor’s ability to use garnishments to collect and not increase burdens upon employee-debtors in the process.
The following are some key components of the bills:
- Under the bills, wage garnishments would continue until paid off rather than expire after six months. This relieves the churn that now occurs as garnishments expire and are reissued. Since there is only one set-up required, it also avoids the risks that come from having to receive and properly administer each garnishment over the time it takes to pay off the debt.
- Under the bills, the fee that creditors will have to pay employers would increase from $6 to $35. This reflects the fact that $6 was never enough to compensate the employer for its administrative costs and the fact that garnishment reform will now leave the garnishment in place until paid off.
- The bills add a definition of “garnishment” to help courts and parties identify what qualifies as a garnishment and what does not. This will help to avoid confusion between garnishments and orders that are not called garnishments but that have the same legal effect as a garnishment, such as an order compelling a third party to turn over income.
- A provision of the bills requires proper service in accordance with the Michigan Court Rules—otherwise the garnishment is void. This eliminates a common practice whereby garnishments are simply mailed to branch or local offices where the likelihood of mishandling dramatically increases.
- The bills propose that a process be put in place before a creditor can take a default judgment (or pursue a contempt order) against an employer for failure to answer or failure to do another act. First, there would be a 14-day deadline for the creditor to raise the issue. Second, the plaintiff-creditor would have to provide the defendant-employer with service of a notice stating that the employer has seven days to correct the defect.
- The bills would put a cap on the amount that the employer can be liable for an error when administering the garnishment of $100 or 60 days of proper withholding, whichever is more. If such a cap is instituted, employers would not be liable for the full amount of the debt—which is what they are currently liable for in the event of any administrative oversight.
- Lastly, any money paid by the employer for administrative oversights are currently applied to the employee’s debt, but the employer cannot recover this money from the employee without written consent due to the requirements of the Payment of Wages and Fringe Benefits Act. HB 5391 would amend this act to allow an employer to withhold money paid toward the employee’s debt from future paychecks without written consent.
These changes are long overdue and are exactly the type of comprehensive reform that employers need. The reforms ensure that employers receive proper compensation for administering garnishments, provide employers protection from unreasonable judgments against them for minor administrative errors while expanding the duration of garnishments, and otherwise protect the ability of creditors to collect via garnishments. Passage of the bills would be a legislative win-win-win. Please reach out to your Michigan representative or senator and the governor on this important initiative.
Martin C. Brook, a shareholder in the Detroit Metro office of Ogletree Deakins, was extensively consulted in preparation of the garnishment reform legislation and assisted with drafting the bill.
Brook advises employers on wage garnishment administration nationwide and frequently writes and speaks on payroll compliance topics, such as wage garnishments. Brook is also the author of O-D Comply: Garnishments, a subscription-based product focused on the most popular, varied, and difficult wage attachments: (1) creditor wage garnishments; (2) federal student loan wage garnishments; (3) federal tax levies; and (4) voluntary wage assignments. A subscription to O-D Comply: Garnishments includes a concise table identifying the fees that employers are entitled to collect for administering wage attachments (including support orders, creditor garnishments, state and federal tax levies, and federal student loans).