We are experiencing extraordinary times. But even in our current situation of the global coronavirus pandemic, many employer responsibilities will still continue nearly unaffected. One of those is the requirement to properly process wage garnishments. This duty cannot be ignored because compliance failures can result in an employer becoming liable for an employee’s entire debt —and legions of collections lawyers will likely look to capitalize on employer omissions and mistakes.
Some states have issued orders limiting in-person work. How this will impact an employer’s payroll organization differs among the states and based upon how the organization’s workflows are structured.
Three Steps to Avoid Default Judgments
Whether in-person or remotely, employers may want to have their garnishment teams consider three steps right now that may defeat aggressive collections lawyers who seek to obtain a default judgment.
First, while some garnishments may slow to a trickle or stop altogether, it may be prudent to not plan for this to happen. Instead, employers may expect to receive electronic notices of child support and court-issued garnishments via mail or their agents for service of process. Also, employers may want to consider planning now for a large influx of garnishments when work returns to normal—which will likely be more than pre-COVID staffing levels will be able to timely administer.
Second, during the global pandemic consider preparing a system to collect and respond to garnishments as best as possible. Employers may be best positioned to defend any belated responses if they can show that they did not just walk away, but had a system to (1) address processing garnishments and (2) very quickly fix any backlog that results from curtailed operations. Most importantly, document this plan so it can be entered in court to show a reasonable explanation if any garnishment is not timely answered.
Third, be aware of the different types of wage withholdings and whether they have special rules as a result of the pandemic. Employers routinely juggle child support orders, student loan wage orders, tax and other governmental levies, and creditor garnishments, with the COVID-19 pandemic adding an extra layer of complexity to this delicate balancing act. We address each below.
Child support orders are still in effect, as confirmed by the U.S. Department of Health and Human Services’ Office of Child Support Enforcement, which has stated that its Electronic Income Withholding Orders (e-IWO) system “is an efficient and cost-effective way to electronically exchange income withholding orders between child support agencies and employers.” Similarly, state agencies continue to process child support payments. Given the need to have a process in place for receiving and administering garnishments, employers may want to enroll in e-IWO or confirm that they have already done so.
Federal Student Loan Garnishments
Unlike child support orders, student loan garnishments have been put on pause pursuant to a U.S. Department of Education (DOE) directive effective March 13, 2020, which authorizes immediate suspension of garnishments for federal student loans for at least 60 days. The directive further instructs private collections agencies to halt proactive collective activities, which could encompass issuing new administrative wage orders for garnishment. In a set of frequently asked questions, the DOE advised employees to contact their employers’ human resources departments if an employee’s wages continue to be garnished after March 13, 2020. After the initial 60-day hiatus, according to the FAQs, the DOE may extend the order, informing that the loan service provider will communicate with the borrower about resuming payments after the period ends.
On March 27, 2020, the CARES Act became law and provided legal authority and clarity to the DOE’s informal action to stop wage garnishments. Section 3513 of the act directs the DOE to suspend federal student loan garnishments (not private student loan garnishments) through September 30, 2020. Specifically, this suspends garnishments authorized by the Higher Education Act (20 U.S.C. 1095a) and the Debt Collection Improvement Act (31 U.S.C. 3720D). The CARES Act also directs the DOE to advise borrowers of these suspensions.
Tax levies present another set of challenges, as they depend on the jurisdiction. Some states have paused collections. For example, the Kentucky governor directed the state’s Department of Revenue to pause enforced collection methods while the state deals with the economic fallout of the coronavirus. Meanwhile, the Internal Revenue Service (IRS) advised that its call centers have reduced staff, resulting in extremely high call volumes and wait times, which could lead to employees having difficulty reaching the IRS to get releases for an IRS tax levy. Nonetheless, on March 25, 2020, the IRS released its People First Initiative to help individuals facing challenges relating to COVID-19. Its guidance advises that liens and levies initiated by field revenue officers will be suspended, and new automatic, systemic liens and levies will be suspended during the initiative. The impact on existing levies is presently unclear.
Like state-specific levies, creditor garnishments are governed by state procedure and subject to the directives issued in the governing jurisdiction. Some courts have issued orders allowing judges to issue stays for writs while most other courts have not addressed the issue.
In summary, in addition to all of the other challenges of COVID-19, employers will continue to face confusing and changing obligations for wage garnishments, compounded by temporary halts for some—but not all—types of orders. Following the above steps, i.e., having a plan for receiving garnishments during the pandemic, implementing a procedure for processing garnishments, and accounting for nuances of the withholding order itself, may help employers minimize risks of mishandling garnishments both during the pandemic and in the future.
Ogletree Deakins will continue to monitor and report on developments with respect to the COVID-19 pandemic and will post updates in the firm’s Coronavirus (COVID-19) Resource Center as additional information becomes available. Critical information for employers is also available via the firm’s webinar programs.