There are so many competing interests in this complex society of ours, it’s amazing anything gets accomplished in an orderly fashion.

Take, for instance, the collection of a debt, like a court judgment, taxes, or child support order. The creditor has an interest in getting paid what is owed … as soon as possible. And if the debtor is employed, why not have that income stream diverted to the creditor until the debt is paid? Seems reasonable.

On the other hand, the debtor might have an interest in delaying repayment of that debt – or avoiding it altogether – particularly if there are other things he might prefer to spend his money on…like food. Plus, good luck convincing the debtor to continue working at a job if the entire salary is diverted to the creditor. Not exactly slavery, buuut….

And what about the debtor’s family? While the creditor is clamoring for his money, the debtor’s kids might like some shoes or school books, or a roof. And society? Aren’t we all better off if a debtor (and his family) are not left penniless and reliant on the public welfare to survive just because he got into a bit of trouble with a creditor?

Conflict seems inevitable.

Thankfully, we are a society of laws, those imprecise, mind-numbing rules created by ourselves in a valiant and laudable effort to find that delicate balance between conflicting interests that naturally arise in any complex social community. Rules that seek to satisfy as many interests as possible as fairly as possible – all while avoiding the broken kneecaps of a self-help system.

Welcome to the world of wage garnishments – a mildly bureaucratic process, heavy on paperwork and minutiae, designed expressly to provide a little satisfaction for creditors, a little protection for debtors and their families, and a lot of headaches for employers. (Well, the latter may not be part of the design, but it is a symptom nonetheless.)

WHAT IS A WAGE GARNISHMENT?

What is a wage garnishment? Very simply, it is a mechanism by which certain creditors are able to have certain portions of a debtor’s earnings diverted by the employer so that the money is paid to the creditor in payment of a debt rather than to the debtor. It is a way for creditors to get paid without having to rely on the cooperation of the debtor, who may not be in a cooperative mood. But it is a process that also recognizes the legitimate survival needs of the debtors and their dependents.

In their effort to balance these competing interests, wage garnishment rules have sprung up around the country which allow creditors to obtain a portion of the debtor’s earnings directly from the employer. But the rules also impose limits on the amount that can be so diverted so that the debtor will remain incentivized to continue working and will be able to support himself and his dependents during the repayment period. So there is some security for the creditor, and some protection for the debtor.

How is this done? By putting the employer into the middle of this financial fracas. And this is where the mind-numbing minutiae come into play.

Like much of the regulations that govern our societal existence, wage garnishment is a hybrid creature of state and federal law. Generally, state laws supply the nitty-gritty process rules for garnishment – which forms must be used, what must they say, where do they get filed, who must serve them, who collects the money, etc. – while federal law provides certain overarching protections – such as the maximum amount that can be garnished, and restrictions on firing employees who are the subject of the garnishment.

While it is beyond the scope of this article (and the interest of the reader, or authors for that matter) to spell out the particular garnishment rules of each state, the practice in California does provide an example of the types of burdens and obligations that are imposed on employers generally in the garnishment world, and the potential pitfalls and liabilities that employers face should they either ignore these rules, or fail to attend to them properly.

HOW DOES IT WORK?

To begin with, wage garnishment is a process made available to judgment creditors (and governments for tax debts and child support). This means that not every corner bookie can use this process to collect a debt; only those corner bookies (or others) who have a judgment from a court as a result of a lawsuit. This includes plaintiffs who recover tort judgments (such as personal injury recoveries) as well as those who prevail on contract or other claims. Where debtors (losing defendants at trial) have no other assets to satisfy the judgment, the wage garnishment process may be the only means the creditor has to enforce the judgment.

The creditor begins the process in California by first obtaining a Writ of Execution from the court. It is not as morbid as it sounds. The writ of execution is merely an order from the court directing an official (such as a Sheriff or U.S. Marshal) to take possession of the judgment debtor’s property. The creditor then takes this writ, along with a completed application for an Earnings Withholding Order and a fee payment, to a “levying officer,” usually the Sheriff, Marshal, or even a registered court reporter.

The levying officer prepares an Earnings Withholding Order, and it is this Order that is served on the employer, along with instructions to the employer (thankfully), a “return” (a cleverly named form the employer must complete and return to the levying officer), and official Employee Instructions. Other states have slightly different requirements and different cleverly named forms, but the overall goal is the same – provide the employer with official instructions for what it must do with respect to the employee’s compensation.

WHAT MUST EMPLOYERS DO?

And what must the employer do when in receipt of this package? Follow the instructions carefully and promptly. While jurisdictions will vary, generally this will entail (a) notifying the employee within the time required by the rules (which should be set out in the instructions) (in California, this is done by providing the employee with the official Employee Instructions that came with the initial Order); (b) sending back the Return or response within the time required by the rules (in some states, this goes back to the Levying Officer; in others it may be to the Court or somewhere else); and (c) garnishing those wages, which means paying the correct percentage of the employee’s compensation (wages, salary, commissions, bonus, etc., but probably not pension payments or tips) to the Levying Officer, and giving the rest to the employee. The Levying Officer is then responsible for paying the creditor. (In California, at least, the employer can keep $1 of each payment for its trouble. Don’t spend it all in one place.)

How much should be garnished? This is where the federal rules have something to say. In its infinite wisdom, Congress has decided to step in to protect employees from “predatory extensions of credit” by providing the maximum amounts that can be withheld from an employee’s earnings to satisfy a judgment. This threshold is the lower of either 25% or the product of some high level quadratic equation requiring an advanced mathematics degree to calculate (“the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage prescribed by section 206 (a)(1) of title 29 in effect at the time the earnings are payable.” 15 U.S.C. § 1673(a)). (Different rules apply to child and spouse support orders.) Generally, this means the employee will always be able to keep 75% of his or her income (or possibly more if the employee is a low earner).

Employees can generally go to court in an effort to keep more of the income for the necessaries of life, but unless the employer gets a new order altering the amount to be withheld, this is not something employers need to be concerned with.

On the other hand, employers do need to be concerned if, as occurs from time to time, they receive more than one withholding order for the same employee at the same time. Which do they comply with, and how much money should they withhold? Well, there are rules for this too, and while the rules may vary a bit from state to state, a priority system has been established. “We” have decided that babies and spouses are more important than taxes, which are more important than regular people. Accordingly, without exceeding the maximum withholding allowed by federal law, an order for child or spousal support must be satisfied before a withholding order for taxes…which must be satisfied before a general creditor’s withholding order.

EMPLOYER LIABILITY?

What else should employers be concerned about? Not much…so long as they have played their part properly and timely. However, if they fail to provide the proper notices, or send back the Return or other answer, or withhold the proper amount, they do face both civil liability or even criminal liability.

For instance, in some states (notably Georgia and Florida), failure to properly handle a wage garnishment order can result in the debt being transferred to the employer. That’s right. In these states, if the employer fails to submit a timely and proper answer to a garnishment order, a default judgment can be entered against the employer for the full amount of the employee’s underlying debt. What a coup for the employee (“I love this job”); what a difficult conversation with the shareholders. See, e.g., O.C.G.A. § 18-4-90; Fla. Stat. § 77.081.

There are, of course, procedures at the employer’s disposal to attempt to remedy such a default; but what started out as a private debt between creditor and debtor has now evolved into an obligation of the employer involving the employer’s attorneys (and their reasonable attorney’s fees). The point being, employers must pay attention to wage garnishment orders, and must divert the necessary payroll/accounting and management resources to them so that they don’t themselves become the judgment debtor.

Employers can also get in trouble for trying to game the system by, for instance, accelerating or deferring an employee’s compensation in an effort to try to minimize the amount earmarked to the creditor.

With so many hidden mines, why not just fire the employee and avoid the hassle? Well, Congress (and many state legislatures) have thought of this as well. It would be a violation of state and federal law (involving federal criminal penalties) to discharge an employee whose wages were the subject to a withholding order…once. (In case there is any doubt: 15 U.S.C. § 1674 states “(a) No employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any one indebtedness. (b) Whoever willfully violates subsection (a) of this section shall be fined not more than $1,000, or imprisoned not more than one year, or both.”) Does this mean an employee can be fired after the second one…? (Check with counsel first!)

It is not a perfect solution to the competing interests of creditors, debtors…and now employers. Employers never asked to get dragged into the middle of this; and clearly they would prefer to play their role without the risk of civil or criminal liability. Nonetheless, the wage garnishment rules do their best to fairly balance those interests while minimizing the burdens, giving everyone something, and no one everything. And isn’t this spirit of compromise that our government of laws was built on in the first place?