Big Changes in Employment Garnishment

Big Changes in Employment Garnishment

Let’s describe a common scenario.   An employer receives a certified letter containing a few court forms, and a small check.  It is a garnishment for an employee who owes a creditor, and now the creditor wants to be paid directly from the employee’s paycheck.  What a headache for the employer!—calculating each pay period amount, sending an additional check, accounting for the total amount withheld, keeping track of how long to take the payments….ugh.

No wonder many employers do not want to deal with it.  The employee states, “Don’t worry…I will take care of this” and the employer foolishly decides to either rely upon the employee or just ignore the garnishment out of frustration.

A default judgment against the employer is sent through regular mail, and the employer doesn’t receive it, ignores it, or again relies upon the employee resolving the matter.

The next thing the employer knows, a court officer is banging on the door, taking away equipment and computers, demanding the Employer pay the entire amount!  Doesn’t matter if the employee had low wages, or stopped working, or even if the employee never worked for the employer—the employer now has a Judgment it must pay.

I have watched this situation play out numerous times. From small amounts of $1,000’s of dollars to over $100,000.00.  Against small Mom-and-Pop stores to the largest company in the world.

Michigan recently enacted a major over-haul to the Periodic Garnishment laws (“Periodic” refers to payments made regularly or periodically, such as wages) going into effect for all Garnishments filed after September 30, 2015.  Current Periodic Garnishments expire after 182 days; from October 1, 2015 through March 31, 2016 there will be two (2) different responses required by employers depending on when the garnishment was filed.  After April 1, 2016, all garnishments will be under the new system, as the older garnishments would have expired and any garnishments received would be filed under the new system.

Three significant points to take away from the new law:  1) Periodic Garnishments no longer expire after 6 months; the garnishment remains in effect until paid in full 2) It is harder for creditors to obtain Judgments against employers and 3) Employers now have an expedited means to obtain re-payment from the employees in the event a Judgment is entered against the employer

The new law eases some of the burden on the employers, but the courts haven’t tested many pitfalls.  For example, there is now a graduated process to obtain a Judgment against an Employer.  Before, a creditor could provide proof the garnishment was served by certified mail, demonstrate no response was filed, and within a very short period obtain a Default Judgment.  Under the new law, the Creditor must:

a) provide notice to the employer it has failed to file a proper response;
b) 28 days after the notice, provide a request for default by certified mail to the employer;
c) After the default has entered, provide a request for Default Judgment by certified mail to the employer.

Sounds pretty tough for the Creditors, correct?  As with all new laws, there are a few bumps and hurdles to overcome.  For example, MCR 3.101(M)(1) states, “if there is a dispute regarding the garnishee’s [employer’s] liability…the issue shall be tried in the same manner as other civil cases.”  Because garnishments are perpetual, Creditors are more likely to scrutinize and question disclosures, especially after providing numerous notices.

Creditors can still send interrogatories or take depositions under MCR 3.101(M)(2).  Employer’s obligations to respond continue.  There may be more garnishment trials than ever before.

Creditors are now required to send a notice at least every six months updating the amount due.  However, the law then reverses itself by indicating the employer is obligated to continue the garnishment, even if the Creditor fails to send the notice.  It is a requirement with no backbone or ramifications.  The paperwork, headaches and aggravation for employers have changed little under the new law.

Additional garnishments would not receive payments until the prior garnishments have been paid off.  First come; first served.  (Important exceptions are certain obligations such as US Treasury Income Withholding or Child Support—those always hold priority.)  But what happens if the first garnishment fails to give the six-month notice?  Would the second garnishment then take effect? Or is the employer obligated to recognize the first garnishment? The new law is unclear.

This will likely increase employee filing for Partial Payment Orders, and direct Income Withholding Orders, forcing more paperwork, and longer periods of headache.  Employees with multiple garnishments will result in more creditor contacts, with calls and letters demanding to know when the previous garnishments are paid.

The new law will make it harder to obtain judgments against employers, but will likely result in more time, energy and paperwork involved in monitoring garnishments.  Making the final result less-business friendly than first glance.

We strongly suggest companies consult with an attorney to become familiar with the new law and implement systems to minimize the resource management necessary to respond.