Posted: April 25, 2017
Believe it or not, the Michigan Legislature passed a law benefitting Michigan employers. The law pertains to wage garnishments and substantially reduces the administrative hassle and risks traditionally associated with wage garnishments.
A garnishment is a legal procedure which allows a debtor’s (often an employee) money in the hands of a third party garnishee (often and employer) to be secured to pay a creditor’s claim. The purpose of a garnishment is to preserve a debtor’s assets held by a garnishee, so that those assets can be used to satisfy a creditor’s claim against a debtor. If an employer served with a garnishment fails to properly pay the garnishment, the creditor can secure a default judgment against the employer. Simply stated, an employer risks being obligated to pay an employee’s debt.
Under the new law, the garnishment process has been changed in a way that assists employers. For instance:
• Garnishments now continue indefinitely until the debt is paid in full. Before, they expired based on a lapse of time, which required internal tracking.
• A creditor is required to provide a statement of balance due to the garnishee.
• The creditor must provide the garnishee employer with a release of the garnishment after the balance of the judgment is paid in full.
• Employers will now receive a $35.00 payment for processing a garnishment (as opposed to the previous $6.00 payment).
Additionally, the process to secure a default judgment against an employer has been revised to offer more safeguards. Thus, an employer who unintentionally neglects to comply with the exact requirements of a garnishment will not automatically be subjected to an employee’s debt.
In order to secure a default judgment now, a creditor must first file a notice of failure to comply with the garnishment. The employer then has 28 days after service of this notice of failure to cure the defect by mailing a disclosure certifying that it will begin withholding funds. If the employer does not comply with this notice of failure, however, the creditor can request a default judgment. Even then, an employer can avoid default if it mails to the court, creditor, and debtor a disclosure certifying that the employer will immediately withhold available funds.
If an employer fails to respond, a default may be entered against the employer. However, there are steps to take to set aside the default judgment. Employers are given a 21 day grace period to file a motion to set aside the judgment. If the employer files an affidavit stating its failure was a result of administrative error, mistake, or other oversite, and indicates that it will immediately begin withholding funds, the default judgment would be modified. The employer would owe no more than if the garnishment had been in effect for 56 days.
If an employer is ultimately required to pay an employee’s debt, it now has a method to recover monies from the employee. Under the Michigan Payment of Wages and Fringe Benefits Act, the employer may withhold the debtor’s wages to repay itself. Before deducting money from the employee, the employer must: (1) give the employee written notice of the deduction at least one pay period in advance; (2) not deduct more than 15% of the employee’s gross wages per period; and (3) not reduce the employees gross wages below State or Federal minimum wage. The employee does not need to consent.
The new Michigan laws regarding wage garnishments will provide significant relief to many employers. If you have any questions regarding wage garnishment, or any other labor employment related matter, please contact Masud Labor Law Group.