Garnishments are very powerful tools for collecting a judgment, and employers need to remember that they may be liable if they fail to follow the law when served with a garnishment seeking funds owing to an employee or other person to whom it owes money. A person holding a judgment against a defendant may obtain a garnishment against that defendant’s employer or anyone in possession of property of the defendant. Once served, the employer becomes the “garnishee”.
Garnishments may be Periodic or Non-Periodic. A Periodic garnishment is used in typical employment situations, where the employer regularly owes wages, salary, commissions, bonuses or other income to a defendant/employee[1] during the period of the Writ of Garnishment. Receipt of one Periodic garnishment may cover several, or many, pay periods. A Periodic garnishment continues until the judgment is satisfied or the Garnishee owes no further payments to the defendant.
A Non-Periodic garnishment obliges a Garnishee to withhold only those payments or assets owed to the defendant on the date the Non-Periodic garnishment is served.
Under either case, a Garnishee may become directly liable to the person holding the judgment, from its own funds, if it fails to properly and timely withhold what is owed to the defendant. A recent Michigan Court of Appeals case[2] recently imposed direct liability against a Garnishee which mistakenly determined that the defendant was an employee, and that the garnishment required withholding 25% of the amount owed to the defendant, which is the rule for wages owed to an employee. The employer withheld (and paid to the judgment holder) 25% of what was owed to the defendant and disbursed the remaining 75% to the defendant.
However, the defendant was an independent contractor, and the 25% withholding rule for employees does not apply to independent contractors. 100% of the amount owed should have been withheld and paid to the judgment holder. Even in the face of this rather innocent mistake, the Court required the Garnishee to pay that 75% to the judgment holder, even though it had already been paid to the defendant.
Employers, please be careful when you receive a garnishment. If your office manager and HR department are not fully aware of garnishment rules and time limits, please contact your attorney immediately.
[1] The same rule would apply to an independent contractor, limited liability company member, or any person who is owed money by the Garnishee. This article uses “employee” to cover all such cases.
[2] Premiere Property Services, Inc. vs Crater decided September 17, 2020 and designated for publication.