If you own or manage a business, odds are that at some point a sheriff or process server will walk through your door and hand you a garnishment summons.
A garnishment is the legal action which your employee’s creditor may use to claim funds that you, the employer, owe to the employee (salary or hourly wages, for example). The summons is a warning not to transfer those funds to the employee. Here are five steps aimed at giving employers in the greater Lynchburg area a general understanding of how to field a garnishment action against an employee.
1. Call your lawyer.
Timely legal advice can save your business valuable time, money, and headaches which tend to result from improper handling of legal issues. Garnishment actions are no exception. Lawyers tend to be less expensive on the front end of a legal issue because preventing a mess typically requires less time and resources than mopping it up. The adage, “penny-wise but pound-foolish,” applies here. Counsel will likely advise that, if your business does not owe that employee, you must file a written answer or appear on the return date to explain to the court that your business does not owe that employee. If your business does owe the employee, counsel will likely advise you to deliver the appropriate amount to the court.
2. Don’t ignore it.
Virginia legal precedent supports a particularly harsh remedy for an employer’s inaction on a garnishment summons: A business may be held liable to an employee’s creditor for the entire amount of the employee’s debt to the creditor—not just the amount the business owes to the employee. For example, let’s say your business pays Jim, an employee, $480 weekly in wages after taxes and other withholdings. Now, let’s say Jim’s landlord obtains a judgment for $5,000 in unpaid rent against Jim, files a garnishment action, and has a garnishment summons served on your business.
From the moment of service, your business owes $120 of Jim’s wages for that week to the landlord (calculation described in the following point). Unless you, your business’ representative, or an attorney file a timely written answer, appear on the return date, or pay into the court, the landlord may move the court to order you to appear and show cause as to why your business should not be held in contempt of court. If you, your business’ representative, or your attorney fail to appear a second time, the court may hold your business liable for the entire $5,000.
3. Beware The Disposable Earnings Rule.
Typically, a creditor can only garnish the lesser of either 25 percent of an employee’s disposable earnings for one week, or the amount by which his disposable earnings for one week exceed 40 times the federal minimum wage ($7.25 an hour at the time this article was written). Disposable earnings—money a business owes an employee after taxes and other withholdings are satisfied, including salary, hourly wages, commissions, bonuses, etc.—get special treatment under the law compared to other types of indebtedness.
4. Don’t fire Jim.
Remember Jim? Although dealing with a garnishment action against your employee takes your focus off of your business, Virginia law specifically prohibits you from firing an employee because of the garnishment. It does allow you some recourse, albeit small: You can collect a fee of up to $10 for processing the garnishment summons.
5. Some creditors may access more than just an employee’s disposable earnings.
If your business has an employee benefits plan, such as a 401(k), your plan administrator may have to decide whether to comply with a creditor’s attempt to garnish an employee’s retirement account. Typically, the Employee Retirement Income Security Act (ERISA) protects retirement accounts from garnishment. However, if a spouse, former spouse, child, or other person dependent on your employee seeks to garnish the funds to satisfy spousal or child support and meets certain ERISA provisions, you may need to comply. Your plan administrator should consult qualified legal counsel in this area.
Bottom line: A garnishment summons itself should not cause you to lose sleep. But, if improperly handled, you stand to lose more than just sleep.
by Patrick Bolling, Esq.,
of Edmunds & Williams, P.C.