Wage garnishments against their employees have historically been very risky for employers to administer.  In fact, if an employer did not administer the garnishment properly, the employer could be on the hook for the employee’s entire debt.  Luckily, the Michigan Legislature has taken steps to dramatically reduce employers’ administrative burdens and financial risk, while increasing the funds paid to employers who must comply with garnishments.  These amendments, which are contained in House Bills 4119 and 4120, will take effect on September 30, 2015.

While the new legislation makes a number of changes to the garnishment rules, the most important for employers deals with the “default” rules.  Under the new legislation, before an employer can be liable for failing to comply with a wage garnishment order, the creditor will have to undertake a multi-step process which gives the employer multiple warnings and opportunities to be compliant with the garnishment order. The creditor will have to specifically inform the employer that it has not complied with the wage garnishment.  The employer will then have 28 days to comply before a default judgment can be entered against the employer.  

Further, even if a default judgment is taken against the employer, the employer will have  21 days to petition to court to reduce the amount of the default judgment.  The employer’s potential liability is limited under the legislation to an amount equal to what would have been withheld from the employee’s paycheck for a maximum period of 56 days.  Previously, very little prevented creditors from quickly obtaining default judgments against employers for the entire amount of the debt, which were difficult to set aside or reduce.  

Going hand in hand with this step to reduce the employer’s potential liability, House Bill 4120 will amend the Michigan Payment of Wages and Fringe Benefits Act to allow the employer to recover funds paid as the result of a default judgment.  This legislation permits the employer to withhold the same amount from the employee’s wages without the employee’s written consent.  However, in order to withhold these funds, the employer must give the employee written notice of the deduction at least one pay period in advance, not deduct more than 15% of the employee’s gross wages per pay period, and not reduce the employee’s gross wages to a rate below the state or federal minimum wage.

While reducing the employer’s potential liability for the garnishment is perhaps the most important feature of the new garnishment rules, there are other changes to the rules which are beneficial to employers.  Under the new amendments, wage garnishments will now continue until the debt it paid off, rather than expiring after six months.  Additionally, the fee that creditors have to pay to employers will increase from $6.00 to $35.00, to more fully compensate employers for their administrative costs.  Lastly, wage garnishments will have to be served in accordance with the Michigan Court Rules, or they will be void.  This eliminates a common practice of mailing a garnishment to local a branch or office of an employer, where the likelihood of it being mishandled dramatically increases. 

While these changes will reduce the risk to employers when faced with wage garnishments, employers should still proceed with care when responding to garnishments.  If you have any questions about how to respond to a wage garnishment, you should contact your attorney to ensure compliance with the law.