By: Dan Cohen – 5/26/15
A garnishment notice is never welcome news for an employer, but recent changes in Michigan’s garnishment statute will make them far less troubling. Garnishments are a no-win proposition for any employer, and if mishandled, can quickly turn into a costly nightmare. The biggest mistake an employer can make is failing to file a garnishment disclosure statement with the court within 14 days of receiving the garnishment papers. Under current Michigan law, if an employer does not file a timely garnishment disclosure statement, the creditor can take a default judgment against the employer for the full amount of the employee debt, plus costs and attorney fees. The employer’s recourse is to file a motion to set aside the default judgment. Those of us who have been to court to set aside a default judgment recognize it is no easy task and employers face an uphill battle to convince a trial judge to excuse their neglect/delay.
MCLA 600.4012, which will apply to writs of garnishment issued after September 30, 2015, provides relief for employers who do not file the garnishment disclosure on time. The new procedure requires creditors to notify employers within 14 days after service of the garnishment papers by serving a “notice of failure” setting forth the required act or acts that the employer has failed to perform. Employers then have 28 days to “cure” the identified failure by mailing to the creditor and the defendant (the employee) a disclosure certifying that the employer will immediately begin withholding any available funds pursuant to the garnishment. If the employer fails to cure and a default is entered, the employer may still cure by mailing to the court, the creditor and the defendant employee a disclosure certifying that it will immediately begin withholding any available funds pursuant to the garnishment.
Even after three bites at the apple, if a default judgment is entered against the employer for the employee’s debt, the statute offers relief. Indeed, MCLA 600.4012(11) permits payroll deductions under MCLA 408.477 of up to 15% of the gross wages earned in the pay period in which the deduction was made until the full amount of the default judgment is paid off. Employers just have to make sure the deduction is explained at least one pay period before the wage payment affected by the deduction is made and the deduction does not reduce the employee’s pay below the minimum wage.
The new garnishment law contains other changes favorable to employers. For example, creditors must enclose a $35 processing fee with the notice of garnishment. The current law only requires a $6 check. With the new law, garnishments will remain in effect until the balance of the judgment is satisfied. Currently, garnishments expire and employers must file multiple disclosures (perhaps risking default several times on a single debt). The new statute also requires creditors to provide the employer and employee with a statement of the remaining balance every six months while the garnishment is in effect as well as a release within 21 days after the balance of the judgment has been paid off. There are also specific reasons set forth in the statute for setting aside a default judgment.
The new garnishment statute eliminates much of the risk inherent in the existing procedure. Clearly, Michigan employers can claim a win on this one.