In April 2016 Governor Haslam signed a bill that became effective September 1, 2016, which will likely increase the number of wage garnishments with which many Tennessee employers will have to contend. This is particularly true for employers that make regular use of independent contractor workers.
A wage garnishment is a debt collection process set out within Tennessee’s garnishment statutes found at Tenn. Code Ann. §26-2-101 et seq. Generally speaking, a wage garnishment requires an employer to withhold a portion of a worker’s wages until a judgment against the worker is satisfied. Once a judgment is obtained against an employee, the judgment creditor can ask the court that entered the judgment to issue a summons to that person’s employer to answer the garnishment. After the garnishment summons is received, the employer must respond to the garnishment in writing and if wages are owed the garnished employee, the employer must withhold a specified amount of wages due the worker. The withheld income must then be held subject to any court order, but ultimately forwarded to the court that issued the garnishment. Wage garnishments are also ongoing in nature. Under the wage garnishment statute, the underlying judgment is a lien both on earnings due at the time of service of the garnishment summons, as well as future earnings. The obligation to withhold future wages and pay them to the court continues either until the judgment is satisfied, or the expiration of 6 months. After 6 months, a new garnishment can be issued and the process continue. Most Tennessee employers who have even a moderate size work force will from time to time, or perhaps quite regularly, receive wage garnishments relating to judgments for past due child support, unpaid credit card debt, etc. Responding to wage garnishments can be time consuming for payroll staff, particularly when having to deal with a large payroll and a number of ongoing wage garnishment obligations.
Before September 1, 2016 wage garnishments were limited to workers deemed “employees.” This conclusion was arrived at inferentially based on the fact that the previous version of Tenn. Code Ann. §26-2-214 expressly applied only to “salaries, wages or other compensation due from the employer garnishee....” (italics added). This interpretation prevailed when the Tennessee Court of Appeals was asked to decide whether payments due an independent contractor for work performed could be subject to the wage garnishment process. In 2015 the Tennessee Court of Appeals determined that since the statute specifically used the term “employer,” which has a recognized legal meaning, the statute could not be applied broadly to allow garnishment of payments due an independent contractor.
The recently enacted amendment to Tennessee’s wage garnishment statute appears intended to counter the Court of Appeal’s decision in SunTrust Bank v Burke. While that no doubt is the safe construction for employers to apply, the General Assembly could have said as much, but it did not. Instead, the new version of Tenn. Code Ann. §26-2-214 attempts to achieve the desired result by implication, in that it no longer references “salaries, wages or other compensation due from the employer garnishee.” It now more broadly applies to “earnings due from a garnishee.” In fact, the term “employer” can no longer be found in subsections (a) or (b) of the statute. The General Assembly’s effort at clarity is not aided by the fact that while the amendment of §26-2-214 deleted all references to “employer garnishee,” that term remains in §26-2-215, which provides “[t]he employer garnishee shall remit to the court all moneys withheld as provided under §26-2-214 not less than one (1) time each calendar thirty (30) days.”
Despite the less than direct amendatory language and internal inconsistency between §26-2-214 and 215, it is difficult to escape the conclusion that the General Assembly intended to subject payments due independent contractors to the same wage garnishment process as wages due employees. Evidence of this intent is perhaps best found in a newly added subsection (c) to the statute, which provides “[n]othing in this section with respect to the relationship between the judgment debtor and the garnishee shall be construed to affect the underlying relationship of the parties, including, but not limited to, the relationship of employer-employee or the independent contractor relationship as otherwise provided by law.”
Tennessee employers that make regular use of independent contractor labor need to be aware that their potential exposure to wage garnishments has been increased. Payroll managers should be prepared to appropriately respond to garnishment summons for payments owed to independent contractors and not just traditional employees. Tennessee’s wage garnishment statute imposes very substantial consequences on garnishees that fail to appropriately respond to garnishments. Ultimately, failure to respond can result in the garnishee’s liability for all of the underlying judgment.
It is important to understand that this recent change to Tennessee’s wage garnishment statute did not occur in a vacuum. It instead coincides with ever increasing efforts by several federal government agencies and many states to crack down on misclassification of workers as independent contractors. Several of the states joining in this effort include some of the more business friendly “red” states. These states are recognizing that when employers fail to properly classify workers as employees, the state is deprived of payroll tax revenue, unemployment tax contributions and may be left with the responsibility of providing medical and subsistence benefits to persons who were injured while working, but who received no workers compensation benefits on account of being classified as an independent contractor. Tennessee has yet to formally announce it is joining that movement. The recent change to the wage garnishment statute does signal, however, that the Tennessee General Assembly recognizes the potential abuses associated with employee misclassification and is willing to address that issue, at least in piecemeal fashion.In April 2016 Governor Haslam signed a bill that will likely increase the number of wage garnishments with which many Tennessee employers will have to contend. This is particularly true for employers that make regular use of independent contractor workers.
If you would like to speak to John Lawhorn on this or any other matter, he may be reached at (865) 546-9321.