Friday, December 19, 2008

With Wage Garnishments On The Rise, Employers Must Avoid Retaliatory Discharges

During these tough economic times, as employees fall into debt, employers may see an increase in wage garnishments. Can an employer terminate an employee if the wage garnishments become a nuisance?

The answer is: “It depends.” Federal law, as well as California law, protects employees from termination on account of garnishment for “one indebtedness.” An employer is not restrained from taking adverse action against an employee on account of garnishment for more than one indebtedness.

<u>Federal Law</u>

In the federal Consumer Credit Protection Act, found in Title 15 of the U.S. Code, section 1674 prohibits an employer from discharging any employee by reason of the fact that his earnings have been subjected to garnishment for any one indebtedness. A willful violation of the section may result in criminal penalties, including a fine of up to $1,000, or imprisonment of up to one year, or both.

Although the federal act provides a criminal sanction as the only penalty for violation of the prohibition, some federal courts, including in the 9th Circuit have interpreted the law to allow an employee to file a civil lawsuit seeking back pay.

The term “one indebtedness” refers to a single debt, regardless of the number of levies made or the number of proceedings brought for its collection. A distinction is thus made between a single debt and the garnishment proceedings brought to collect it. A creditor, in seeking to collect a debt, may garnish wages on multiple occasions. Yet because the creditor seeks to collect a single debt, the employee would be protected by the federal law.

According to legislative commentary, if several creditors combine their debts in a single garnishment action, the joint amount is considered as “one indebtedness.” In the same vein, if a creditor joins several debts in a court action and obtains a judgment and writ of garnishment, the judgment would be considered a single indebtedness for purposes of this law. Also, the protection against discharge is renewed with each employment, since the new employer has not been a garnishee with respect to that employee.

<u>California Law</u>

The California Labor Code provides similar protection to employees. Section 2929 provides: “No employer may discharge any employee by reason of the fact that the garnishment of his wages has been threatened. No employer may discharge any employee by reason of the fact that his wages have been subjected to garnishment for the payment of one judgment.”

An employee discharged in violation of California Labor Code Section 2929 may continue to collect wages for up to 30 days after the date of termination.

California law is thus more explicit than federal law with respect to a private right of recovery. The legislative commentary associated with Section 2929 states that the civil penalty is intended to aid in the enforcement of the prohibition against discharge for garnishment of earnings provided by the federal Consumer Credit Protection Act of 1968. The civil penalty under Section 2929 benefits employees, notes the commentary, by providing a more effective method of securing compliance than the criminal sanction provided by the federal law.

Excessive garnishments may subject an employee to discipline. The legislative commentary observes: “Some employers have a rule that the employee will be given warnings for the first two garnishments and will be discharged for the third garnishment in a year. Where at least two of the actions relate to separate debts, discharge would not be prohibited by the law since the warning and discharge would be based on garnishment for more than one indebtedness.”

Employers should thus exercise caution before taking adverse action against an employee whose wages have been garnished.

Submitted by:
Christopher W. Olmsted, Esq.
Barker Olmsted & Barnier, APLC