Failure to properly and swiftly deal with a garnishment order could result in legal liability, including lawsuit from creditors or claims to unpaid wages
Debt collection is an ugly business. Creditors often face debtors who have no seizable assets, are in financial distress, or have perfected the art of avoidance. For this reason, creditors frequently turn to the most powerful collection weapon in their arsenal: the garnishment order.
Garnishment is a legal process by which an employer is directed to intercept a portion of an individual’s wages and remit it to a third party who is owed money. Responding to a garnishment order can be complicated. Not only do the applicable rules vary by province and territory, but the rights of at least three different persons must be accounted for: the employee, the creditor, and the employer.
Failure to properly and swiftly deal with a garnishment order could expose an employer to significant legal liability including, among other things, being held exclusively accountable for reimbursement of the entire debt, being named in a lawsuit by creditors who have priority over other creditors, or claims due to unpaid wages. To minimize their legal risk, employers served with garnishment orders are encouraged to follow a three step process.
Step 1 – Determine the validity of the garnishment order
Not all garnishment orders are legally binding. Therefore, employers must first assess whether a garnishment order is valid.
A person or a company will only be bound by a garnishment order if they are correctly identified on the court document. Debtors frequently misstate a garnishee’s name especially where multi-layered corporate structures are used by businesses. If a garnishee has not been correctly identified, the recipient of the garnishment order must immediately notify the creditor to provide them with an opportunity to take the necessary remedial steps, such as obtaining a new order from the court.
In other circumstances, it may be impossible for an employer to garnish wages. For example, if an employee no longer works for the employer, is on a leave of absence, has been temporarily laid-off, or is on strike, there will be no wages to be garnished. In such cases, employers must immediately provide notice of the changes in the debtor’s employment status, and provide updates if the payment of wages resumes.
Obeying an invalid garnishment order can be as unlawful as refusing to obey a valid order. Consequently, before taking action, employers are strongly encouraged to have the orders reviewed by legal counsel to assess their validity. Employers must act quickly as garnishment orders typically apply to the employee’s next scheduled pay.
Step 2 – Determine the amount to be garnished
Once an employer is satisfied that a garnishment order is valid, the next step is to determine the correct amount to be withheld from the employee’s paycheque. Despite varying garnishment rules from one jurisdiction to the next, the following provides a general roadmap of the applicable conventions:
Garnishable pay includes:
•gross pay, less statutory source deductions including, for example, Canadian Pension Plan, employment insurance and income tax
•salaries, hourly wages, overtime pay, bonuses, commissions, incentives and other payments in exchange for services are garnishable in all jurisdictions
•holiday pay, vacation pay and sick pay are garnishable in most jurisdictions
•disability benefits are garnishable in British Columbia, Manitoba, Nova Scotia, Prince Edward Island, Quebec (specific exceptions apply) and Yukon (in other jurisdictions, the rules are less clear)
•pension benefits are garnishable under certain conditions in British Columbia, Manitoba, Nova Scotia, Prince Edward Island, Quebec, Saskatchewan and Yukon
•the garnishabilty of severance and termination payments vary specifically by province and territory.
Unlike the garnishment of a bank account (funds deposited in a bank account become vulnerable to a 100 per cent garnishment rate) employers must be cognizant not all moneys payable to an employee can be garnished.
Each province and territory have enacted laws specifying the minimum amounts of personal property owned by debtors, including their wages, that are exempt from garnishment.
Some provinces/territories use a percentage exemption. In Ontario, 50 per cent of wages are exempt from child/spousal support garnishments, while 80 per cent of wages are exempt from all other types of garnishment orders. Other jurisdictions use a dollar amount exemption based on specific factors.
In Prince Edward Island, for instance, the exemption allocates dollar amounts for particular living expenses. Finally, some jurisdictions use a hybrid model based on both percentage and fixed dollar amounts. For example, in Quebec, the exemption is 70 per cent of the excess over a specified amount per dependent.
If an employer garnishes an employee’s wages in an amount that exceeds the statutory limits, they could face legal proceedings resulting from the unlawful withholding of wages including, among other things, claims for breach of contract and constructive dismissal.
Step 3 – Payment of garnished amounts
Once an employee’s wages have been garnished, the employer must ensure the funds are properly remitted to the creditor.
To that end, employers must carefully follow the instructions contained in garnishment orders including to whom payments are to be made, where they should be delivered, as well as their frequency. Employers may also be required to disclose specific information about a payment at the time of its delivery. Accordingly, employers must be cautious with regards to what is disclosed. Providing more information than is required could violate privacy laws.
There are means by which employees can put a stop to garnishment orders including, for example, filing a consumer proposal, filing for personal bankruptcy or concluding a settlement agreement with a creditor. However, employers should not cease to make garnishment payments upon the advice of an employee.
Rather, they should ensure continued compliance with a garnishment order until it is completely fulfilled, the debtor’s employment status renders continued garnishment impossible, or a court specifically advises the employer to stop making the payments.
The law pertaining to garnishment is tricky. This article only provides a small sample of the rules applicable to garnishments and the legal risks associated with mismanagement of garnishment orders by employers. Full and complete knowledge and understanding of the applicable laws is essential in limiting an employer’s exposure.
Cédric Lamarche is an employment lawyer with Whitten & Lublin in Toronto, a boutique employment law firm assisting employers and employees on various workplace legal matters. He can be reached at [email protected] or (416) 640-2667.
Garnishment is a legal process by which an employer is directed to intercept a portion of an individual’s wages and remit it to a third party who is owed money. Responding to a garnishment order can be complicated. Not only do the applicable rules vary by province and territory, but the rights of at least three different persons must be accounted for: the employee, the creditor, and the employer.
Failure to properly and swiftly deal with a garnishment order could expose an employer to significant legal liability including, among other things, being held exclusively accountable for reimbursement of the entire debt, being named in a lawsuit by creditors who have priority over other creditors, or claims due to unpaid wages. To minimize their legal risk, employers served with garnishment orders are encouraged to follow a three step process.
Step 1 – Determine the validity of the garnishment order
Not all garnishment orders are legally binding. Therefore, employers must first assess whether a garnishment order is valid.
A person or a company will only be bound by a garnishment order if they are correctly identified on the court document. Debtors frequently misstate a garnishee’s name especially where multi-layered corporate structures are used by businesses. If a garnishee has not been correctly identified, the recipient of the garnishment order must immediately notify the creditor to provide them with an opportunity to take the necessary remedial steps, such as obtaining a new order from the court.
In other circumstances, it may be impossible for an employer to garnish wages. For example, if an employee no longer works for the employer, is on a leave of absence, has been temporarily laid-off, or is on strike, there will be no wages to be garnished. In such cases, employers must immediately provide notice of the changes in the debtor’s employment status, and provide updates if the payment of wages resumes.
Obeying an invalid garnishment order can be as unlawful as refusing to obey a valid order. Consequently, before taking action, employers are strongly encouraged to have the orders reviewed by legal counsel to assess their validity. Employers must act quickly as garnishment orders typically apply to the employee’s next scheduled pay.
Step 2 – Determine the amount to be garnished
Once an employer is satisfied that a garnishment order is valid, the next step is to determine the correct amount to be withheld from the employee’s paycheque. Despite varying garnishment rules from one jurisdiction to the next, the following provides a general roadmap of the applicable conventions:
Garnishable pay includes:
•gross pay, less statutory source deductions including, for example, Canadian Pension Plan, employment insurance and income tax
•salaries, hourly wages, overtime pay, bonuses, commissions, incentives and other payments in exchange for services are garnishable in all jurisdictions
•holiday pay, vacation pay and sick pay are garnishable in most jurisdictions
•disability benefits are garnishable in British Columbia, Manitoba, Nova Scotia, Prince Edward Island, Quebec (specific exceptions apply) and Yukon (in other jurisdictions, the rules are less clear)
•pension benefits are garnishable under certain conditions in British Columbia, Manitoba, Nova Scotia, Prince Edward Island, Quebec, Saskatchewan and Yukon
•the garnishabilty of severance and termination payments vary specifically by province and territory.
Unlike the garnishment of a bank account (funds deposited in a bank account become vulnerable to a 100 per cent garnishment rate) employers must be cognizant not all moneys payable to an employee can be garnished.
Each province and territory have enacted laws specifying the minimum amounts of personal property owned by debtors, including their wages, that are exempt from garnishment.
Some provinces/territories use a percentage exemption. In Ontario, 50 per cent of wages are exempt from child/spousal support garnishments, while 80 per cent of wages are exempt from all other types of garnishment orders. Other jurisdictions use a dollar amount exemption based on specific factors.
In Prince Edward Island, for instance, the exemption allocates dollar amounts for particular living expenses. Finally, some jurisdictions use a hybrid model based on both percentage and fixed dollar amounts. For example, in Quebec, the exemption is 70 per cent of the excess over a specified amount per dependent.
If an employer garnishes an employee’s wages in an amount that exceeds the statutory limits, they could face legal proceedings resulting from the unlawful withholding of wages including, among other things, claims for breach of contract and constructive dismissal.
Step 3 – Payment of garnished amounts
Once an employee’s wages have been garnished, the employer must ensure the funds are properly remitted to the creditor.
To that end, employers must carefully follow the instructions contained in garnishment orders including to whom payments are to be made, where they should be delivered, as well as their frequency. Employers may also be required to disclose specific information about a payment at the time of its delivery. Accordingly, employers must be cautious with regards to what is disclosed. Providing more information than is required could violate privacy laws.
There are means by which employees can put a stop to garnishment orders including, for example, filing a consumer proposal, filing for personal bankruptcy or concluding a settlement agreement with a creditor. However, employers should not cease to make garnishment payments upon the advice of an employee.
Rather, they should ensure continued compliance with a garnishment order until it is completely fulfilled, the debtor’s employment status renders continued garnishment impossible, or a court specifically advises the employer to stop making the payments.
The law pertaining to garnishment is tricky. This article only provides a small sample of the rules applicable to garnishments and the legal risks associated with mismanagement of garnishment orders by employers. Full and complete knowledge and understanding of the applicable laws is essential in limiting an employer’s exposure.
Cédric Lamarche is an employment lawyer with Whitten & Lublin in Toronto, a boutique employment law firm assisting employers and employees on various workplace legal matters. He can be reached at [email protected] or (416) 640-2667.
