Employee Debt - The Bane of Employers

November 2014

While most of us believe that the “Great Recession” is finally at an end, millions of Americans are still experiencing the pressures of employee debt.  Every state in the United States has legislation creating the opportunity for an organization to “legally collect the financial obligations owed by an employee through our legal system” (for example, in the State of Illinois, Collection of Child Support – 750 ILCS 28/50, et seq.; Wage Assignment Act – 740 ILCS 170/01, et seq.; and Wage Garnishment – 735 ILCS 5/12-701, et seq.).  In point of fact, there is a tremendous increase in the number of garnishments (legal recovery of a debt through the seizure of an employee’s pay) that has been on a drastic increase.  It is estimated that in calendar 2013, close to 10% of the workers in the continental United States have had their wages garnished and the highest rate of garnishment covers employees between the ages of 30-50, the peak years of child rearing, divorce, and debt load.  Garnishments are filed for all possible debts, the two (2) highest being child support and student debt and “other debt” (i.e., credit cards, mortgages, etc.).

Employers are caught in the middle with their obligations to ensure that employees are paid correctly under all wage payment laws (i.e., Fair Labor Standards Act, Illinois Wage Payment and Collection Act, etc.) and the employer’s obligations to creditors under garnishment proceedings/requirements.  Every employer must be aware of garnishment proceedings/requirements and take appropriate action to protect itself from being enmeshed in these problems.  Here are a few of the very important things every employer must do:

1.    If an employer receives a garnishment, that garnishment is issued through a court proceeding.  Even if an employer believes that it has no obligation to collect on the garnishment (i.e., the involved employee no longer works for the employer), the employer must still file an answer to that garnishment and explain the reason or circumstances as to why the garnishment will not be processed by the employer and no moneys deducted and sent to the Court. If an employer does not file an answer to each and every garnishment, it is possible that the employee’s debt will become the debt of the employer through the entry of a default judgment.

2.    Garnishments come in all types of varieties – single payment or continuing payment.  Learn what the garnishment is – single payment or continuing payment. For a single payment, the employer is responsible to deduct the amount indicated in the court order and that is the end of the employer’s responsibility.  For a continuing garnishment, these can run for a period of time, in some cases, for 180 calendar days, and require continuing multiple deductions from pay and multiple court filings.

3.    The Consumer Credit Protection Act and many other state laws prohibit employers from discharging an employee based on a single garnishment or from multiple garnishments for a single indebtedness.  It is an absolute necessity for the involved employer to know the state law requirements and comply with them.

4.    For certain indebtedness that is the underlying basis for the garnishment, the “disposable earnings” (wages minus legally required withholdings) may be subject to a different deduction limitation.  In most garnishments, the “disposable earnings” subject to deduction in a work week or pay period will be the lesser of 25% of the “disposable earnings” or the amount by which “disposable earnings” exceed thirty (30) times of the required minimum wage.  On the other hand, for cases of child support or alimony back payments, 50% of the employee’s “disposable earnings” may be garnished.  It is extremely important to know what the indebtedness is to determine the percentage of “disposable earnings” subject to garnishment.

5.    Have a specific procedure handled by specific people who are responsible for dealing with the garnishments and are knowledgeable as to how to deal with them. Have a specific procedure and training in place to notify managers or supervisors that garnishments should be sent to an identified person. Do not allow garnishments to linger in someone’s inbox – that type of action will cause a lot of unnecessary problems, including the possibility that the “employee’s debt” will become the “debt of the employer!”

Questions?  Contact Managing Shareholder Walter J. Liszka of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.

NLRB-At it Again!

September 2015

Since the “packing of the NLRB” by President Obama, long established precedents of the National Labor Relations Board have been falling like flies as President Obama’s union protection agenda runs full force (joint employer standards; representation issues; etc.). There is no doubt in the author’s mind that President Obama deserves his union card!!

In a recent decision issued by the NLRB (June 26, 2015) in the case of American Baptist Homes of the West d/b/a Piedmont Gardens and Service Employees International Union, United Healthcare Workers-West, 32 NLRB No. 139 (32-CA-063475) the Board has rent asunder a thirty-eight (38) year precedent that established a bright line rule that allowed employers not to provide to a union copies of witness statements taken by an employer during an investigation regarding employee workplace misconduct. The Democratic NLRB has seen fit to invalidate this bright line standard established in Anheuser-Busch Inc., 237 NLRB 982 (1978) and replace it with a “balancing test” that would balance the needs of the union for the alleged requested information (actual employee statements) against any “legitimate and substantial confidentiality interests” established by the involved employer. Based on the overly “pro union bent” of the NLRB, how many cases will find “legitimate and substantial confidentiality interest” in favor of an Employer? In the opinion of the author, not very many!!

It is indeed interesting to note that this decision in June 2015 is, in reality, the second decision of the NLRB in this case. In point of fact, the exact same decision was made by the “Obama packed NLRB” in December of 2012 that was later overturned by the United States Supreme Court in NLRB v. Noel Canning, 134 S. Ct. 2550 (2014) which held that this decision, as well as approximately three hundred (300) other NLRB decisions, were illegal predicated on the fact that certain Obama appointments to the NLRB were unconstitutional. Unfortunately, in this case, the time from 2012 to 2015 has not been a sufficient time passage to allow the “Obama NLRB” to come to a better decision.

What this decision basically means is that it is going to be difficult, if not impossible, for an employer to investigate workplace misconduct and procure from its employees information and written statements detailing what they observed. The employer will not be able to promise “confidentiality of the statement” to any employee! Which employee, in his/her right mind, would present a statement identifying workplace misconduct by another employee if, in fact, that statement must be given to the union for their review? Again, the NLRB’s lack of business sense comes to the fore.

Simply stated, this decision goes a long way of making a thorough employer investigation of work place misconduct (think sexual harassment or intentional destruction of product) impossible!

Questions? Contact Walter J. Liszka, Managing Shareholder of the Chicago office of Wessels Sherman at waliszka@wesselssherman.com or (312) 629-9300.

Employee Wage Deductions

November 2014

          In a rare and somewhat unexpected action, the Illinois Department of Labor, which is not perceived as an “employer-friendly agency,” recently amended the requirements that are imposed on employers when making deductions from employee wages.

            Under the prior requirements of the Illinois Wage Payment and Collection Act, there were extremely limited circumstances under which unilateral deductions from employee wages or final compensation could be made.  Under the provisions of Section 9 of that Act (820 ILCS 115/9), employers were permitted to deduct from wages or final compensation only the following:

1.     As required by law (i.e., Federal and/or State Taxes or Medicare/Medicaid requirements).

2.     Deductions for the benefit of an employee (i.e., 401(k) contributions or healthcare contributions).

3.     Deductions made in response to a valid wage assignment or wage deduction order.

4.     Deductions made from an employee’s check with written consent by the employee given freely at the time a deduction is made.

Simply stated, under the above requirements, if the employer and employee had agreed to a payroll advance, the employer was legally entitled to make a deduction from the employee’s pay only if the employee gave their written consent at the time of each and every deduction even if these were to reoccur over several pay periods.

            Under the new rule, which became effective August 22, 2014, employee consent requirements have been modified to recognize that employers and employees may enter into a written agreement in advance of making the deduction, permitting that deductions will occur over a period of time.

            To take advantage of this new rule, the following must be followed:

1.     The employer and employee must be entered into a written agreement authorizing the deduction over a recurring series of deductions over time.

2.     The written document must provide, over the period of time during which the deductions will be made, very specific dates (time frame in which the deductions will occur).

3.     The periodic deduction must be for the same amount for each pay period.

4.     The written authorization must contain a statement that the individual employee may voluntarily withdraw his or her authorization to make the deduction and that this withdrawal should be in writing.

Although not required, it is the suggestion of the author that this written agreement authorizing the deductions be executed in duplicate original copies with one (1) original to be retained by the employer and the other original to be retained by the individual employee.

            Employers should also take note that even with this new rule authorizing a written document permitting this type of deduction, no deduction can take place if the deduction would allow an employee’s actual received wages to be less than the minimum wage for a particular pay period and, in addition, employers should ensure that deductions do not exceed fifteen percent (15%) of the employee’s gross wages for the pay period or final compensation because this would create a potential conflict with the Federal Consumer Credit Protection Act.

            Surprising as it may seem, the Illinois Department of Labor has finally “scored one” on behalf of the employer!

            Questions?  Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.