DOL Wage and Hour Division Provides Long-Awaited Garnishment Guidance on Meaning of “Earnings” Under Consumer Credit Protection Act
A rare and interesting thing in the world of federal garnishment law has just occurred: the U.S. Department of Labor’s Wage and Hour Division (WHD) updated its published position concerning the meaning of “earnings” pursuant to the Consumer Credit Protection Act (CCPA). This is important because the Department of Labor has issued very little regulation interpreting the CCPA and none define what the CCPA means by “earnings.” And, while there are several opinion letters from the years directly after the CCPA was adopted, only one such letter has been issued since 1972. Keep in mind that the federal decision concerning what is or is not CCPA-earnings (such as disability payments, tips and lump sum bonus payments, which are addressed herein) is critical because if the funds are not CCPA-protected earnings then states decide whether to garnish those funds and how much, if any, of those funds to protect from garnishment.
Fact Sheet No. 30
The WHD attempted to provide clarity as the meaning of “earnings” with its update to Fact Sheet No. 30: The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title III. The updates became effective in November of 2016.
The WHD mostly reformatted this document. In assembling preexisting information into a new section entitled, “Definition of Earnings,” the WHD added two new statements of its position. First, the fact sheet now states that “[e]arnings may include payments received in lump sums.” This position differs little from the longstanding position taken in other WHD internal documents. But, the new statement about lump sum payments being CCPA earnings may matter not because it is contradicted by the last administrative WHD opinion letter. That 2005 letter followed the Supreme Court opinion in Koskoszka v. Belford, 417 U.S. 642 (1974), writing that payment must be periodic to be earnings covered by the CCPA. The Koskoszka decision is criticized and distinguished by most but not all subsequent federal and state decisions defining CCPA earnings.
Unfortunately, the revised fact sheet does little to resolve how lump sum payments are to be garnished. And, don’t forget that any mistake in withholding can lead to employer liability to either the garnishing judgment creditor (if the employer under withholds) or the employee (if the employer over withholds). What is an employer to do? First, be knowledgeable of state garnishment laws and how each state garnishes compensation paid in lump sums. Second, keep in mind that in the area of child support income withholding orders, some states regularly issue orders requiring employers to deduct 100 percent of lump sum bonus compensation to pay child support arrears. Expect that approach to continue into the future. Therefore, employers will have to follow or timely challenge those orders.
Second, the WHD added a comment asserting that any portion of tips taken as a tip credit is a CCPA protected earning but that tips received in excess of the tip credit are not earnings at all. Previously, the WHD’s position was that tips are never earnings because they are not compensation from the employer but instead a gratuity from the customer. Court cases are few and far between, however, most followed the WHD position that employers are not responsible to somehow determine and garnish tips. For all practical purposes, employers should consider tip credit amounts when calculating garnishments, but only when state law provides that tips are subject to garnishment. Plus, how, or if, garnishments reach tips received in excess of the tip credit is left wholly unresolved and will undoubtedly be addressed by states in the future.
Field Assistance Bulletin No. 2016-3
Field Assistance Bulletin No. 2016-3 was issued on November 30, 2016. The five-page bulletin concludes that payments from employer-provided disability plans are CCPA earnings. The WHD noted that the CCPA does not define “compensation,” so the WHD relies upon the definition in Black’s Law Dictionary that provides that “compensation” includes all remuneration for services rendered, including benefits.
The WHD noted consistent and conflicting case law on the subject. For example, in United States v. Ashcraft, 732 F.3d 860 (8th Cir. 2013), the court ruled that disability payments were CCPA-covered earnings. The court in United States v. France, 782 F.3d 820 (7th Cir. 2015) disagreed, however, this decision was vacated by the Supreme Court of the United States when, according to the bulletin, the parties agreed to a settlement that the disability payments were CCPA earnings.
When assessing a course of action to take, an employer may want to consider self-insured disability payments subject to a creditor garnishment (when so provided by the applicable state garnishment laws), but only up to the CCPA cap. However, if the disability payments are insured, the judgment plaintiff’s garnishment would have to be directed to the insurance company.
Chapter 16 of the WHD Field Operations Handbook
The WHD’s Field Operations Handbook (FOH) was updated on January 3, 2017, to reflect the position on tips expressed in the fact sheet and the position on disability payments expressed in the bulletin. Interestingly, the FOH was not updated to include a statement that earnings may include payments received in lump sums. This omission will likely have very little practical implication.
Lastly, employers may want to note that the degree of legal force, if any, behind these documents is marginal at best. Manuals, fact sheets, and field assistance bulletins lack the binding force of law or a valid regulation. They will likely receive only limited deference but could have a varying degree of persuasive effect.