Iowa Court of Appeals Limits Creditor’s Remedy When Employers Fail to Properly Garnish Wages
September 21, 2022
The Iowa Court of Appeals recently clarified that employers who mistakenly garnish the incorrect amount of wages from their employees will not be held liable for a creditor’s entire judgment against the employee, clarifying Iowa Code Chapter 642. While garnishing creditors were used to limitations when seeking recoveries from their debtor’s employers, they have always held out hope to hold an employer liable for the full judgment when there were withholding errors. The Court cut off that remedy by its decision in L.F. Noll, Inc. v. Premiere Business Solutions, L.L.C.
In L.F. Noll, the court of appeals reversed a decision that found an employer liable for their employee’s entire debt to a creditor. The court of appeals held that the employer-garnishee could not be liable to the creditor for the full amount of the judgment, but rather only “for amounts it failed to properly withhold under the garnishment.”
This clarification should come as good news to employer-garnishees. Prior to this recent decision, Iowa law was unclear as to whether a creditor could argue a garnishee who withheld the wrong amount of their employee’s wages was liable for the entire judgment owed by the employee. This trap for the unwary could have left employer-garnishees on the hook for large judgments after only a small mistake in applying the wage garnishment. Assuming no further review by the Iowa Supreme Court, this argument has now been largely put to rest.
Under this decision, if a garnishee (employer) is not indebted to the employee-debtor beyond the wages they have already earned, then the garnishee can only be held liable to the creditor for the amount that would have been owed to the employee-debtor in wages during the period of the garnishment levy. The Iowa Supreme Court previously held in Stowe v. Breen, “it is clear judgment may not be secured against a garnishee unless at the time of the service of notice of garnishment he owes the defendant a debt, due or to become due” finding, as the court of appeals restated in L.F. Noll, “the creditor was not entitled to judgment against the garnishee for wages the defendant would earn in the future because they were not due or to become due at the time the notice of garnishment was served.” L.F. Noll, Inc. v. Premiere Business Solutions, LLC, 2022 WL 3906814, at *5 (Iowa Ct. App. 2022) (citing Stowe v. Breen, 300 N.W. 518, 519 (Iowa 1941)).
So, even though a debtor is employed by the employer-garnishee when the garnishment levy is served, the garnishee will not be deemed “indebted” to their employee for wages they have not yet earned in the future, and thus not liable to the employee’s creditor for the full amount. In essence, this decision caps the creditor’s remedy to the amounts they would have received from the debtor-employee’s wage withholding had the employer not made the error.
If you have questions relating to this update in Iowa law or other creditor or employment issues, please contact a member of Nyemaster Goode’s Labor & Employment Department or Creditor’s Rights Practice Group.