Bankruptcy Blogs

Most garnishment cases turn of whether the debtor’s income can be classified as “earnings” within the meaning of the Florida Statute §222.11, which provides an exemption to the head of the household from wage garnishment in certain circumstances.

What qualifies as “earnings” for garnishment in Florida?

Florida Statute §222.11 defines “earnings” as “compensation, paid or payable, in money of a sum certain, for personal services or labor whether denominated as wages, salary, commission, or bonus.” Money earned by a sole proprietor and deposited in bank accounts to pay personal and business expenses, including taxes, payroll, and other expenses, is not considered “earnings” and thus, is not exempt from garnishment. Also, commissions earned by an independent contractor may not be exempt.

Can independent contractors exempt their earnings from garnishment in Florida?

Generally, the Florida’s head of household exemption does not apply to independent contractors. In other words, money due for personal labor or services must be money earned as an employee, not money received as an independent contractor. However, this is usually the area of contention in wage garnishment because there is no absolute rule for distinguishing between an employee and an independent contractor.

How to determine when someone is an independent contractor versus an employee?

Labeling an employee as independent contractor or vice versa will not always help avoid wage garnishment because Florida courts look at the substance of the employment relationship, not the label, such as the level of control exercised by the debtor, whether there is a contract for a fixed price for certain work, the independent nature of the business, employment of assistants with the right to supervise, obligation to furnish necessary tools and supplies, the right to control work except as to final results, and the method of payment, by time or by job.

The true test for purposes of wage garnishment is whether the debtor’s activities is a salaried job or more in the nature of running a business. The important consideration in this analysis is whether the debtor has an arms-length agreement to perform services that are much like a job and whether the debtor has control over the amount of his or her compensation.

What are some examples when a Florida wage garnishment was denied?

For example, some Florida courts found that a debtor who owns or controls a business cannot exempt the funds he distributes to himself from the business simply by labelling the money as “wages.” In one such case, a debtor, a general contractor, was a president of a general contracting corporation, which was 100% owned by his wife. As the president of the corporation, he was responsible for its day-to-day operations. He had no written employment contract with the corporation and established his own “salary,” including commissions and bonuses. Since he determined his own distributions from the family owned business, his discretionary distributions were not “earnings” for purposes of wage garnishment.

In another case, a debtor, a dentist, was one of two shareholders in a corporation operating as a dental professional association. The debtor had a written Professional Employment Agreement and Wage Agreement setting compensation for his personal dentistry labor or services and had been receiving regular compensation in the form of paychecks every two weeks. After the corporation was dissolved, the debtor sought to exempt wages owed to him. The exemption was disallowed on the basis that the agreement for compensation was not an arms-length employment agreement because the agreement was between himself and the only other shareholder, both of whom ran business of the professional association while also performing dentistry services. Stated simply, the agreement was only enforceable by themselves and they made all decisions about when they got paid, how much they received, so payment of their wages was purely discretionary.

Other examples of compensation that did not qualify as “earnings” for purposes of wage garnishment exemption included an attorney’s compensation from his own law practice, a real estate agent’s commissions on sales when the real estate agent is an independent contractor; and a distribution of the equity (stock value) to the shareholders upon dissolution of a corporation; or employee stock options (rights to purchase equity securities) in a company.

What are some examples when a Florida wage garnishment exemption was allowed?

On the other hand, one Florida court found that a commission received by a debtor, who was labeled an independent contractor and whose compensation was limited to the scope and success of a specific charge, qualified as “earnings” for purposes of wage garnishment because the debtor’s activities were essentially a job and not in the nature of running a business. The court reasoned that the debtor never owned her own business to provide her personal skills and expertise to other individuals or entities, her duties and compensation were dictated by the terms of an arm’s length employment agreement; the employer, not the debtor, provided materials and paid expenses to enable the debtor to perform her duties and the employer oversaw her progress.

Also, commissions earned by an account executive in a commodity brokerage firm were found to be “earnings” for purposes of wage garnishment. Although the broker worked without any employment contract, he was found to be an employee, rather an independent contractor, because he worked for only one company. That company provided all equipment, work space, work space, support personnel and seats on the various commodities exchanges. Furthermore, taxes were withheld from the broker’s earnings. The broker had a supervisor who was responsible for his day to day supervision of all accounts supervised by the office and the supervisor called the broker an employee.

How can we help?

If you are facing a wage garnishment in Florida or if your wages are already being garnished, we may be able to prevent or stop the garnishment, reduce the garnishment amount or recover all or a portion of the garnished funds. If the funds were wrongfully garnished, we may be able to return the garnished funds and make the creditor pay the statutory damages of $1,000 under Fair Debt Collection Practices Act, as well reimbursement of the additional expenses, such as attorney fees and costs, in recovering the wrongfully garnished funds.

Call us now for a free phone consultation.  (386) 248-3000.