Compliance with Orders to Withhold, Wage Garnishments and Levies

Many employers and financial institutions are frequently forced to deal with Orders to Withhold (Wage Garnishments) and Levies resulting from tax deficiencies, judgments and support orders against their employees or clients. Failure to comply with the Order to Withhold or levy can result in financial penalties against the employer or financial institution, which essentially shifts the debt from the employee/client to the employer or financial institution. However, there can also be issues with compliance.

First, very specific rules and limitations apply to all Orders to Withhold and Levies. Some of these rules, such as the withholding periods and notice requirements are set forth on the Order or Levy. However, many of these rules are not provided directly to the employer or financial institution at the time the Order or Levy is received. Rather they are hidden within the California Code of Civil Procedure.

Recently, Tredway, Lumsdaine & Doyle successfully represented a financial institution from liability stemming from the company’s compliance with an Order to Withhold after their customer sued them for allegedly mishandling an Order to Withhold. Although the Court ruled in favor of the financial institution, the Court also held that the company had acted wrongly in submitting their customer’s monies to the State of California as demanded by the Franchise Tax Board. The Court found that, under the Code of Civil Procedure, the type of account was not subject to the Order even though the Order to Withhold clearly stated that the account was subject to the Order. Tredway, Lumsdaine & Doyle was only able to prevent the financial institution from liability by directing the Court's attention to an indemnity provision within the Code.

Every Order to Withhold and Levy thus needs to be handled carefully and with full knowledge of all laws related to the enforcement of debts.

Article Submitted By: Attorney Jennifer Lumsdaine