Garnishing the Wages of a Subcontractor

Garnishing the Wages of a Subcontractor: A Case Review of Indiana Surgical Specialists v. Helen Griffin and MDS Courier Service, Inc.

Published Wednesday, October 24, 2012 Chase M. Welsh

Can the wages of a subcontractor be garnished? This question arises quite frequently when practicing law in the creditor's rights field because of the conflict between Indiana's garnishment law and the employer – contractor relationship. In the state of Indiana, a wage garnishment is deducted from a debtor's disposable earnings. Indiana Code § 24-4.5-5-105(1)(a), defines disposable earnings as "that part of the earnings of an individual, including wages, commissions, income, rents, or profits remaining after the deduction from those earnings of amounts required by law to be withheld." However, because of the uniqueness of the employer – contractor relationship, an employer is not responsible for withholding taxes from a contractor's earnings. Therefore, as a result, a gray area surfaces as to what the employer's responsibilities are in response to the issuance of a Final Order in Garnishment.

In 2007, the Indiana Court of Appeals clarified the issue in Indiana Surgical Specialists v. Helen Griffin and MDS Courier Service, Inc., 867 N.E.2d 260 (Ind. App. 2007). In Indiana Surgical Specialists, the lower court issued a Final Order in Garnishment, ordering MDS to withhold from the earnings of Griffin. Id. at 260. MDS responded to the court's order, stating that Griffin was employed on a contract basis and that they were not responsible for any deductions, including garnishments. Indiana Surgical then sought to have MDS held in contempt for failing to garnish Griffin's earnings. The small claims court declined to enforce the garnishment order on the grounds that Griffin was a subcontractor and not an employee.

On appeal, the Court of Appeals reversed the lower court's decision and held that the earnings of Griffin could be garnished. Id. at 261. In support of its holding, the Court cited the Indiana Code's definition for earnings which defines earnings as compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments under a pension or retirement program. Ind. Code § 24-4.5-1-301.5(15). The Court reasoned that Griffin received periodic payments of compensation for her personal services and that those payments were earnings that could be garnished through a garnishment order. Id. at 262.

In conclusion, it is clear that the wages of an independent contractor can be subject to a garnishment order. If you have any questions on this topic or need assistance in maximizing your account receivables, please contact Welch & Company at 765-282-9501.

Welch & Company, LLC is a full service law firm with its primary focus being the Creditor-Debtor Relationship. Through its offices in Muncie, Indianapolis and Richmond, Welch & Company, LLC has assisted Individuals as well as National and Regional Financial Institutions with their legal needs.