INDEPENDENT CONTRACTOR EARNINGS ARE SUBJECT TO GARNISHMENT IN INDIANA

If as a secured lender you choose to pursue a deficiency judgment, one of the common options to consider is a garnishment proceeding.  Typically, we think of this in terms of garnishing “wages,” but the May 31, 2007 opinion by the Indiana Court of Appeals in Indiana Surgical Specialists v. Griffin, 2007 Ind. App. LEXIS 1151 explained that garnishment can include more than just wages. (ISSvGriffinOpinion.pdf). 

General rule.  Garnishment refers to “any legal or equitable proceedings through which the earnings of an individual are required to be withheld by a garnishee, by the individual debtor, or by any other person for the payment of a judgment.” Ind. Code 24-4.5-5-105(1)(b); Indiana Surgical at 3.  Earnings are “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.”  I.C. 24-4.5-1-301(9); Indiana Surgical at 4.  Addressing a federal counterpart to the Indiana statute, the United States Supreme Court in a 1974 case stated that garnishment should include “periodic payments of compensation.”  Indiana Surgical at 4.  Interestingly, the Indiana Court of Appeals adopted the “periodic payments of compensation” language even though it is not found in the Indiana statute. 

(The Court of Appeals dealt only with I.C. 24-4.5-5, the Uniform Consumer Credit Code, and the garnishment provisions therein.  The remedy of garnishment also is addressed generally in I.C 34-25-3 and Indiana Trial Rule 69(E).  I see no reason why the holding of Indiana Surgical would not apply to all garnishment actions in Indiana.)   

Application to independent contractors.  Indiana Surgical involved a judgment debtor that was an independent contractor of the garnishee defendant.  In other words, the debtor was not an employee and did not earn wages.  She was a courier who received a commission based on the deliveries made.  The Indiana Court of Appeals determined that the commissions were “periodic payments of compensation,” which constituted “earnings” subject to garnishment.  Id. at 4.

I suppose the common label “garnishing wages” really should be “garnishing earnings.”  The more important point here for commercial lending institutions pursuing deficiency judgments in Indiana is that you can institute proceedings supplemental against the principal of an independent contractor (agent) in order to seek satisfaction of the contractor’s debt.  The relief is not limited to an employer/employee scenario.