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14.2.1.4.4 Payments to independent contractors

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  4. 14.2 Protection of Debtors’ Wages
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  6. 14.2.1.4 Earnings Subject to CCPA Garnishment Protections
  7. 14.2.1.4.4 Payments to independent contractors

14.2.1.4.4 Payments to independent contractors

The CCPA explicitly includes “commissions” in its definition of earnings,52 suggesting an intent to cover the typical earnings of independent contractors as long as the compensation is for personal services.53 Even a court that takes the view, not supported by the statutory language, that the CCPA applies only to compensation that is paid periodically54 may accept this position, since commissions are often paid biweekly or monthly.55

Many courts applying state wage exemption laws have held that the protections do extend to independent contractors.56 Nonetheless, other courts have found that payments to independent contractors are not protected by state statutes.57 In some cases, this interpretation may be explained by statutory language that is narrower than the CCPA, for example, protecting just “wages” rather than “earnings.”

Footnotes

  • 52 15 U.S.C. § 1672(a).

  • 53 See In re Jones, 318 B.R. 841 (Bankr. S.D. Ohio 2005) (CCPA, which Ohio incorporates into its state exemptions, protects earnings of independent contractor if attributable to personal services); Capital One Bank v. Caspary, 104 N.E.3d 276 (Ohio Ct. App. 2018) (real estate commissions are not personal earnings under Ohio garnishment law because they must be for services performed for an employer—defined as one who is required to withhold taxes from employees’ compensation—but are earnings for purposes of the CCPA, so creditor cannot seize more than 25%); Smythe Cramer Co. v. Guinta, 762 N.E.2d 1083 (Ohio Mun. Ct. 2001) (realtor’s commissions were personal earnings within meaning of state and federal garnishment statutes).

  • 54 See § 14.2.1.4.5, infra.

  • 55 See Ind. Surgical Specialists v. Griffin, 867 N.E.2d 260 (Ind. Ct. App. 2007) (commission-based earnings, paid to independent contractor on biweekly basis, are earnings under Indiana definition, which is identical to CCPA).

  • 56 ARIZONA: Warfield v. Alaniz, 2008 WL 700160 (D. Ariz. Mar. 13, 2008) (commissions of independent contractor insurance agent are earnings; Arizona statutory definition explicitly includes commissions); In re Roetman, 405 B.R. 336 (Bankr. D. Ariz. 2009) (Arizona garnishment statute protects payments for personal services—here, commissions of independent contractor realtor—whether or not recipient is in employer-employee relationship with payer).

    CALIFORNIA: In re Carter, 182 F.3d 1027 (9th Cir. 1999) (entertainer who was sole shareholder of corporation that arranged her contracts, paid business expenses, and so forth could claim California exemption for earnings; remanding to determine whether large lump sum paid to self on eve of bankruptcy was earnings).

    COLORADO: Bargas v. Nye (In re Nye), 210 B.R. 857 (D. Colo. 1997) (Colorado exemption statute explicitly protects payments received by independent contractor for labor or services); Morrison v. Kobernusz (In re Kobernusz), 160 B.R. 844 (D. Colo. 1993) (payments to construction subcontractor are for labor and meet state garnishment law’s definition of “earnings”). Cf. Idaho Pac. Lumber Co. v. Celestial Land Co. Ltd., 348 P.3d 950 (Colo. App. 2013) (payments to independent contractor, even if for personal services, not protected by former version of statute, which did not explicitly protect payments to independent contractors for personal labor or services).

    CONNECTICUT: Harrington v. Dyer, 937 A.2d 77 (Conn. Super. Ct. 2007) (commissions of independent contractor real estate salesperson were earnings, exempt from prejudgment garnishment).

    DISTRICT OF COLUMBIA: Riggs Nat’l Bank v. Simplicio, 54 U.S.L.W. 2457 (D.C. Super. Ct. 1986) (D.C. statute modeled after CCPA protected commissions of real estate agent, an independent contractor).

    FLORIDA: In re Jans, 2016 WL 741884 (Bankr. M.D. Fla. Feb. 24, 2016) (issue is whether work is more like having a job or running a business; exempting compensation of independent contractor real estate agent who owned no interest in developer for whom she sold condos; developer exercised significant control over her work—e.g., by setting hours for office coverage); In re Pettit, 224 B.R. 834 (Bankr. M.D. Fla. 1998) (Florida exemption for head of household’s earnings protects earnings of “independent contractor” salesman who received fixed amount of monthly compensation and did not own or control company). See also Baker v. Storfer, 51 So. 3d 652 (Fla. Dist. Ct. App. 2011) (commissions are “wages or salary” within the meaning of the Florida statute authorizing writs of continuing garnishment).

    ILLINOIS: California-Peterson Currency Exch., Inc. v. Friedman, 736 N.E.2d 616 (Ill. App. Ct. 2000) (earnings of independent contractor, described by employer as “agent” or “outside contractor,” protected by Illinois garnishment limitations).

    INDIANA: In re Hoetmer, 2011 WL 2893628 (Bankr. S.D. Ind. July 14, 2011) (real estate broker’s commissions); Ind. Surgical Specialists v. Griffin, 867 N.E.2d 260 (Ind. Ct. App. 2007) (commission-based earnings, paid to independent contractor on biweekly basis, are earnings under Indiana definition, which is identical to CCPA).

    IOWA: In re Sexton, 140 B.R. 742 (Bankr. S.D. Iowa 1992) (issue is not whether debtor is independent contractor or employee, but whether payments are for personal services); Marian Health Ctr. v. Cooks, 451 N.W.2d 846 (Iowa Ct. App. 1989).

    KANSAS: In re Price, 195 B.R. 775 (Bankr. D. Kan. 1996) (real estate agent’s commissions were exempt earnings, even though contract described her as an independent contractor, where she had invested no capital in the business, performed all services personally, and worked for one broker, which exercised considerable control over her work); Decision Point, Inc. v. Reece & Nichols Realtors, Inc., 144 P.3d 706 (Kan. 2006) (realtors’ commissions were earnings, assignment of which was forbidden by UCCC).

    LOUISIANA: In re Graham, 2010 WL 3463720 (Bankr. M.D. La. Aug. 30, 2010) (Louisiana garnishment statute protects earnings of doctor, an independent contractor who provided services to clinics).

    MISSOURI: In re Parsons, 252 B.R. 480 (Bankr. W.D. Mo. 2000) (Missouri wage exemption applies to earnings of real estate broker insofar as funds were compensation for her personal services), aff’d, 280 F.3d 1185 (8th Cir. 2002) (approving method of calculating percentage of income attributable to personal services).

    NEBRASKA: In re Pruss, 235 B.R. 430 (B.A.P. 8th Cir. 1999) (solo practice attorney’s accounts receivable that were attributable to her personal services fall within Nebraska statute’s protection for “compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus or otherwise”), appeal dismissed as moot with instructions to vacate opinion, 229 F.3d 1197 (8th Cir. 2000), vacated, 255 B.R. 314 (B.A.P. 8th Cir. 2000).

    NEW JERSEY: Cf. Waitkus v. Pressler & Pressler, L.L.P., 2012 WL 686025 (D.N.J. Mar. 2, 2012) (allowing FDCPA claim to proceed against debt collectors who attempted to execute turnover order against 100% of plaintiff’s commission-based earnings in violation of CCPA and state law, but without analyzing the exemption statutes).

    OHIO: In re Jones, 318 B.R. 841 (Bankr. S.D. Ohio 2005) (CCPA, which Ohio incorporates into its state exemptions, protects earnings of independent contractor if attributable to personal services); Smythe Cramer Co. v. Guinta, 762 N.E.2d 1083 (Ohio Mun. Ct. 2001) (realtor’s commissions were personal earnings within meaning of state and federal garnishment statutes). But see Capital One Bank v. Caspary, 2018 WL 582388 (Ohio App. Jan. 26, 2018) (Ohio defines personal earnings as compensation for services provided to an employer—that is, one who is required to withhold taxes from employees’ compensation—so real estate commissions are not earnings for state law purposes even though they are earnings under the CCPA).

    TENNESSEE: In re Duncan, 140 B.R. 210, 213 (Bankr. E.D. Tenn. 1992) (state garnishment exemption protected insurance salesman’s commissions earned on renewals of policies he had originally sold). But cf. SunTrust Bank v. Burke, 491 S.W.3d 693 (Tenn. Ct. App. 2015) (statutory provision for continuing wage garnishment, which applies only to “employer garnishee,” does not apply when debtor is an independent contractor).

    VIRGINIA: In re Sheeran, 369 B.R. 910 (Bankr. E.D. Va. 2007) (earnings of solo law firm were result of personal services, so were earnings under Virginia definition, which explicitly includes payments to independent contractors; debtor could claim wage exemption).

    WISCONSIN: In re Woller, 483 B.R. 886 (Bankr. W.D. Wis. 2012) (payments for trucking services, by independent owner-operator who drove the truck himself, were earnings for personal services, protected by Wisconsin wage garnishment limits).

  • 57 CALIFORNIA: See Glob. Money Mgmt. v. McDonnold, 2009 WL 3352574 (S.D. Cal. Oct. 15, 2009) (Cal. Civ. Pro. Code § 706.011 (West) definition of earnings excludes independent contractor or self-employed professional, but section 708.510 requires that any attachment order against a natural person consider “the reasonable requirements of the judgment debtor”); Transp. Mgmt. & Consulting, Inc. v. Black Crystal Co., 2008 WL 205592 (N.D. Cal. Jan. 24, 2008) (earnings of solo practice lawyer not exempted by Cal. Civ. Proc. Code § 487.010 (West), which protects only those who work for an employer who controls both what should be done and how it should be done).

    FLORIDA: See In re New River Drydock, Inc., 2012 WL 5675911 (11th Cir. Nov. 16, 2012) (earnings of a business, even a sole proprietorship, not protected by Florida’s head of household exemption, if proprietor does not pay self a set salary; here, allowing garnishment of one-man real estate agency’s funds); Pellegrino v. Koeckriz Dev. of Boca Raton, Inc., 2009 WL 1437813 (S.D. Fla. May 15, 2008), report and recommendations adopted, 2009 WL 1798382 (S.D. Fla. June 24, 2009) (Florida statute does not protect earnings of independent contractor or business owner). See also In re Branscum, 229 B.R. 32 (Bankr. M.D. Fla. 1999) (Florida’s earnings exemption does not protect earnings of private investigator, who was independent contractor); In re Segall, 1998 Bankr. LEXIS 209 (Bankr. S.D. Fla. Jan. 26, 1998) (realtor’s commissions were not exempt earnings when realtor was paid only commissions, paid own self-employment taxes, had to pay “franchise fee” for use of office and equipment, and controlled his own schedule); In re Lee, 204 B.R. 78 (Bankr. M.D. Fla. 1996) (insurance agent who was free to make own business decisions and was responsible for all expenses was independent contractor, so earnings not exempt under Florida law).

    KANSAS: Coward v. Smith, 636 P.2d 793 (Kan. Ct. App. 1981) (payments to roofing contractor not earnings; earnings defined as “compensation . . . for personal services, whether denominated as wages, salary, commission, bonus, or otherwise” under state garnishment law; stressing statute’s focus on features of employer-employee relationship, such as deduction of payroll taxes and potential loss of job).

    NEBRASKA: See In re Cerda, 2007 WL 4893451 (Bankr. D. Neb. Dec. 6, 2007) (Nebraska exemption does not protect accounts receivable of home health aide, an independent contractor; key issue is degree of control exercised by employer).

    NEVADA: See also In re Galvez, 990 P.2d 187 (Nev. 1999) (real estate agent’s lump-sum commissions paid at closing were not “earnings” within meaning of Nevada exemption, which protects only periodic payments).

    NORTH DAKOTA: See In re Domitrovich, 2008 WL 141904 (Bankr. D.N.D. Jan. 10, 2008) (North Dakota wage exemption does not protect earnings of self-employed person).

    PENNSYLVANIA: See In re Bosack, 454 B.R. 625 (Bankr. W.D. Pa. 2011) (Pennsylvania garnishment statute does not protect earnings of independent contractor, here a salesman paid on commission).

    TEXAS: Resolution Tr. Corp. v. Tex. Moline, Ltd., 96 F. Supp. 2d 644 (S.D. Tex. 2000) (management, accounting, and investment banking fees paid to independent contractor not protected by Texas wage exemption; debtor was principal of financial firm, had own office, and employed others to do much of the work); Campbell v. Stucki, 220 S.W.3d 562 (Tex. App. 2007) (Texas exemption for current wages does not protect earnings of independent contractor); DeVore v. Cent. Bank & Tr., 908 S.W.2d 605 (Tex. App. 1995) (earnings of attorney in private practice not exempt as “current wages” under Texas statute). But cf. Tex. Prop. Code § 42.001(a), (d) (West) (unpaid commissions for personal services can be exempted as personal property up to a cap); Davidson Tex., Inc. v. Garcia, 664 S.W.2d 791 (Tex. App. 1984) (because of level of control exercised by employer, debtor was employee, not independent contractor, and therefore fully protected from garnishment under Texas exemption for “current wages”).

    WASHINGTON: See O’Hagen v. Field, 187 Wash. App. 1031 (Wash. Ct. App. 2015) (Washington statute, which refers to “employer” and defines earnings as sums paid or payable for personal services, did not protect payments to farmer from cranberry processor; processor did not employ farmer and was not purchasing personal services).

    WISCONSIN: Gentek Bldg. Prods., Inc. v. Check, 590 N.W.2d 282 (Wis. Ct. App. 1999) (commissions earned by seller of building products who was described in contract as “independent contractor” and who received no other compensation not “earnings” protected by Wisconsin statute).