New wage garnishment guidance issued by Arizona Court of Appeals for employers

The Predatory Debt Collection Protection Act, also known as Arizona Proposition 209, was a ballot measure that passed in November 2022 and it took effect in December 2022. The stated purpose of the law was to prevent families from losing their homes, cars, and wages due to medical debt. However, it also fundamentally changed many of the traditional debt collection tools available to creditors, including wage garnishments.

For employers, the important provisions of Prop 209 were the changes to withholdings under a wage garnishment.  Under the previous law, a maximum of 25% of a person’s disposable wages or 30 times the federal minimum wage, whichever is less, could be withheld and paid to judgment creditors. Prop. 209 lowered the amount of disposable wages that could be withheld to 10% or 60 times the highest applicable minimum wage, whichever is less. In addition, Prop 209 now prohibits the garnishment of wages entirely for individuals who earn 40 times the federal minimum wage or less per week.

After its enaction, Prop 209 left many open questions regarding its applicability to judgments entered before Prop 209 took effect and garnishments in place before Prop 209 took effect.  These questions left employers with little guidance as to whether they were required to withhold 25% or 10% of the employee’s wages. Getting this calculation wrong had serious repercussions for employers which could include liability to the employee or creditor for improperly withholding wages.

With little initial guidance, county and other courts began issuing best practices for employers to follow.  For example, the Maricopa County Justice Courts issued guidance that garnishments filed after December 2022, regardless of the timing of the judgment, would be capped at the 10% set by Prop 209.  While helpful, it still left employers forced to evaluate whether a law was in effect at a particular time and its impact on the employee’s wages as well as having to constantly monitor in real-time evolving case law on this issue. 

Luckily for employers, this month, the Court of Appeals issued a clarifying ruling chipping away at the open issues and has provided much-needed certainty and consistency to employers.  The following provides a quick reference for employers to use when evaluating whether Prop 209 applies to wage garnishment of their employees.

For starters, Prop 209 applies prospectively only and does not impact wages that were garnished prior to its enactment.  That means that for any wages withheld prior to December 2022, the proper amount to be withheld was 25% of the disposable income.  Prop 209’s new limitations do not create any right of refund in favor of employees.  Prop 209 also does not impact any previously entered judgment.

Second, the timing of the judgment is immaterial to applicability.  Rather it is the timing of the garnishment proceeding that matters with respect to whether Prop 209 is applicable.  This means that a garnishment proceeding after Prop 209’s enactment (December 2022) on a pre-Prop 209 judgment will still use the reduced withholding figure of 10%.

Finally, and related, for those garnishments in place prior to Prop 209’s enactment that continued after December 2022, the employer must follow Prop 209’s limitations on withholdings.  Because each pay period is a new evaluation of disposable income the employer must make an evaluation of the withholdings based on the laws then in effect – e.g. Prop 209.

Anthony Austin represents financial institutions, debtors, creditors, and trustees in all phases of complex litigation and restructuring transactions, including trials and appeals. As an experienced bankruptcy attorney, Anthony has a wide range of commercial litigation experience involving foreclosures, receiverships and guarantor litigation. He practices in Fennemore’s Financial Restructuring, Bankruptcy and Creditors’ Rights Practice Group, where he works on matters including collection and judgment work, breach of contract, partnership disputes and receiverships.