Legal News

Garnishment of Independent Contractor Compensation

by Jeffrey S. Brinen, Kutner Brinen Garber, P.C.

from Colo Bar Assn Business Law Newsletter February 2014

A Colorado case issued in September, 2013, Idaho Pacific Lumber Company, Inc. v. Celestial Land Company Limited, 2013 COA 136; 2013 Colo. App. LEXIS 1512, addressed the issue of whether compensation owed to an independent contractor constitutes “earnings” under C.R.S. §13-54.5-101(2)(a) for purposes of applying the 75% exemption in §13-54-104(2)(a)(I)(A) to a continuing writ of garnishment. The Court of Appeals reversed the trial court, and held that income paid to an independent contractor for personal services are not earnings that can be exempted from a continuing garnishment.

The issue is what constitutes “earnings” for purposes of determining amounts exempted from collection. §13-54.5-101(2)(a)(I) defines “earnings” as “compensation paid or payable for personal services, whether denominated as wages, salary, commission, or bonus.” However, §13-54.5-101(2)(b) provides that if the writ of garnishment is for a judgment that stems from failing to pay child support, restitution for theft, embezzlement, misappropriation … , “earnings” also include payments to independent contractors, dividends, and taxable distributions from general partnerships, limited partnerships, closely held corporations, or limited liability companies, among a number of other forms of payment.

The Court determined that to interpret the definition of “earnings” in §13-54.5-101(2)(a)(I) to include independent contractors would render “also” superfluous, and to include payments to independent contractors in the definition of earnings in §13-54.5-101(2)(b) would be redundant. Further, the Court stated that “wages, salary, commission, or bonus” generally implies employee/employer relationships, and does not support the inclusion of independent contractors. The Court stated that the policy consideration of incenting an independent contractor to continue working by limiting the garnishment to 25% does not justify disregarding the plain language of the statute.

Based upon the Court’s decision in Idaho Pacific, it appears that if the judgment against the independent contractor had been based upon theft, embezzlement, or any of the other bad acts delineated in §13-54.5-101(2)(b), he would have been entitled to some protection.