"Salary and Wages"
As defined for Purposes of Florida Statutes § 222.11.
In Brock v. Westport Recovery Corp., 832 So.2d 209 (Fla. Dist. Ct. App. 4th Dist. 2002), the court quashed the continuing writ of garnishment because Appellant's earnings were not "salary or wages" within the meaning of Florida Statutes Section 77.0305 which refers to Section 222.11 of the Florida Statutes. In determining what classifies as earnings stated, the court said "the relevant inquiry is often whether a person's employment is a salaried job or is in the nature of running a business. For the wage and salary exemption to apply, the debtor must not only perform personal services to the business, he must also receive regular compensation dictated by the terms of an arms-length employment agreement." When the debtor determined the amount and timing of compensation, the debtor was not entitled to the exemption.
We at FHS disagree, as compensation in the form of commission may very well entail this scenario. See below.The opinion stated that "[a]n employee has regular earning pursuant to an employment agreement. He or she is paid directly for personal labor or services. By contrast, this Debtor and others similarly situated who run their own businesses, have control over the timing and amount of their compensation. Certainly, the legislature did not intend to exempt all funds a person chooses to draw from a business where the individual has full discretion over what expenses to pay or not pay in order to fund the draw." The court determined that the services Appellant performed were more in the nature of a business and not performing a job. As a result, they were not wages.Since they were not wages, the Appellee was not able to cause a writ of garnishment, which is directed towards "salary or wages."
In planning to take advantage of the wage exemption under Florida Statutes Section 222.11, the employer/employee relationship must be clearly established. The relationship can be established by using an employment agreement and ensuring that the employee is paid a wage (at least as frequently as other employees).
There has been a split in the Florida courts as to whether the earnings of an independent contractor are protected by Fla. Stat. § 222.11. a. In In re Glickman, 126 B.R. 124 (Bankr. M.D.Fla. 1991) the court found that nothing in the wage statute limits its protection to employees. The court then went on to add that amounts owed to a dentist who was an independent contractor were exempt because it was owed for personal labor and services. In In re Pettit, 224 B.R. 834 (Bankr. M.D.Fla. 1998), the Bankruptcy Court held that commissions and bonuses earned by debtor are exempt earnings pursuant to Fla. Stat. § 222.11 even though the debtor was labeled an independent contractor. The Pettit decision noted that it would not base its decisions solely on whether a debtor is labeled an employee or independent contractor.
Consequently, the court adopted a totality of the circumstances approach to determine whether debtor's compensation constituted exempt earnings pursuant to Fla. Stat. § 222.11. The court stated the debtor was an independent contractor whose duties were essential to a job and not in the nature of running a business. He received regular compensation dictated by the terms of an arm's length employment agreement, although such agreement was oral. The company owner had complete discretion as to the timing and the amount of debtor's compensation and could adjust it if he chose to do so. Accordingly, the court held that, in light of all of the circumstances, debtor's commission and bonuses were exempt earnings pursuant to Fla. Stat. § 222.11.In deciding this case, the court did a survey of the case law with respect to said statute both before and after its amendment in 1993. The court noted that most Florida Bankruptcy Courts have held that money due for personal labor or services can only be earned by an employee; consequently, wages paid to an employee are exempt, whereas compensation paid to an independent contractor is not.
The court also noted that in 1993, the Eleventh Circuit Court of Appeals in Schlein v. Mills (In re Schlein), 8 F.3d 745 (11th Cir. 1993), addressed the issue of whether Fla. Stat. § 222.11 exempts compensation of independent contractors. In that case, the debtor conceded he was an independent contractor but argued that the phrase "money due for personal labor or services" was not limited to earnings of employees. The court disagreed and held that "earnings" of an independent contractor are not money due for personal labor or services and were thus not exempt pursuant to Fla. Stat. § 222.11. In October, 1993, the Statute was amended and the term "earnings" was substituted with "money or other thing due to any person... or the personal labor or service of such person," and the term "earnings" was defined as compensation paid or payable in money of a sum certain for personal services or labor whether denominated as wages, salary, commission or bonus.
The court noted that only two cases have dealt with the effect of the amendment in Schlein: In In re Zamora, 187 B.R. 783 (Bankr. S.D.Fla. 1995) the debtor, a sole practitioner, owned a law practice and a marina. The Zamora court held that cash in bank accounts belonging to debtor's law practice and marina as well as accounts receivable from his law practice were not exempt earnings pursuant to Fla. Stat. § 222.11. The court pointed out that in addition to performing personal services as a business, the debtor must receive regular compensation dictated by the terms of an arm's length employment agreement to perform services that are much like a job. In Zamora, the court found that the debtor was in complete control of the business, the amount of his compensation and terms of his employment.
The purpose of the salary and wages account is to seperate protected wages and salaries so as to not commingle wages in accounts with monies from other income sources. Wages and Salary that are paid to the head of a family (formerly called head of household) are normally exempt from garnishment by most creditors and judgment holders. The wages or salary monies in the wage account are exempt from attachment by creditors for up to six months when they are deposited in a wage bank account. We strongly advise potential debtors set up separate bank accounts in which they should title it as a "wage account". You should only deposit your wages and salary and no other money into the wage account for protection from creditors. Our concern is that some attorneys have made the statement that it is not necessary for the head of family to deposit wages in a bank account titled as a wage account, and a separate wage account is not always necessary. We disagree.
The law providing protection of your wages and salary from creditor garnishment does not require the deposit of protected wages and salary into a separate bank account or a wage account, however, as long as the wages and salary can be clearly traced and identified as wages deposited into the account, the wages are protected. Seperate wage and salary accounts are definitely helpful, although not necessary to protect deposited earnings of the head of household based on the fact that the account could establish prima fascia evidence of the origin of the monies in the account.
We at FHS recommend titling any bank account into which wages are paid as a "WAGE ACCOUNT" (i.e., YOUR NAME, WAGE and SALARY ACCOUNT)