Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C hief Justice Justices
Maura D. Cor rigan Michael F. Cavanagh
Opinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
____________________________________________________________________________________________________________________________
FILED MAY 15, 2001
GENESEE COUNTY FRIEND OF THE
COURT,
Petitioner-Appellee,
v No. 115856
GENERAL MOTORS CORPORATION,
Respondent-Appellant.
________________________________
GENESEE COUNTY FRIEND OF THE
COURT,
Petitioner-Appellant,
v No. 115862
GENERAL MOTORS CORPORATION,
Respondent-Appellee.
________________________________
PER CURIAM
The issue in this case is whether certain categories of
payments made by General Motors to its employees constitute
“earnings” within the meaning of the federal Consumer Credit
Protection Act (CCPA). 15 USC 1672(a). If so, they are
subject to a limitation on the amount that may be captured by
income withholding orders under the Support and Parenting Time
Enforcement Act.1 The lower courts have held that two types
of payments, profit-sharing payments and “recognition awards,”
were not earnings under § 1672(a), but that “signing bonus”
payments were.
We conclude that all three categories of payments
constitute earnings and are subject to the federal limitations
on income withholding orders. Therefore, we reverse the
judgments of the Court of Appeals and the circuit court in
part.
I
Statutory Framework
The Support and Parenting Time Enforcement Act (SPTEA)
provides for income withholding orders to enforce support
orders entered in domestic relations and paternity actions.
The friend of the court is given various responsibilities for
enforcement of those income withholding orders.
The act defines “income” as follows:
(i) Commissions, earnings, salaries, wages,
and other income due or to be due in the future to
an individual from his or her employer and
successor employers.
(ii) A payment due or to be due in the future
to an individual from a profit-sharing plan, a
pension plan, an insurance contract, an annuity,
1
MCL 552.601 et seq.; MSA 25.164(1) et seq.
2
social security, unemployment compensation,
supplemental unemployment benefits, or worker’s
compensation.
(iii) An amount of money that is due to an
individual as a debt of another individual,
partnership, association, or private or public
corporation, the United States or a federal agency,
this state or a political subdivision of this
state, another state or a political subdivision of
another state, or another legal entity that is
indebted to the individual. [MCL 552.602(j); MSA
25.164(2)(j)].
In addition, the act incorporates federal law with regard
to the maximum percentage that may be withheld. MCL 552.608;
MSA 25.164(8) provides:
The total amount of income withheld under this
act under all orders to withhold income for current
support, past due support, fees, and health care
coverage premiums effective against a payer shall
not exceed the maximum amount permitted under
section 303(b) of title III of the consumer credit
protection act, Public Law 90-321, 15 USC 1673.
15 USC 1673(b) sets those limits as follows:
(2) The maximum part of the aggregate
disposable earnings of an individual for any
workweek which is subject to garnishment to enforce
any order for the support of any person shall not
exceed—
(A) where such individual is supporting his
spouse or dependent child (other than a spouse or
child with respect to whose support such order is
used), 50 per centum of such individual’s
disposable earnings for that week; and
(B) where such individual is not supporting
such a spouse or dependent child described in
clause (A), 60 per centum of such individual’s
disposal earnings for that week;
except that, with respect to the disposable
earnings of any individual for any workweek, the 50
per centum specified in clause (A) shall be deemed
to be 55 per centum and the 60 per centum specified
3
in clause (B) shall be deemed to be 65 per centum,
if and to the extent that such earnings are subject
to garnishment to enforce a support order with
respect to a period which is prior to the twelve
week period which ends with the beginning of such
workweek.
Of critical importance to this appeal is 15 USC 1672(a),
which includes the definition of “earnings”:
The term “earnings” means compensation paid or
payable for personal services, whether denominated
as wages, salary, commission, bonus, or otherwise,
and includes periodic payments pursuant to a
pension or retirement program.
Thus, if the payments in question constitute “earnings”
under the federal statute, they are subject to the percentage
limitations in that statute. If they are not “earnings,” they
are still “income” under the Michigan statute, and the entire
amount of the payments may be captured to pay support
arrearages.
II
General Motors’ Payments to Employees
As noted earlier, three categories of payments are
involved in this case: profit-sharing, recognition awards,
and signing bonuses.
The GM profit-sharing plan has been part of its
collective bargaining agreement with the United Auto Workers
for a number of years. The agreement establishes a formula by
which a portion of GM’s profits is allocated to the
profit-sharing plan. An eligible employee’s profit share is
determined by a two-part formula. The profit-sharing rate per
4
hour is determined by dividing the total profit-sharing amount
by the total eligible compensated hours for all eligible
employees. Second, an individual employee’s profit share is
calculated by multiplying the profit-sharing rate per hour by
the individual employee’s eligible compensated hours up to a
maximum of 1,850 hours per year. Payment is made once a year
in the employee’s regular payroll check.
The second type of payment was a December 1996 “signing
bonus.” As a result of the collective bargaining negotiations
between GM and the UAW in the fall of 1996, GM agreed to
provide a payment of $2,000 to each eligible employee. Under
that agreement, each eligible employee would receive a payment
of $2,000 in the employee’s regular payroll check in December
1996. During subsequent years of the agreement, employees
were to receive a three percent general increase in their base
wages.
The third category was the June 1997 “recognition award”
payments that GM made to certain salaried employees. An
affidavit submitted by GM established that under its
compensation program GM created a single fund from which both
base salary increases and the recognition award payments were
made. The various compensation planning units at GM
determined the appropriate mix between base salary increases
and the recognition awards for their eligible employees. In
doing so, a market rate salary administration system was used
to determine comparable salaries for various job positions in
5
the industry. All other factors being equal, employees with
salaries below the market rate would normally receive larger
increases in their base pay to bring their compensation level
closer to the market rate. Employees with salaries above the
market rate would normally receive smaller base rate increases
since their current pay is already high in relationship to the
market. Under market rate salary administration, recognition
awards are a separate element of pay considered independently
from base salary increases. A significant recognition award
might be appropriate for an employee who will not receive a
base salary increase because the employee’s salary is already
well placed in the salary range.
III
Circuit Court Proceedings
In late January 1996, GM notified the Genesee friend of
the court (and similar agencies elsewhere) that the profit
sharing payments would be made on about March 15, 1996. As a
result, the friend of the court obtained from six of the seven
Genesee circuit judges2 amended income withholding orders
directing GM to withhold from each of the listed employees’
checks the amount corresponding to the arrearage listed.3
2
The friend of the court represents that one of the
circuit judges had historically refused to issue such amended
support orders, and the friend of the court did not make the
request of that judge.
3
The orders signed by each judge were entitled “In the
Matter of General Motors Employees Lump-Sum Profit Sharing
Payment,” and were accompanied by lists of GM employees who
6
Upon receipt of the amended income withholding orders, GM
deducted from the employees’ payments amounts required to be
withheld by law such as taxes and social security withholding.
Believing that these payments were subject to the federal
percentage limits on garnishment, GM paid to the friend of the
court fifty percent of the remaining disposable earnings.4
A similar procedure was followed regarding the signing
bonus payments. GM notified the friend of the court in
November 1996 that such payments would be made in mid-December
1996. Orders were entered by the various circuit judges about
November 20, 1996, directing withholding from the special
payment checks the amounts of the arrearages listed. As with
the profit-sharing payments, GM withheld only fifty percent of
disposable earnings.
There were apparently discussions between the parties
about the dispute. When they were unable to resolve their
differences, the friend of the court filed a petition with one
of the circuit judges, the Honorable Judith A. Fullerton,
seeking enforcement of the February and November 1996 amended
income withholding orders. Judge Fullerton issued an order to
show cause directed to GM on February 4, 1997. GM responded
to the order to show cause, arguing that the two categories of
were in arrears on payments in cases assigned to that judge.
4
As the quotation from the statute set forth earlier
indicates, the actual percentage limits are a bit more
complicated, but the details are not important for the
purposes of this appeal.
7
payments were “earnings” under the CCPA, and thus subject to
its limits on the amounts that may be withheld for support
orders.
There was a hearing on May 5, 1997. Judge Fullerton
ruled that the profit-sharing payments were not “earnings” as
that term is used in the CCPA, and thus the percentage
limitations did not apply. However, she concluded that the
signing bonuses did constitute “earnings” under the federal
statute, and therefore GM properly withheld only fifty percent
of such payments.
At about the same time, the friend of the court became
aware of the pending recognition award payments, to be made
about June 13, 1997, and obtained additional amended income
withholding orders in early May 1997. On May 22, 1997, GM
notified the friend of the court that recognition awards were
being made to certain employees who were listed on the amended
withholding orders, and that GM was withholding fifty percent
of the disposable income of those employees pursuant to the
order.
At the request of the friend of the court, Judge
Fullerton issued a June 10, 1997, order enjoining GM from
distributing any portion of the recognition award payments to
be made June 13, 1997, and later issued an order to show cause
why one hundred percent of the recognition awards were not
paid to the friend of the court. A hearing was held on
August 11, 1997, and Judge Fullerton ruled that the
8
recognition award payments were not earnings, and therefore
were not protected by the CCPA percentage limitations on
support collections. GM had filed a motion for
reconsideration of the May 5 decision regarding the profit
sharing payments. It was denied at the same August 11
hearing. On August 27, 1997, Judge Fullerton entered an order
incorporating both the denial of reconsideration of the
decision on the profit-sharing payments and the ruling that
the recognition awards were not “earnings.”
GM filed a claim of appeal in the Court of Appeals, and
the friend of the court cross-appealed.
IV
Court of Appeals Decision
The Court of Appeals noted that the three payments in
issue fall within the SPTEA’s broad definition of “income.”
Thus, the panel held, the circuit court properly issued income
support orders with respect to the payments. However, that
left the question of the effect of the federal statute. After
reviewing the statutory language, the Court examined the
United States Supreme Court’s discussion of the meaning of
“earnings” in Kokoszka v Belford, 417 US 642, 651; 94 S Ct
2431; 41 L Ed 2d 374 (1974). In that case, the Court
determined that an income tax refund did not constitute
earnings under the CCPA. The Court explained that earnings
are “limited to ‘periodic payment of compensation and [do] not
pertain to every asset that is traceable in some way to such
9
compensation.’” 417 US 651. The U.S. Supreme Court saw this
interpretation as supported by the legislative history of the
federal act:
There is every indication that Congress, in an
effort to avoid the necessity of bankruptcy, sought
to regulate garnishment in its usual sense as a
levy on periodic payments of compensation needed to
support the wage earner and his family on a
week-to-week, month-to-month basis. [Id.]
The Court of Appeals first examined the profit-sharing
payments, finding them not to be earnings. It explained:
The payments were not discretionary in that,
if respondent made a profit, the payments were
required to be made. However, because the payments
depended on respondent’s profits, the employees
could not depend on receiving a certain amount, or
any amount at all. Accordingly, an employee could
not depend on the profit-sharing payment to meet
basic needs on a week-to-week, month-to-month
basis. Thus, because allowing garnishment of the
entire amount of the profit-sharing payments would
not place the type of hardship on the employees
that the CCPA seeks to avoid, Funk v Utah State Tax
Comm, 839 P2d 818, 821 (1992), we conclude that the
profit-sharing payments were not “earnings” for the
purposes of the CCPA. [238 Mich App 352, 358; 605
NW2d 349 (1999).]
The Court of Appeals offered similar reasoning regarding
the recognition awards, finding them not to constitute
earnings:
The recognition awards were discretionary
lump-sum payments made to certain salaried
employees. The awards were intended to recognize
an employee’s past contributions and to encourage
future efforts. No employee was guaranteed a
recognition award. The employees that received a
recognition award did not know the amount of the
award in advance. Therefore, like the
profit-sharing payments, the employees could not
have relied on the awards to support themselves or
their families on a week-to-week, month-to-month
10
basis. [238 Mich App 358-359.]
However, the Court of Appeals found that the signing
bonuses were earnings. It noted that the use of the term
“bonus” was of little significance, and that one should look
at the actual substance of the payment rather than the label.
Gerry Elson Agency, Inc v Muck, 509 SW2d 750, 753 (Mo App,
1974). In the Court’s view, other facts indicated that the
payments were earnings:
The $2,000 payments were not discretionary,
but were required to be made pursuant to a
collective bargaining agreement. Unlike the
profit-sharing payments and the recognition awards,
it was certain that the employees would receive the
bonuses pursuant to the collective bargaining
agreement, and the amount of the bonuses was set.
Furthermore, although the payments were made in a
lump sum, they were part of a three-year increase
in the employees’ base wage. Thus, we believe the
payments were the type the CCPA sought to protect.
[38 Mich App 359.]
GM and the friend of the court have filed separate
applications for leave to appeal.5
V
Standard of Review
This case involves a question of statutory
interpretation, which we review de novo. Brown v Michigan
Health Care Corp, 463 Mich 368, 374; 617 NW2d 301 (2000);
Sands Appliance Services, Inc v Wilson, 463 Mich 231, 238; 615
NW2d 241 (2000).
5
The Michigan Manufacturers Association filed a motion
for leave to file a brief as amicus curiae in support of GM’s
application. That motion is granted.
11
VI
Are Payments “Earnings”?
There is no dispute that the three categories of payments
constitute “income” for the purpose of the Michigan statute,
making them subject to income withholding orders to enforce
support obligations. The only question is whether the
payments are “earnings” under the federal CCPA and thus are
subject to its limitations on the maximum amount that may be
reached to enforce the support obligations.
In finding that the profit-sharing and recognition award
payments did not constitute “earnings,” the Court of Appeals
focused on the facts that the payments were made as lump sums
and that the amounts were uncertain, making it difficult for
employees to depend on them to meet basic needs week to week
and month to month.6 However, this reasoning is inconsistent
with the plain language of 15 USC 1672(a):
The term “earnings” means compensation paid or
payable for personal services, whether denominated
as wages, salary, commission, bonus, or otherwise,
and includes periodic payments pursuant to a
pension or retirement program.
The reference to periodic payments does not apply to the
definition as a whole. Periodic payments are only mentioned
in connection with pension or retirement programs, presumably
to distinguish such payments from lump sum distributions from
6
With regard to the recognition awards, the Court of
Appeals also noted that the payments were made at the
discretion of the employer.
12
pension or retirement plans. The inclusion of “bonus” in the
definition of earnings clearly negates the suggestion that
periodic payment is required. Bonuses are typically sporadic,
irregular, unpredictable, and discretionary payments by the
employer. See, e.g., Hunt v City of Markham, 219 F3d 649,
654 (CA 7, 2000); Perri v Perri, 682 NE2d 579, 580 (Ind App,
1991).7
The Court of Appeals failed to focus on the general
definition—earnings are “compensation paid or payable for
personal services.” GM’s description of the payments in
question was undisputed. The profit-sharing payments for many
years had been a part of the collective bargaining agreement
with the labor union representing GM hourly employees. The
affidavit submitted by GM explaining the nature of the
recognition award payments makes clear that the fund from
which such payments are made is a regular part of GM’s
7
The Court of Appeals reliance on language in Kokoszka,
supra, is misplaced. In that decision the Court was
principally concerned with the interaction between the
Consumer Credit Protection Act and the bankruptcy laws. The
Court held that the CCPA’s limitations on wage garnishment do
not restrict the right of a trustee in bankruptcy to treat the
income tax refund as property of the bankrupt’s estate. The
discussion about periodic payments is not an analysis of the
language of the statute, but rather of the general legislative
purposes behind the CCPA. As demonstrated below, the plain
language of the statute establishes that these payments are
“earnings,” whether or not they are made as periodic payments.
The language of Kokoszka is not on point and unnecessary to
the resolution of that case. Absent clear contrary precedent,
our interpretation of the CCPA is to be guided by the
statute’s unambiguous language.
13
compensation scheme for salaried employees. The choice
between making recognition award payments and awarding raises
was based on a variety of competitive factors involving
employee pay levels and pay scales in comparable industries,
but the payments are unquestionably compensation for personal
services.8
The fact that the amounts of the payments are not known
in advance and, in the case of the recognition awards, are
subject to the discretion of management, does not change the
character of the payments. The statutory definition of
“earnings” specifically includes commissions and bonuses,
which are similarly less predictable than hourly or weekly
wages or salaries and, in the case of bonuses, are subject to
management discretion.9
8
There are relatively few cases interpreting the federal
statute. However, they illustrate that the question is
whether the payment is compensation for services. Compare
Kokoszka v Belford, supra (income tax refund did not
constitute earnings), and Pallante v Int’l Venture
Investments, Ltd, 622 F Supp 667 (ND Ohio, 1985) (severance
pay not earnings), with East Hartford Bd of Ed v Booth, 232
Conn 216; 654 A2d 717 (1995) (accrued sick leave and deferred
compensation are “earnings,” under Connecticut statute similar
to federal CCPA), and Riley v Kessler, 2 Ohio Misc 2d 4; 441
NE2d 638 (1982) (vacation pay constitutes “earnings”). One
unpublished decision of the Ohio Court of Appeals has held
that profit-sharing payments constitute earnings under
§ 1672(a). Ighnat v Ighnat, 1989 WL 34733.
9
In addition, the Court of Appeals drew an unwarranted
distinction when it treated the signing bonuses differently
from the profit-sharing payments. The Court distinguished
signing bonuses on the ground that they were not
discretionary. However, the profit-sharing payments also were
not discretionary. If GM had a profit, the employees were
14
Thus, we conclude that all three categories of payments
constitute “earnings” under 15 USC 1672(a). We therefore
reverse the judgments of the Court of Appeals and the Genesee
Circuit Court in part, and remand this case to the circuit
court for further proceedings consistent with this opinion.
CORRIGAN , C.J., and CAVANAGH , WEAVER , KELLY , TAYLOR , YOUNG , and
MARKMAN, JJ., concurred.
entitled to the payments under the collective bargaining
agreement.
15