Tennessee court says collection agents can't garnish tips

Here's a tip: if you owe money in Tennessee, get a job waiting tables.

Workers worried about garnished wages because of an unpaid bill may have gained a unique escape clause, thanks to a Tennessee Appeals Court judgment against Erlanger Health System.

The ruling could allow a worker to virtually escape wage garnishment if the majority of his pay consists of tips, attorneys say.

Ex-wives, hospitals and any other business that depends in part on wage garnishment to collect debts may have to re-think their strategy.

"Ultimately, the appeals court said if you are the employer, you do not count tip income for what is a garnishable wage," said Chris Merkal, an attorney for Shoney's. "This is new law."

Erlanger wouldn't comment on the case because of patient privacy laws, but spokeswoman Pat Charles said that in order for the hospital to serve as a safety net for the region, it must be able to collect unpaid bills.

"We discount fees based on income levels and work out payment plans with our patients on a regular basis," Charles said. "When patients do not qualify for free care and do not make payments within a reasonable time, we refer accounts to reputable firms for collection."

The law already exempts about three-fourths of an employee's income from garnishment, so the only thing left from a server's base salary of about $3 after the ruling would amount to 75 cents an hour.

And that's before taxes, Social Security, Medicare and health insurance are taken out.

Gary Lester, who argued the case for collection firm Mayfield and Lester, said the law effectively makes tipped employees "exempt from garnishment."

"The ruling actually gives preference to those in the tipped industry over the guy that works in the factory; the people who work for straight hourly wages," Lester said.

Erlanger first sued to obtain $537 it claimed it was owed from former patient Angela Strong, according to court documents.

The hospital pressed Shoney's to pull money from her wages to pay the bill.

But Shoney's argued that the tips, which are paid directly to Strong by her customers, never come under its control and therefore couldn't be included in the calculation for how much to garnish.

Though courts have traditionally ruled that the tips are fair game for income tax and minimum wage calculation purposes, the Tennessee Court of Appeals in Knoxville held that "tips are not to be included in the calculation of disposable earnings for the purposes of garnishment."

Lester, who collects debts for Erlanger, said the ruling elevates tipped employees into a special class, exempt from paying debts that other workers must pay.

"It's just not fair to allow the tipped employees to have, in essence, a preference over all the others," he said.

Mayfield and Lester have about two months to decide whether to appeal to the state's Supreme Court.

Contact staff writer Ellis Smith at esmith@timesfree press.com or 423-757-6315.