On appeal from the Superior Court of New Jersey, Law Division-Special Civil Part, Mercer County, Docket No. DC-11500-08.
The opinion of the court was delivered by: Cuff, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted: December 2, 2009
Before Judges Cuff, Payne and Waugh.
Plaintiff Big M, Inc., t/a Annie Sez, the holder of a judgment against Tiffany Kraus in the amount of $672.22, obtained an order to garnish her wages. At the time, Kraus was employed as a waitress by defendant Texas Roadhouse Holding, LLC. When defendant remitted a single payment of $4.21, plaintiff filed a complaint against defendant seeking the balance due on the judgment. Defendant appeals from a judgment entered against it in the amount of $668.01 plus costs and attorneys' fees allowed by statute. We reverse because the judgment is premised on the erroneous holding that tips and gratuities are always subject to garnishment. We remand for further proceedings to develop a factual record to determine whether the tips and gratuities earned by the employee are wages and subject to garnishment.
In its answer and at trial, defendant asserted that it remitted the amount of money allowed by statute. It further asserted that tips and gratuities provided to employees, such as Kraus, were not wages and not subject to garnishment. At trial, Joseph Russo, the managing partner of the restaurant where Kraus was employed, stated*fn1 that Kraus was paid $2.13 an hour and also received tips and gratuities. The restaurant does not pool tips. Tips placed on credit cards are paid immediately to waiters and waitresses, and tips charged on credit cards and immediately paid to employees are not subject to garnishment pursuant to federal law. In response to a question posed by the trial judge, Russo stated that the employee's W-2 wages included tips and gratuities but reiterated that "bona fide tips are not considered garnishable by law."
The trial judge distinguished tips left on a table in cash from tips charged to a credit card. Stating that he knew of no case that held that tips placed on credit cards are not subject to garnishment, the judge entered a judgment for $668.01 plus costs and statutory attorneys' fees.
We review a legal ruling by the trial judge. Our scope of review is de novo. In re Liquidation of Integrity Ins. Co., 193 N.J. 86, 94 (2007). We owe no deference to the trial judge's legal ruling. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
N.J.S.A. 2A:17-50 subjects "wages, debts, earnings, salary, income from trust funds, or profits of the judgment debtor" to garnishment. Although we have located no case law in this state that addresses the issue of whether tips and gratuities are subject to garnishment, and the legislative history offers little insight, commentators have observed that the execution statutes in this state generally apply when monies due to the judgment debtor are "in the hands of a third-party garnishee" such as a judgment debtor's employer. Pressler, Current N.J. Court Rules, comment 1.6 on R. 4:59-1(a) (2010); see also 3-31 Theodore Eisenberg, Debtor-Creditor Law § 31.11 (Matthew Bender & Co. eds., 2009) (noting New Jersey "authorize[s] execution against a judgment debtor's property in the possession or control of a third person").
Federal law, however, provides significantly more guidance on this issue. Congress has enacted statutes that regulate the collection of debts. Title III of the Consumer Credit Protection Act (CCPA), 15 U.S.C.A. §§ 1671 to 1677, was adopted to foster commerce and for uniformity of bankruptcy laws throughout the nation. See 15 U.S.C.A. § 1671. To that end, the CCPA pre-empts state garnishment laws that allow a greater proportion of wages to be subject to garnishment than that allowed by federal law. Hodgson v. Hamilton Mun. Ct., 349 F.Supp. 1125, 1131-33 (S.D. Ohio 1972). See also Eisenberg, supra, § 31.02; Pressler, supra, comment 4 on R. 4:59-1(d) ("Clearly . . . state law cannot provide a greater garnishment than federal law permits."); Annotation, Validity, Construction, and Application of §§ 301-307 of Consumer Credit Protection Act (15 USCS §§ 1671-1677) Placing Restrictions on Garnishment of Individual's Earnings, 14 A.L.R. Fed. 447 (1973). However, the CCPA "does not annul, alter, or affect, or exempt any person from complying with, the laws of any State prohibiting garnishments or providing for more limited garnishments" than allowed under federal law. 15 U.S.C.A. § 1677.
New Jersey's law permits execution when the amount of the judgment debtor's "wages, debts, earnings, salary, income from trust funds, or profits" equal or exceed forty-eight dollars per week. N.J.S.A. 2A:17-50. Yet under the CCPA, the maximum amount of the garnishment cannot exceed twenty-five percent of the judgment debtor's disposable income, or the amount by which the disposable earnings exceed thirty times the prevailing federal minimum wage, whichever is less. 15 U.S.C.A. § 1673. Therefore, "the federal restriction pre-empts New Jersey law to the extent the latter is inconsistent with the former." Eisenberg, supra, § 31.11.
The CCPA does not define tips or gratuities. It does define "earnings" as "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." 15 U.S.C.A. § 1672(a). Enforcement of the CCPA has been assigned to the United States Department of Labor (DOL), 15 U.S.C.A. § 1676, and the DOL has published an opinion letter and Field Operations Handbook (DOL Handbook) that addresses the issue of whether tips are included in the computation of an employee's earnings for purposes of the CCPA.
DOL Opinion Letter WH-95 (Letter WH-95) dated December 9, 1970, provides that "tips are generally not considered within the meaning of the term 'earnings.'" Letter WH-95 further explains this is so "because garnishment is inherently a procedural device to reach assets in the hands of the garnishee," and that "[t]ypically, tips are paid by a third person to an employee, and do not pass through the hands of the employer." Letter WH-95 further states "[t]here may be so-called tipping situations where customer payments would constitute 'earnings' under the [CCPA] definition." For instance, if a restaurant customer is charged a certain percentage on a check ...