Hunton Employment & Labor Perspectives

In a prior post, we set forth the potential liability of employers for collection of debts owed by employees in violation of the bankruptcy stay. To protect themselves from such liability, employers that accrue claims against their employees in the ordinary course of business should implement written protocols designed in consultation with bankruptcy counsel.

However, even employers that do not ordinarily accrue claims against employees must be careful to avoid violating the automatic stay – most notably when complying with creditor garnishment demands under state law.

Businesses need to have written protocols in place to deal with bankruptcy filings by their employees and independent contractors, or they risk serious sanctions and, potentially, punitive damages for violations of the bankruptcy laws. Consider two examples.