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Statutory Regulation on Assignment of Salaries and Wages

An assignment of a right is defined as a manifestation to another person by the owner of the right indicating his intention to transfer, without further action or manifestation of intention, the right to such other person.[i] The assignment of a wage is a transfer of the right to receive wages effected by means of a contract.[ii] It is a private transaction made without order of a court.

Assignment of wages is expressly recognized by statutes and the rights of wage earners are protected by different statutory provisions.[iii] Statutes provides that assignments of wages, salaries, or earnings:[iv]

  • should be in writing
  • should contain the correct date of the assignment
  • should contain the correct amount assigned, and
  • should contain the name or names of the party or parties owing the wages, salaries and earnings so assigned

All assignments of wages, salaries, and earnings not earned at the time the assignment is made are null and void.[v]

The state may regulate assignments of wages.[vi] In International Text-Book Co. v. Weissinger, 160 Ind. 349 (Ind. 1902), the court held that the assignments of future wages to be earned are valid contracts, provided they are not prohibited by a statute which the legislature has the constitutional authority to enact.

Individuals do not have unrestricted power to contract. The power is always subject to regulation and limits.[vii] Under the police power, the legislature may regulate the assignment of unearned wages or salary without infringing upon a constitutional right.[viii] The police power of a state is exercised through regulations designed to promote the public welfare or the general prosperity, as well as regulations designed to promote the public health, the public morals, or the public safety.[ix]

All competent persons are free to execute contracts which are not contrary to public policy or positive law.  Nevertheless, the rule is subject to the qualification that the state in its exercise of the police power and in the interest of the public welfare may regulate and limit that right.[x] However, in Donahoo v. Household Finance Corp., 472 F. Supp. 353 ( E.D. Mich. 1979), the court held that wage assignments are private contracts, involving no state action either in their creation or execution.

In Wight v. Baltimore & O. R. Co., 146 Md. 66 (Md. 1924), the court held that the right to earn wages is just as much property and as such within the protection of the Due Process Clause of the Fourteenth Amendment.

Statutes governing assignment of wages do not apply to:

  • what the assignor himself has earned by virtue of his own personal labor and services.[xi]
  • general contractor’s assignment of its rights against a debtor.[xii]
  • earnings of independent contractors.[xiii]
  • commissions to be earned by an insurance or annuity salesperson.[xiv]
  • insurance renewal commissions.[xv]
  • assignment of benefits to an agency providing hospital, surgical or medical care.[xvi]

Under the Federal Trade Commission’s regulation, any wage assignment is an unfair credit practice unless:[xvii]

  • the assignment by its terms is revocable at will;
  • the assignment is a payroll deduction plan or pre-authorized payment plan commencing at the time of the transaction in which the consumer authorizes a series of wage deductions as a method of making each payment; or
  • the assignment applies only to wages or other earnings at the time of the assignment.

[i] Crepeau v. Renewal Guaranty Corp., 29 Colo. App. 23 (Colo. Ct. App. 1970)

[ii] Western v. Hodgson, 494 F.2d 379, 381 (4th Cir. W. Va. 1974)

[iii] State Street Furniture Co. v. Armour & Co., 345 Ill. 160, 163 (Ill. 1931)

[iv] Brinley v. Karnes, 595 S.W.2d 465 (Mo. Ct. App. 1980)

[v] Id

[vi] State ex rel. Leach v. Price, 168 Ohio St. 499 (Ohio 1959)

[vii] Heller v. Lutz, 254 Mo. 704 (Mo. 1914)

[viii] Murphy v. County of St. Louis, 187 Minn. 65 (Minn. 1932)

[ix] Mutual Loan Co. v. Martell, 222 U.S. 225 (U.S. 1911)

[x] Wight v. Baltimore & O. R. Co., 146 Md. 66 (Md. 1924)

[xi] Sherburne Corp. v. Carter, 133 Vt. 411 (Vt. 1975)

[xii] Id

[xiii] Fitch v. Pacific Fid. Life Ins. Co., 54 Cal. App. 3d 140 (Cal. App. 2d Dist. 1975)

[xiv] Dunn v. Holladay, 6 Mass. App. Ct. 842 (Mass. App. Ct. 1978)

[xv] Crepeau v. Renewal Guaranty Corp., 29 Colo. App. 23 (Colo. Ct. App. 1970)

[xvi] General American Life Ins. Co. v. Isabell, 523 S.W.2d 616 (Mo. Ct. App. 1975)

[xvii] In re Rosol, 114 B.R. 560 (Bankr. N.D. Ill. 1989)

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