The Florida Bar
The Florida Bar Journal
April, 2017 Volume 91, No. 4
Employed, But Not an Employee: The Applicability of Florida’s Head-of-Household Exemption

by Anna Haugen, Alexis Leventhal, and Courtney McCormick

Page 18

Florida has long recognized the necessity to protect its citizens from “financial reverses and difficulties.”1 This protection has been particularly singled out for the head of a family — the person who is providing more than half of the support for a child or other dependent2 and bearing additional responsibilities for support of dependents.3 This policy is codified in F.S. §222.11, which exempts the head of household’s wages from garnishment.4 The Florida Supreme Court has explained that the purpose of this exemption is to prevent the unfortunate “from being deprived of the necessaries of life…where his livelihood is produced by his personal labor and services, to so protect him and his family that such earnings may not be taken from them and they be left destitute and a charge upon charity.”5

It is unremarkable then, that this exemption has been liberally applied to a person’s earnings for labor and services (i.e., earnings by an employee).6 By contrast, individuals determined to be “independent contractors” have not so easily availed themselves of the exemption. In Florida, there is no absolute rule for determining whether a person is an independent contractor or employee, and each case must be determined on its own facts.7 Accordingly, Florida courts have generated a plethora of caselaw distinguishing between employees and independent contractors and, by extension, the applicability of the “head-of-household” exemption. This article discusses the evolving caselaw for determining the applicability of §222.11 and details how Florida’s bankruptcy courts have most recently interpreted this body of jurisprudence and, in turn, applied the head-of-household exemption.

Section 222.11(2)(b) provides, “disposable earnings of a head of family…may not be attached or garnished unless such person has agreed otherwise in writing.”8 Such qualified earnings remain exempt for six months provided the earnings are received by a financial institution.9 Section 222.11(1)(a) defines “earnings” as “compensation paid or payable, in money of a sum certain, for personal services or labor whether denominated as wages, salary, commission, or bonus.”10 A close review of the relevant caselaw illustrates that earnings will most likely be protected under §222.11 when an employer-employee relationship is established.

Florida courts have consistently applied the tests developed by the Restatement (Second) of Agency (1958) and common law to determine whether an individual is an employee or an independent contractor.11 Florida courts have expounded at length on these tests.12 In Ware v. Money-Plan International, Inc., 467 So. 2d 1072, 1073 (Fla. 2d DCA 1985), Florida’s Second District Court of Appeal observed that, at common law, there are four pertinent elements considered in determining the existence of an employee-employer relationship: 1) control of the servant’s conduct; 2) selection and engagement of the servant; 3) power of dismissal; and 4) the payment of wages. Most critical to this inquiry is whether there is “the power to control and to direct the manner in which the work shall be done.”13

As stated, the distinction of employee or independent contractor is crucial because the earnings of an independent contractor have been placed outside of the head-of-household exemption. The Florida Supreme Court first addressed this distinction in the context of the head-of-household exemption in 1931 in Patten Package Co. v. Houser, 102 Fla. 603 (1931). In Houser, $635.50 was obtained by writ of garnishment from the defendant, the garnishee. The defendant asserted such garnishment was improper as the monies garnished were exempt pursuant to the head-of-household exemption.14 The court’s determination of the applicability of the head-of-household exemption hinged on whether the garnishee was an independent contractor or employee.15

Analyzing the contractual relationship between the defendant and his employer, the court found that compensation to the defendant was received regardless of whether he personally performed the labor and services or paid someone else to perform the same labor and services on his behalf.16 Under these terms, the defendant was deemed to be an independent contractor and, in turn, the head-of-household exemption was inapplicable.17

Ten years later, the Florida Supreme Court clarified the employee/independent contractor distinction in Magarian v. S. Fruit Distributors, 1 So. 2d 858 (1941). The issue before the Magarian court was whether a claimant under Florida’s Workers’ Compensation Act was an employee or an independent contractor.18 The court found “there is no absolute rule for determining whether one is an independent contractor or an employer, and that each case must be determined on its own facts.”19 The court examined the facts and concluded the injured party was, in fact, an employee because “[t]he record shows that at the very time claimant was injured he was acting directly under and in accordance with the directions of the employer in the discharge of his duties within the purview of his employment” and, based upon that finding, he was entitled to the head-of-household exemption.20

The 11th Circuit has also had the opportunity to weigh in on whether the head-of-household exemption applies only to employees or may also be extended to the wages of independent contractors.21 First analyzing whether an individual who is the head of a household under the standards elucidated in Magarian, the 11th Circuit then held that an independent contractor’s earnings may not be protected under the exemption citing Houser.22 Despite guidance from Florida’s highest court and the 11th Circuit, courts have not uniformly applied the exemption.

The great majority of courts have interpreted these precedential and binding cases to hold that only the earnings of an employee are exempt, whereas any compensation of an independent contractor is not.23 However, at least one court has concluded that earnings of a head of family for personal labor and services are exempt whether the head of the family is an employee or an independent contractor.24 Other courts, namely, Florida’s bankruptcy courts, have looked beyond the bright-line distinction created by the label of “employee” or “independent contractor” for purposes of claiming the §222.11 exemption. These bankruptcy courts have refrained from focusing on the debtor’s classification and instead found particular debtors entitled to the head-of-household exemption based upon the underlying facts and relationship between the debtor and his or her employer.25

Bankruptcy courts allowing independent contractors to overcome this categorical limitation tend to focus on the totality of circumstances to determine whether activities that generate earnings “were essentially a job or whether they were in the nature of running a business.”26 If the latter is established, the exemption will be denied.27 To allow an individual to overcome the label’s limitations, courts consider many factors. Among other things, the presence of a written (rather than verbal) arm’s-length employment agreement will be indicative of an employer-employee relationship.28 Furthermore, as the statute protects only “compensation…in money of a sum certain” the compensation history and, if applicable, pattern is examined. Bankruptcy courts are likely to rule in favor of an exemption if compensation is regular and dictated by the terms of an arm’s-length employment agreement.29 If compensation is in the form of a commission or bonuses, which are determined on the basis of the volume of the work completed, then bankruptcy courts look to whether the individual is in a position with unfettered control over his or her compensation.30

Bankruptcy courts look favorably on the applicability of this exemption if the employer has discretion as to timing and the amount of the individual’s compensation.31 By contrast, “where the debtor controls the timing and amount of distributions from a family owned business, those distributions do not qualify as ‘earnings’ for purposes of F.S. §222.11.”32 Bankruptcy courts also examine discretion in the context of setting work schedules, as well as whether compliance with certain requirements is necessary to continue receiving earnings.33 The absence of such discretion will militate in favor of employee status.

Section 222.11 has most recently been examined by the Bankruptcy Court for the Middle District of Florida in In re Jans, 2016 WL 741884 (Bankr. M.D. Fla. Feb. 24, 2016). The bankruptcy court found that commissions of a licensed real estate agent were exempt under the head-of-household exemption.34 In this case, the real estate agent (agent) entered into an agreement with an entity, the Ronto Group, to serve as a sales associate for preconstruction sales of units for a condominium project known as Seaglass at Bonita Bay (Seaglass), and thereafter executed an independent contract agreement with a responsible broker in connection with her position as sales agent.35 The agent had no ownership interest in the Ronto Group or in Seaglass’ developer.36 Under the agreement, the agent appeared to be an independent contractor: she received a monthly draw as an advance on future commissions as well as monthly compensation as the office manager of the sales agents;37 she acknowledged that she was working as an independent contractor, and would not be treated as an employee for any purpose;38 she was responsible for her own tax withholding; and she was not entitled to be paid sick leave, annual leave, or any other fringe benefit.39

However, the agent did not pay rent for the office space or maintain professional malpractice insurance.40 The Ronto Group had strict rules regarding sales coverage at the sales office and the work schedules for the agent and two other sales agents, including attendance at weekly meetings at Seaglass’ sales office.41 Most importantly, the Ronto Group’s executive vice president and Seaglass’ project manager supervised the agent’s performance.42 Based on the foregoing, the bankruptcy court observed that, though labeled an independent contractor, the agent was not, in fact, running a business and had no control over the amount and timing of her payments.43 Moreover, the bankruptcy court observed that the agent had to comply with many requirements in order to remain employed as a sales agent such that her duties resembled working at a job more so than running a business. Ultimately, the court concluded, the agent was an employee entitled to the head-of-household exemption.

While many scholars find it arbitrary for the courts to pick and choose which independent contractor may exempt his or her wages,44 it appears the case-by-case framework adopted by the bankruptcy courts is a workable one particularly in fields in which the employee/independent contractor distinction is increasingly muddled. Nevertheless, it seems prudent to exclude individuals running a business with unfettered control over the timing and amount of their compensation to curb the abuse of §222.11. “Certainly, the [l]egislature did not intend to exempt all funds a person chooses to ‘draw’ from a business where the individual has full discretion over what expenses to pay or not to pay in order to fund the draw.”45 That said, for purposes of claiming the head-of-household exemption in Florida, being employed is not necessarily the same as being an employee.

1 Wolf v. Commander (Fla. Citrus Exchange), 137 Fla. 313, 315 (Fla. 1939).

2 Fla. Stat. §222.11 (2016). Married professionals may both be treated as head of the family when each provides more than half of the support for separate children or dependents. See Richard O. Jacobs & Tye J. Klooster, Asset Protection Tools for Florida Professionals: Strategies to Pursue and Strategies to Avoid, Fla. St. U. L. Rev. at 97 (2004-2005).

3 In re Weinshank, 406 B.R. 413 (Bankr. S.D. Fla. 2009).

4 Reichenbach v. Chemical Bank of New Jersey, 623 So. 2d 577, 578 (Fla. 3d DCA 1992).

5 Patten Package Co. v. Houser, 136 So. 353, 355 (1931).

6 Fla. Citrus Exchange, 137 Fla. at 314.

7 In re Harrison, 216 B.R. 451, 455 (Bankr. S.D. Fla. 1997) (citing Magarian v. Southern Fruit Distributors, 1 So. 2d 858 (1941); In re Manning, 163 B.R. 380 (Bankr. S.D. Fla. 1994); In re Moriarty, 27 B.R. 73 (Bankr. M.D. Fla. 1983)).

8 However, garnishment may be sought to enforce and satisfy “the orders and judgments of the court of this state for alimony, suit money, or child support, or other orders in proceedings for dissolution, alimony, or child support.” Fla. Stat. §61.12.

9 Fla. Stat. §222.11(3). Exempted earnings are protected even if held in a third party’s bank account. In re Shaw, No. 9:12-bk-14323-FMD, 2013 WL 1283403 at *1-2 (Bankr. M.D. Fla. 2013) (where debtor is the owner of and entitled to funds traceable and properly identified as earnings, but the funds are held in trust account at a financial institution by the state court attorney, the funds are exempt under Fla. Stat. §222.11(3)).

10 Fla. Stat. §222.11(1)(a).

11 Refco, Inc. v. Sarmiento, 487 So. 2d 75 (Fla. 3d DCA 1986).

12 Id.

13 Ware v. Money-Plan International, Inc., 467 So. 2d 1072, 1073 (Fla. 2d DCA 1985). Other factors identified as relevant to the determination of an employee-employer relationship include: “Whether the one employed is engaged in a distinct occupation or business; whether in the locality, the work is usually done under the direction of an employer or done by a specialist without supervision; the skill required in the particular occupation; whether the employer or the workman supplies the instrumentalities, tools, and place of work for the person doing the work; the length of time the person is employed; whether the method of payment is by the time or by the job; whether the work is a part of the regular business of the employer; whether the parties believe they are creating the relationship of master and servant.” Id. at 1074.

14 Houser, 136 So. at 354.

15 Id. at 355.

16 Id. at 356.

17 Id. at 356-357.

18 Magarian, 1 So. 2d at 859.

19 Id. at 861.

20 Id.

21 In re Schlein, 8 F.3d 745 (11th Cir. 1993).

22 Id.

23 See, e.g., In re Montoya, 77 B.R. 926 (Bankr. M.D. Fla. 1987); In re Moriarty, 27 B.R 73 (Bankr. M.D. Fla. 1983); In re Parker, 147 B.R. 810 (Bankr. M.D. Fla. 1992).

24 In re Glickman, 126 B.R. 124 (Bankr. M.D. Fla. 1991).

25 Compare In re Jans, No. 9:15-BK-01763-FMD, 2016 WL 741884 at *1 (Bankr. M.D. Fla. Feb. 24, 2016); In re Barr, Case No. 6:15-bk-00535-KSJ, Doc. No. 29 (Bankr. M.D. Fla. Mar. 19, 2015); In re Holmes, 414 B.R. 868 (Bankr. S.D. Fla. 2009); In re Petit, 224 B.R. 834 (Bankr. M.D. Fla. 1998); In re Montoya, 77 B.R. at 926; with In re Im, 495 B.R. 46, 50 (Bankr. M.D. Fla. 2013); In re Lee, 204 B.R. 78 (Bankr. M.D. Fla. 1996); In re Zamora, 187 B.R. 783 (Bankr. S.D. Fla. 1995); In re Moriarity, 27 B.R. at 73.

26 In re Petit, 224 B.R. at 839.

27 In re Zamora, 187 B.R. at 784.

28 But see In re Petit, 224 B.R. at 839.

29 Id.

30 Id.

31 Id.; In re Jans, 2016 WL 741884 at *3.

32 In re Im, 495 B.R. at 46.

33 In re Jans, 2016 WL 741884 at *3.

34 Id.

35 Id.

36 Id. at *1.

37 Id.

38 Id.

39 Id.

40 Id. at *1.

41 Id.

42 Id. at *3.

43 Id.

44 Craig R. Hersch & Michael B. Hill, So this Isn’t Work? When a Wage Isn’t Protected, 77 Fla. B. J. 18 (Dec. 2003).

45 In re Zamora, 187 B.R. at 785.

Anna Haugen is staff attorney with McGuire Woods LLP in the firm’s restructuring and insolvency practice in Jacksonville. She previously served as a law clerk for the U.S. Bankruptcy Court for the Middle District of Florida and for the Florida First District Court of Appeal.

Alexis Leventhal serves as a law clerk for the U.S. Bankruptcy Court in the Western District of Pennsylvania and formerly clerked for the U.S. Bankruptcy Court for the Middle District of Florida.

Courtney McCormick is an associate with McGuire Woods LLP in the firm’s restructuring and insolvency practice in Jacksonville. She previously served as a law clerk for the U.S. Bankruptcy Court for the Northern District of Florida.

[Revised: 03-27-2017]