Washington’s recently enacted Washington Wage Recovery Act, SB 5355 (the “Act”) creates a new statutory lien for employees’ unpaid wage claims against their employers. The Act has significant implications for employees, employers, and secured lenders. In our last installment, we discussed how wage liens can be established and foreclosed. Today, we’ll address how a wage lien can be extinguished, released, and contested. If you missed any of our first three installments, you can access them here.
Extinguishing and Releasing Wage Liens
There are several actions and omissions that will cause a wage lien to be extinguished. In particular, a wage lien will generally be extinguished
- if a lawsuit for the underlying wage claim is not brought within eight months of the date the wage lien was recorded;
- for real property, if a notice of pendency of wage claim is not recorded within eight months of the date the wage lien was recorded;
- if the action for the underlying wage claim is dismissed with prejudice and no appeal is timely filed (or, if an appeal is timely filed, when final judgment is rendered);
- upon payment and acceptance of payment for the employee’s wage claim; or
- upon proper recording or notice of a satisfactory bond, as discussed below.
Once the wage lien has been extinguished, the employee/lien claimant must release the lien in writing within 15 days. If the wage lien is on real property or titled personal property, the employee/lien claimant must file a release of wage lien and pay the related filing fee. The release of wage lien requires the employee/lien claimant to provide certain basic information, including the name of the employer, the property subject to the wage lien, and the reference number of the original or amended wage lien. The Act provides a form of release that employees/lien claimants can use. A release for a wage lien on real property must also comply with recording standards, as it will be recorded by the county auditor in the same manner as deeds and other instruments of title.
If the wage lien is on non-titled personal property, the employee/lien claimant must file a Uniform Commercial Code termination statement and pay the related filing fee.
The employee/lien claimant will need to mail a copy of the release of wage lien or termination statement to the person against whom the lien was claimed within 10 days of filing the release or termination statement.
If an employee/lien claimant fails to release the wage lien, upon demand and 15 days’ notice by the employer or any affected party, the employer or affected party may petition the court in which foreclosure is authorized for an order releasing the wage lien. The notice must be mailed to the employee/lien claimant’s address as indicated on the notice of wage lien.
If the court determines that the employee/lien claimant acted unreasonably and in bad faith in refusing to file a release of wage lien, the employer or affected party will be entitled to recover its costs and attorney fees incurred in the action, and the court may also exercise its discretion to issue a fine of up to $1,000.
Bonds as a Means for Extinguishing and Releasing a Wage Lien
One of the ways an affected property owner, lender, or other lien claimant who disputes the correctness or validity of a claim of wage lien may attempt to have the lien extinguished and released is through a bond. The affected property owner, lender, or other lien claimant may furnish a bond issued by a surety company authorized to issue surety bonds in the state that meets certain statutory qualifications. This may be done either before or after the commencement of an action on the underlying wage claim.
The bond must include a description of the claim of wage lien and property involved, and must be (a) in an amount equal to the greater of $5,000 or two times the amount of the lien claimed, if the lien claimed is $10,000 or less, and (b) in an amount equal to or greater than 1.5 times the amount of the lien, if the lien claimed is more than $10,000.
A separate bond is required for each claim of lien made by separate employees/lien claimants, but a single bond may be used to guarantee payment of amounts claimed in multiple claims by a single employee/lien claimant (so long as the bond is enough to cover all of the claims).
For a lien on real property, the bond must be recorded in the office of the county auditor where the claim of wage lien was recorded. Recording a bond that meets the Act’s requirements releases the real property described in the notice of claim of lien from the wage lien and any action brought to recover the amount claimed.
For a lien on personal property, within five days of furnishing a bond, the person furnishing the bond must send notice to the employee/lien claimant, notifying them that a bond meeting the Act’s requirements has been furnished. The notification must include sufficient documentation or other evidence to show that a satisfactory bond has been furnished. Within 15 days of receiving that notice, the employee/lien claimant must release the lien as described above.
These bonding provisions do not prohibit or limit using other methods to secure the obligation underlying a claim of wage lien and to obtain a release of real property from a claim of wage lien.
Contesting Wage Liens
Affected property owners, lenders, and other lien claimants may also contest wage liens they believe to be either (a) frivolous and made without reasonable cause, or (b) clearly excessive. They may do so by filing a motion in the appropriate court for the county where the property is located requesting an order directing the employee/lien claimant to appear and show cause why the lien should not be released. The motion must state the grounds upon which relief is asked and must be supported by the affidavit of the movant or the movant’s attorney setting forth a concise statement of the supporting facts.
The order to show cause must direct the employee/lien claimant to appear between 6 and 15 days following the date the application and order are served on the employee/lien claimant. The order must also clearly state that if the employee/lien claimant fails to appear at the time and place noted, the lien will be released, with prejudice, and that the employee/lien claimant will be ordered to pay the costs and reasonable attorney fees requested by the movant.
If the court determines that the lien is frivolous and made without reasonable cause, or clearly excessive, the court will then issue an order either (a) releasing the lien if frivolous and made without reasonable cause, or (b) reducing the lien if clearly excessive. The court will award costs and reasonable attorney fees to the prevailing party.
These proceedings will also not affect the other rights and remedies available to the parties.
In the final installment of our series on the Act, we will discuss how wage liens impact other secured creditors’ rights, including the priority of their security interests. Stay tuned for more discussion on this important topic.