Wage Garnishment Rules in Ontario: Know Your Rights
One of the consequences of falling behind on debt payments in Ontario (and elsewhere in Canada) is your creditors can obtain a wage garnishment from the court. Under a wage garnishment – or garnishee order – your employer has a legal requirement to turn over a portion of your paycheque to your creditors to satisfy your unpaid debts.
Getting hit with a wage garnishment order can be stressful, especially if you’re drowning in debt and struggling to keep up with day-to-day bills. But it’s important to remember that you have certain legal rights, too. Creditors must follow specific steps to seize your wages, and they’re not entitled to collect as much of your paycheque as they please. Furthermore, they cannot garnish certain forms of income.
In this article, we’ll explain wage garnishment laws in Ontario, including your rights as a consumer to protect your financial well-being.
Who can garnish your wages in Ontario?
In Ontario, any creditor you owe money can pursue a court order to garnish your wages or salary. These include banks, credit card companies, government agencies, payday loan lenders, credit unions, and collection agencies. Your ex-spouse can also enforce a wage garnishment for alimony and child support payments through the Family Responsibility Office (FRO).
How does the wage garnishment process work in Ontario?
To initiate a wage garnishment, your creditor must first obtain a court judgment in their favour. They must prove that they have a valid claim on the debt and that you’re obligated to pay it. Your creditor will file a Statement of Claim indicating that you owe them money, which also functions as a notice of the lawsuit. You’ll have 21 days to challenge the claim; otherwise, the court will grant them a Garnishment Order.
From there, your creditor will send a Notice of Garnishment form to your employer, indicating they must forward a portion of your income to the court office, which will, in turn, transfer the funds directly to them. Your employer is legally bound to comply with the garnishment order.
The wage garnishment process will continue until your debt is paid in full. Once that happens, your creditor will serve you and the court a Notice of Termination of Garnishment form, releasing you from any further financial obligation.
While most creditors will need to receive a court ruling before they can seize money straight from your paycheque, there are a few exceptions to this rule:
Credit Union. A credit union can request that your employer turn over a portion of your paycheque if you have consented to a voluntary assignment of wages through your loan contract. In other words, you gave them permission to collect your wages if you default on your loan. In this case, all the credit union has to do is submit a document to your employer showing that you agreed to the wage assignment.
Canada Revenue Agency (CRA). The CRA is the most notable, and perhaps the most intimidating, organization that can garnish your wages without a court order (they can also withdraw money straight from your bank account). All they need to do to start the garnishment process is send your employer a Requirement To Pay (RTP) letter.
Payday loan company. Much like a credit union, a payday loan can seize your wages without approval from the court if you agree to a wage assignment when signing the loan contract.
What are some rules for wage garnishment in Ontario to be aware of?
There are specific rules that apply to wage garnishments in Ontario. These laws are outlined in the Ontario Wages Act. Here’s what you need to know to avoid being exploited by dishonest creditors.
There’s a limit to how much of your wages a creditor can garnish
In Ontario, the maximum amount creditors can garnish is 50% of your wages. The 50% limit applies to spousal and child support payments. For commercial debts, such as a personal loan or credit card, creditors can only seize a maximum of 20%.
In reality, the court will determine how much of your wages your creditor can garnish. It will consider your financial standing, the nature of the debt, and other relevant factors in its decision.
Suppose a garnishment order that demands 20% of your wages (the legal limit) for an unpaid loan will result in you experiencing extreme financial hardship. In that case, you can request a hearing to have the judge raise the exemption in your case. Section 4 of the Ontario Wages Act gives the court the right to increase the exemption if doing so is reasonable based on your circumstances.
Alternatively, Section 5 allows the court to decrease the exemption amount. But this is unlikely to occur as you’re facing a wage garnishment in the first place because you’re struggling financially.
Note: The Ontario Wages Act doesn’t apply to the CRA, so the tax agency operates under its own rules. The CRA can take up to 50% of your employment income and 100% if you’re self-employed.
Some sources of income are exempt from seizure
Generally, creditors can seize any income you earn from an employer through a wage garnishment. This includes hourly wages, salary, piece work, severance, and long-term disability payments through the company pension plan. In other words, any money you earn through your employment is fair game under a garnishment order.
Luckily, many other types of income are exempt from a wage garnishment order, including:
- Guaranteed income Supplement (GIS)
- Old Age Security (OAS)
- Canada Pension Plan (CPP)
- Allowance and Allowance for the Survivor
- Child support payments
The basic financial assistance you receive from a government program, such as the Ontario Disability Support Program (ODSP), is also not subject to garnishment. However, there’s an exception if you owe money for spousal or child support. In that case, your employer will withhold a portion of your paycheque and send it to the FRO. The same exception applies to a tax refund – a government agency like the FRO can collect it under a garnishment order.
While income you receive from a government pension plan like the CPP is off limits for commercial creditors like banks and credit card companies, the CRA has access to a unique loophole: it can automatically apply your pension payments against the tax debt you owe. This process is called the right of offset.
The FRO can also target government pension income: a court can grant them the ability to seize it to cover past-due spousal or child support.
Your employer cannot fire you for being served a garnishment order
Under no circumstances can your employer punish you if they receive a wage garnishment order from one of your creditors. They cannot terminate your job, demote you, or take away benefits you’re entitled to under your employment contract.
You can legally opt out of most voluntary wage assignments
As mentioned, a voluntary wage assignment is an agreement with your creditor that allows them to take money from your paycheque to settle an unpaid debt.
However, this type of agreement isn’t legally binding in Ontario. Section 7 of the Ontario Wages Act prohibits a creditor from enforcing a voluntary wage assignment.
Therefore, you can revoke your permission for a voluntary wage assignment you have entered into with a general creditor, such as a payday loan company. You can ask your employer to ignore the creditor’s request to send them a portion of your wages. You’ll suffer no legal consequences for doing so (though remember that your creditor can still obtain a wage garnishment from the court).
However, one type of creditor is exempt from this law: a credit union. A voluntary wage assignment you enter into with a credit union is legally enforceable. You can’t opt out of it, and neither can your employer.
How can you stop a wage garnishment?
You have a few options to stop a wage garnishment. The easiest solution is to pay your creditor in full, which will result in the judgment being lifted. If this isn’t feasible, you can attempt to negotiate a new payment plan with your creditors in exchange for dropping the garnishment order. However, this may be challenging, as your creditor may not be inclined to work with you if you’ve already defaulted on your debt.
If resolving the garnishment on your own isn’t possible, another way to stop is to enroll in one of two federal debt relief programs offered in Canada: consumer proposal and bankruptcy.
When you file a proposal or bankruptcy, the court will award you a stay of proceedings, which protects you against all legal action from your creditors. As a result, any wage garnishment will end immediately, even if it’s already in effect (except for a garnishment order related to spousal or child support).
In addition to halting an Ontario wage garnishment, a consumer proposal and bankruptcy will allow you to reduce or clear your unsecured debts, giving you a fresh foundation to rebuild your finances. To file a consumer proposal or bankruptcy, you must contact a Licensed Insolvency Trustee, the only financial professional in Canada who can administer them on your behalf.
If a creditor is threatening to garnish your wages or is already doing so, reach out to a Licensed Insolvency Trustee at David Sklar & Associates to learn about your options. The sooner you act, the less money you’ll lose —and the sooner you can fix your debt problems and avoid getting hit with a wage garnishment again. Book your free no-obligation consultation today. It’s never too late to tackle your debts!
