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State Legislation Wisconsin
Current Issues
Affecting Your Business
Amended
Wisconsin Wage Lien Law Levels Playing Field for Lenders
When Governor Jim Doyle signed financial
modernization legislation into law on October 22, 2003,
a competitive advantage enjoyed by banks over nonbank
lenders in Wisconsin was eliminated.
The financial modernization bill (AB 2) included significant amendments
to Wisconsin's wage lien law. As originally enacted, the wage lien law
(Wis. Stats. 109.09(2)c)) provided the Wisconsin Department of Workforce
Development with a super-priority lien on all real and personal property
of a business which employs 50 or more employees to secure all unpaid employee
wages and benefits, including monies to which employees might be entitled
by the failure of a business to give the required 60-day notice of a "mass
layoff" or "business closing" as defined by Wisconsin law.
The law provided an exception for prior liens of financial institutions,
which were defined to include banks and other depository institutions,
but excluded nonbank commercial lenders. Wisconsin is the only state in
the country with such a far-reaching wage lien law.
Since it was enacted in 1998, the exception for depository institutions
has effectively placed nonbank lenders at a distinct disadvantage in making
loans to Wisconsin businesses. Many non-bank asset-based lenders have had
to place funds in reserve equal to 60 days worth of wages of a business's
employees before extending a loan to that borrower. Many other nonbank
lenders have refrained from making loans to Wisconsin businesses because
of the aggressive manner in which the Department of Workforce Development
has enforced the wage lien law. In the past several years, the wage lien
law was invoked in a number of business closings, including U.S. Leather,
Steeltech, Stadium Sports, AR Accessories Group and LSJ Sportswear.
Since the inception of the wage lien law, organized labor in Wisconsin
has pushed the state legislature to extend the law to banks and other depository
institutions. At the same time, the Commercial Finance Association, nonbank
lenders and some Wisconsin business organizations, most notably, the Wisconsin
Merchants Federation, advocated that the law should apply equally to bank
and nonbank lenders. The efforts of both sides finally bore fruit in 2003
when both the Wisconsin Assembly and Senate approved amendments to the
financial modernization bill that removed the exception for banks and depository
institutions, extending the wage lien law to all lenders in Wisconsin.
The amended wage lien law classifies lenders subject to its provisions
as "commercial lending institutions."
In addition, the financial modernization bill contained an amendment to
limit the impact of the law on lenders. In a compromise reached between
lenders and organized labor, the lien of the Department of Workforce Development
will now only have priority over a lien of a commercial lending institution
on the assets of the employer to the extent of unpaid wages of $3,000 or
less earned by an employee within the six months preceding either the date
on which the employee files the wage claim or the date the employee brings
his or her own action to collect the wages. The $3,000 per employee cap
on the wage lien is expected to enable more lenders to extend more credit
to Wisconsin businesses.
The revised wage lien law applies only to liens granted on or after December
1, 2003. Any liens granted to nonbank lenders prior to December 1 will
still be subordinate to the wage lien held by the Department of Workforce
Development. In this case, the wage lien applies to unpaid wages during
the two-year period prior to the date when the employee files the wage
claim with the Department. The $3,000 per employee cap will not apply to
the wage lien for liens granted prior to December 1. However, liens originated
prior to December 1, 2003 by state or federally chartered banks, savings
banks, savings and loan associations or credit unions will retain full
priority over the wage lien.
While banks and other depository institutions are now subject to the wage
lien law, it is expected that credit will become more readily available
to Wisconsin small and medium-size businesses as more nonbank lenders will
be willing to extend loans to Wisconsin borrowers because of the $3,000
per employee limitation that is now in place.
Commercial Finance Association
370 7th Ave.
Ste. 1801
New York, NY 10001
P: (212) 792-9390 • F: (212) 564-6053 • Email
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