Background: Various laws, such as the Minimum Wage Act and Wage Payment Act, establish standards for paying wages. It is unlawful for an employer to deprive employees of their wages. An aggrieved employee may file a wage complaint with the Department of Labor and Industries (L&I). L&I must investigate wage complaints and has authority to order citations and notices of assessment against employers.

An employee also has the option of bringing a civil action in court to enforce a wage claim against the employer. Depending on the circumstances, an employer and the employer's vice principal, officer, or agent may be liable for additional damages if the wage violation was willful and intentional.

A lien gives a lien claimant rights to another's property as a means to enforce a debt owed to the lien claimant. There are a variety of liens created by statute. One of the more common liens is the materialmen's lien or construction lien that may be used by persons furnishing labor, professional services, materials, or equipment for real property improvement. If the person is not paid for services or materials, the person may have a lien on the real property. Notice and recording requirements must be met. To foreclose on the lien, the person claiming the lien must file a civil action in court. Other lien statutes include, for example, crop liens, liens on timber and lumber, and liens on orchard land.

Summary of Bill: A lien for wage claims is created. A wage claim is a claim for any unpaid wages, and any other compensation, interest, statutory damages, liquidated damages, or statutory penalties owed for a violation of state or federal wage laws. Any wage lien or right to a wage lien and the right of action to recover the lien is assignable.

Property Affected by Wage Liens. Property subject to a wage lien includes: (1) real and personal property in the state that is owned or acquired by the claimant's employer; (2) real and personal property in the state owned or acquired by the employer's vice principal, officer, or agent, if that person is liable because the wage violation was willful and intentional; and (3) real property in the state that the wage claimant has maintained—limited to just wage claims for maintenance of the real property.

A wage lien does not apply to any property that is or would be subject to a lien by that person under the construction lien statutes. Washington's Uniform Commercial Code (UCC) on secured transactions does not apply to wage liens on personal property. In addition, certain limitations apply regarding wage liens against goods and accounts receivables subject to the UCC.

Wage liens do not affect the ownership of or title in personal or real property of the state or other public ownership.

Recording Requirements. Procedures are established for recording wage liens, including requirements to file a notice of wage lien with the appropriate entity. For wage liens on real property, the notice must be filed in the county auditor's office where the property is located. For personal property, including vehicles or vessels, the notice must be filed with the Department of Licensing (DOL). In addition to filing a notice of wage lien, the claimant must provide notice to the employer. A wage lien must be filed within a period of two years from when the wages were first due. Statutory forms for notice are provided.

Foreclosure of a Wage Lien. Generally, an action to foreclose on a wage lien must be filed within one year of the date the wage lien was recorded. A wage lien may be foreclosed either judicially, by bringing an action in the appropriate court, or administratively by L&I when the claimant has pursued a wage claim administratively. A claimant may foreclose on a wage lien if a final and binding citation and notice of assessment has been issued by L&I and the claimant has timely notified that the claimant will pursue foreclosure without L&I's assistance.

A foreclosure action may be brought by the employee, L&I, the United States Department of Labor, the Office of the Attorney General, or a representative of the employee such as a union representative. A lien claimant who prevails in a foreclosure action is entitled to reasonable attorneys' fees and costs.

In a judgment resulting from an action to foreclose on the wage lien, the court may order the sale at a sheriff's auction or transfer the title or possession of any property to the claimant. A writ of sale may be issued for any property for ten years after a judgment is issued. An action to foreclose a wage lien on a vehicle or vessel must comply with any other requirements of DOL regarding title transferring and taking ownership.

Extinguishing a Wage Lien. A wage lien is extinguished if an action for the underlying wage claim is not brought within one year of recording the wage lien. A wage lien is also extinguished if the wage claim is dismissed with prejudice or upon payment and acceptance of the wage claim. Requirements to file a release of an extinguished wage lien are provided, as are statutory forms to release the wage lien.

Priority. With certain exceptions, wage liens have priority over all other debts, judgments, decrees, liens, or security interests against the property subject to the wage lien, whether the other debts originated or were perfected before or after the wage lien. For security interests held by a financial institution, a wage lien has priority only up to 4 percent of the financial institution's security interest in the property that is encumbered by the wage lien.

A wage lien does not have priority over tax liens originating before the wage lien and liens or income withholding for child support obligations. Other specified statutory liens dealing with money owed to employees, such as construction liens, crop liens, and timber liens, rank in priority according to the time the liens were filed.

Frivolous Claims of Wage Liens. The owner of real or personal property subject to a recorded claim of a wage lien or a lender or another lien claimant, who believes the claim to be frivolous and made without reasonable cause, or is clearly excessive, may file motion of an order directing the claimant to appear before the court. The motion must state the grounds upon which relief is asked and must be supported by an affidavit. After a hearing is held the court must issue an order releasing the lien, reducing the lien, or verifying the validity of the lien. Costs and reasonable attorneys' fees are awarded to the prevailing party.

Miscellaneous. A contract between an employer and employee may not waive the right to a wage lien. A properly filed notice of wage lien constitutes notice to the spouse or domestic partner of the owner of the property and subjects all community property interest of both spouses or domestic partners to the wage lien. The wage lien provisions must be liberally construed to provide security for all persons intended to be protected by the provisions.

A wage lien account is created, in the custody of the State Treasurer, for DOL to deposit filing fees for wage liens.

Staff Summary of Public Testimony: PRO: The current system is really unfair to workers who lose their wages when an employer goes bankrupt, as wages are very low on the list of priority claims. The bill allows the employers to put a hold on assets to protect workers when their employer disappears, goes bankrupt, or never pays the wages owing. This gives them a fighting chance to collect their wages. It will be especially helpful for marginalized workers in jobs such as food service, landscapers, and janitorial services. Wage theft especially affects women people of color and immigrants and widens the already serious economic opportunities for these groups. Liens are not new and are used in other industries such as in the construction industry for 100 years. Wisconsin and Maryland have passed wage lien laws and have helped thousands of workers recover wages. L&I's collections division on had about a 45 percent success rate for the collection of wages. The success rate in Wisconsin is 80 percent with a wage lien law.

CON: We believe justice should be available to everyone at an affordable price. The bill states that third parties are not to be affected, however financial institutions who are unrelated to this dispute is looped in through the loans they have made on these properties. The bill will alter the longstanding principle of the UCC's notion of superior lien status. The bill puts lenders in an inferior position, making less capital available and increasing the cost of loans for businesses. We are concerned about how liens will be resolved for liens that don't have merit or have been resolved. The bill should follow the current processes for materialmen's liens, as the title companies have specific procedures how to resolve those claims. Both Wisconsin and Maryland are judicial foreclosure states and operate much differently than our nonjudicial foreclosure proceedings. Here a trustee resolves the claims, but it would be very difficult for them to track down the wage lien holders, especially as there is no time limit to try and locate them.