When the Exceptions Ate this Kentucky Garnishment Rule: Making sense of KRS 427.0

Understanding KRS 427.050: Kentucky's Rules for Out-of-State Wage Garnishments

Introduction

Out-of-state wage garnishments are a frequent source of confusion for employers with multistate operations. As explained in Ogletree Deakins' Compliance Rules for Out-of-State Garnishments, the general rule is that if a court issuing a garnishment order has personal jurisdiction over the employer, the garnishment is valid and must be honored. Moreover, the exemption rules of the issuing state apply—not those of the employee's home state. However, Kentucky has carved out an important exception to this general approach in KRS 427.050. Understanding this exception is critical for employers, HR teams, and payroll professionals handling garnishments involving Kentucky employees.

KRS 427.050 Out-of-state law applicable when wages earned and payable out-of-state - Exceptions, part (1), provides:

"(1) The law of the state wherein wages are earned and payable relating to exemptions shall apply to all garnishments served in the State of Kentucky, except that Kentucky law shall exclusively apply:

"(a) Where the defendant was personally served with process in the State of Kentucky; or

"(b) Where the defendant was a bona fide resident of the State of Kentucky when the subject debt arose; or

"(c) Where the defendant was a bona fide resident of the State of Kentucky when the cause of action arose".

The General Rule: Out-of-State Garnishments

As Ogletree Deakins describes, when a garnishment order is properly served on an employer that has sufficient contacts with the issuing state, the employer must honor the order and apply the exemption laws of that state. If the employer mishandles the garnishment—for instance, by refusing to honor it—it risks being held liable for the full amount of the employee’s debt.

KRS 427.050: Kentucky’s Special Rule

Kentucky modifies the general rule by providing:

• If wages are earned and payable outside Kentucky, then the law of that other state governs exemptions.

• However, Kentucky law will govern exemptions if any of these conditions are met:

  1. The employee was personally served with process in Kentucky;

  2. The employee was a bona fide Kentucky resident when the debt arose;

  3. The employee was a bona fide Kentucky resident when the cause of action arose.

If Kentucky law applies under these exceptions, the employer or garnishee may plead Kentucky exemption law to protect the employee's wages.

Realistic Examples of How KRS 427.050 Applies

Example 1: Employee Working Remotely in Kentucky, Served in Texas

• An employee working remotely in Kentucky for a Texas-based company is sued in Texas.

• Texas court issues a garnishment order.

• The employee was never personally served in Kentucky and was not a Kentucky resident when the debt arose.

Result: Texas exemption law applies. Kentucky courts defer to the originating state's law. KRS 427.050 does not override the general rule.

Example 2: Employee Moved to Kentucky Before Debt Arose

• An employee moved to Kentucky and became a bona fide resident.

• After establishing Kentucky residency, they incurred a debt with a Florida creditor.

• The creditor obtains a Florida judgment and serves a garnishment order on the employer.

Result: Under KRS 427.050(b), because the employee was a Kentucky resident when the debt arose, Kentucky exemption law governs the garnishment, even though the order was issued by a Florida court.

Example 3: Employee Served with Process in Kentucky

• An employee working in Kentucky is personally served with a garnishment summons at their home in Louisville.

• The garnishment order comes from a California court.

Result: Under KRS 427.050(a), because the employee was personally served in Kentucky, Kentucky exemption laws apply to limit garnishment.

Example 4: Employee Earns Wages in Ohio, Lives in Kentucky

• An employee lives in Kentucky but commutes daily to Cincinnati, Ohio, where they earn and are paid their wages.

• An Ohio court issues a garnishment order.

• The employee was never served in Kentucky and lived in Ohio when the debt arose.

Result: Because the wages are earned and payable in Ohio, and none of the Kentucky exceptions apply, Ohio exemption law governs.

Practical Takeaways for Employers and Payroll Teams

1. Identify Where Wages Are Earned and Payable: KRS 427.050 triggers only when the garnishment involves Kentucky, but it depends heavily on where the wages are earned.

2. Determine Service and Residency: Carefully check whether the employee was personally served in Kentucky or was a bona fide Kentucky resident at the relevant times.

3. Apply the Correct Exemption Law: If KRS 427.050 requires it, apply Kentucky's exemption rules (such as broader wage protections under Kentucky law).

4. Document the Analysis: Maintain clear records showing how you determined which state's exemption rules apply. This will help defend against employee complaints or creditor challenges.

5. Train Payroll Staff: Multistate employers should ensure that payroll staff are trained to recognize when Kentucky’s exception applies. Mistakes can expose the employer to liability for the full judgment amount.

Conclusion

Although the national rule favors applying the originating state's garnishment laws if personal jurisdiction exists, Kentucky’s KRS 427.050 introduces employee-friendly exceptions that employers must understand. By carefully analyzing service, residency, and where wages are earned, employers can avoid costly mistakes while protecting employee rights under Kentucky law.