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Arkansas Court Decision Warns HR Departments About the Unauthorized Practice of Law

by Abtin Mehdizadegan   IS YOUR HR DEPARTMENT UNKNOWINGLY ENGAGED IN THE UNAUTHORIZED PRACTICE OF LAW?    A former employee files a claim for unemployment benefits with the Arkansas Department of Workforce Services. Your Human Resources Department responds to the Notice and states that the claim should be denied because the employee was terminated for misconduct. ADWS agrees and denies the claim. The Appeals Tribunal also finds that the employee was not entitled to any unemployment benefits. In one last effort, the employee appeals to the Arkansas Board of Review. The Board of Review reverses the Appeals Tribunal and finds that the employee was terminated for a reason other than misconduct. Frustrated with the Board of Review’s decision, the HR Manager signs a Petition for Appeal with the Arkansas Court of Appeals. Has the company violated Arkansas law?   In Bank of Fayetteville NA v. Dep’t of Workforce Services, 2016 Ark. App. 96 (2016), the Arkansas Court of Appeals decidedly answered that question: yes, the employer engaged in the unauthorized practice of law. Id. at *2. There, the appeal was dismissed because the executive-vice president of the Bank—not an attorney—signed the Petition for Appeal. Id. at 1. The Court observed that, in Arkansas, all corporations must be represented by licensed attorneys. Id. “[W]here a party not licensed to practice law in this state attempts to represent the interests of others by submitting himself or herself to jurisdiction of a court, those actions, such as the filing of pleadings, are rendered a nullity.” Id. at *1–2. Therefore, in dismissing the appeal, the Court held that “invoking the process of a court of law constitutes the practice of law,” and because the Bank’s employee was “practicing law when he signed the petition, the petition [was] null and void.” With the appeal dismissed for lack of jurisdiction—lack of an attorney’s signature—the Bank did not preserve its rights and was responsible for paying its portion of the employee’s unemployment benefits, which can, for certain employers, increase unemployment insurance premium rates.   The Arkansas Supreme Court Committee of Unauthorized Practice of Law and the Arkansas Attorney General has drawn the same conclusion with respect to answering writs of garnishment through non-attorney personnel. See Advisory Opinion 34-260, Arkansas Supreme Court Committee of Unauthorized Practice of Law (September 30, 1991) (“the filing of such garnishment answers by unlicensed corporate employees constitutes the unauthorized practice of law”); Ark. Op. Att'y Gen. No. 82-145 (Sept. 14, 1982) (stating that “when a non-attorney engages in the filing of pleadings in an Arkansas court on the corporation's behalf, this constitutes the unauthorized practice of law” in reference to responding to garnishment allegations and interrogatories).   Payroll departments frequently receive Writs of Garnishment from debt collectors concerning a debt owed by an employee of the company. The Writ requires the employer to answer the debt collector’s Allegations and Interrogatories within thirty days. Generally, these documents contain walls of text followed by fill-in-the-blank worksheets that seek information about an employee’s wages. Many unsuspecting HR or payroll employees will complete these forms, return the answer to the debt collector, and every pay period, withhold a sum—usually twenty-five percent (25%) of the employee’s wages—until the debt is satisfied.   What happens behind the scenes is less clear. Usually, when the debt collection firm receives the completed answer from the employer, it will forward the answer—which was signed by a non-lawyer representative of a corporation—to the court, along with a proposed order requesting that the court enter a withholding order. In this process, the employer has invoked the court’s jurisdiction and, in the process, represented itself through a non-lawyer employee. This, under Arkansas law, is the unauthorized practice of law.   The unauthorized practice of law presents unique liability for HR departments. Penalties for the unauthorized practice of law can present in several ways. Under Arkansas law statute, any corporation engaging in the unauthorized practice of law can be fined $100.00 to $5,000.00 per offense. Similarly, every officer, trustee, director, agent, or employee of the corporation who directly or indirectly engages in the unauthorized practice of law or assists such a corporation or voluntary association to do such prohibited acts is also subject to a fine of $100.00 to $5,000.00 per offense. Ark. Code Ann. § 16-22-211(f).   Likewise, as was the case in Bank of Fayetteville, the unauthorized practice of law may prejudice a company’s ability to protect its interests, as a court may find that a corporation’s pleadings are void and therefore dismiss an action against the employer. In garnishment cases, the financial repercussion associated with a void judgment may make the employer—not the employee—liable for a portion of the debt. Similarly, although garnishment cases appear straightforward, there are several nuanced legal issues that require guidance and attention from experienced employment attorneys. For instance, wrongful withholding may create liability for employers under the Consumer Credit Protection Act, which limits the amount of an employee’s earnings that may be garnished and protects an employee from being fired if pay is garnished for only one debt.   As HR Departments have evolved to meet the pressures of expanding labor regulations, many unsuspecting employers have fallen into the unauthorized practice of law trap. Executing the function of human resources departments across the country can present complex legal issues that are separate and apart from managing a business. In Arkansas, answering garnishments and attending to other apparently routine HR functions is one of those traps.   To unsnare that trap, please contact your attorney at Cross, Gunter, Witherspoon & Galchus, P.C. for assistance, at (501) 371-9999.