On Tuesday, July 19, 2022, the Michigan Court of Claims ruled that the state legislature acted unconstitutionally when it adopted but then amended two 2018 ballot initiatives providing earned sick leave for most Michigan workers and increasing the minimum wage for all employees, eliminating the sub-minimum wage for tipped workers. In 2018 the Michigan legislature attempted to preempt the ballot initiatives to avoid them becoming the law and not subject to amendment by the legislature. To circumvent that possibility, the legislature passed legislation identical to the proposals, but then set about immediately to amend the newly passed statutes in ways that were more acceptable and less disruptive to the business community.

Unless overruled, Tuesday’s decision means that the original ballot proposals are now the law, significantly and immediately altering the wage and benefit landscape for virtually all employers and creating a whole new labor economy for the hospitality industry.

Paid Medical Leave

Under the current Michigan Paid Medical Leave Act (PMLA), employers with more than 50 full- and part-time employees, other than the U.S. government and government entities of another state, are required to provide up to 40 hours of paid medical leave per year. The PMLA also allows employees to carry-over up to 40 hours of accrued paid medical leave per benefit year, but also permits employers to, in effect, coordinate paid medical leave with other forms of PTO, significantly reducing or even eliminating any economic burden upon employers beyond what many already voluntarily provide.

Reinstatement of the pre-amendment ballot initiative carries a larger economic cost.  Under the pre-amendment, Earned Sick Time Act, any employer (other than the U.S. government) with one or more employees must provide employees with paid sick time, accruing at a rate of one hour for every 30 hours worked. Employers with 10 or more employees must allow employees to accrue and use up to 72 hours of paid sick leave per year. “Small employers” with fewer than 10 employees must allow employees to use and accrue 72 hours of sick leave per year, but only 40 hours must be paid. Employees can carry over from year to year any number of accrued hours, however, they may only use up to 72 hours per year. This decision has the potential to impact thousands of previously exempt employers.

Minimum Wage

Reviving the minimum wage initiative will mean raising pay rates for nearly all workers to a statutory minimum of $12.00 per hour—an immediate increase of more than $2.00 per hour. Perhaps most significantly, tipped workers will be entitled to the minimum wage at its going rate by 2024. Currently, tipped workers are entitled to receive only a fraction of the minimum wage—$3.75 per hour. Despite this increase in hourly wages for tipped workers, gratuities remain the property of the worker and may not be counted towards the minimum wage rate.

In the exceptionally tight post-pandemic labor market, it is unclear how many workers will actually benefit from increased minimum wage.  It is also unclear when the Michigan Department of Labor and Economic Opportunity (LEO) will begin enforcement of the decision. On Wednesday, July 20, Defendant State of Michigan filed its claim of appeal. Given the potentially sweeping impact of these initiatives on a broad spectrum of Michigan employers as well as the constitutional nature of the decision, it seems likely that the appellate court will stay the lower court’s decision until a decision on the merits of the appeal is issued. But human resource and finance departments may wish to prepare for the possibility of this marked change in employer wage and benefit costs.

The Rhoades McKee Human Resource and Employment Law Team are keeping an eye on these developments and will issue updates as information becomes available.

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