Michigan Court Ruling Brings Back Expansive Paid Sick Leave Law, Raises State Minimum Wage, and Phases Out the Tip Credit

In 2018, the Michigan Legislature enacted citizens-initiated laws regarding the minimum wage, the credit that can be used with certain tipped employees to satisfy the minimum wage (known as the tip credit), and paid sick leave for employees.  Shortly after enacting the citizens-initiated laws, the Legislature amended them and scaled back their provisions.  (See our prior guidance here and here).  By adopting the citizens-initiated laws, the Legislature was able to amend the laws with a simple majority.  If the Legislature had allowed the citizens-initiative to proceed to the 2018 general election ballot, any future amendment would have required a three-fourths vote of the Legislature.  On July 19, 2022, the Michigan Court of Claims held that this adopt-and-amend procedure was unconstitutional.  Unless this decision is stayed pending an appeal, the ruling will reinstate the initial, unamended laws, broadening paid sick leave available to employees, raising Michigan’s minimum wage to $12.00 per hour, and phasing out the tip credit.  If the decision stands, employers will need to revise their paid sick leave policies and potentially change their pay practices.

More specifically, the Michigan Court of Claims held that the 2018 amendments to the Paid Medical Leave Act and the Improved Workforce Opportunity Wage Act unconstitutional, returning the laws to their original form.  The resulting changes, and how they affect many employers, include the following:

Paid Sick Leave

1. While the amendments only required paid sick leave for companies that employ 50 or more individuals, the reinstated law will now require nearly all employers to provide paid sick leave to employees.
2. While the amendments only required employers to provide 40 hours of paid sick leave per year, the reinstated law will now require 72 hours of paid sick leave per year for all employers with 10 or more employees.
3. Under the reinstated law, employers with fewer than 10 employees will need to provide 40 hours of paid sick leave and 32 hours of unpaid sick leave per year.
4. In addition, under the reinstated law, the rate of accrual will increase to one hour of paid sick leave per every 30 hours worked, up from the amended 1-per-35-hours rate.

State Minimum Wage

1. While the amendments limited the rate of increase in the state minimum wage, the reinstated law provides for a $12 per hour minimum wage by 2022, with future increases tied to inflation.
2. Finally, the amendments preserved the tip credit. The reinstated law gradually eliminates the tip credit, and tipped employees will become subject to the same state minimum wage as non-tipped employees by 2024.  Tipped employees must receive 80% of the state minimum wage in 2022 and 90% of the state minimum wage in 2023.

An appeal of the Court of Claims decision is expected, as is a request to stay the effect of the decision.  We will continue to monitor this situation.  In the meantime, if you have questions about these new changes and their potential effects, please contact your relationship attorney or one of Honigman’s Labor and Employment attorneys.