Michigan Legislature Introduces Host of New Employee-Friendly Bills

As we reported on last month here, the newly-elected Michigan Legislature has been working to pass employee-friendly labor and employment laws. Last week, a new batch of bills was introduced addressing many “hot button” issues, including limiting the use of noncompete agreements, enhanced penalties for misclassifying independent contractors, and increasing government agents’ ability to investigate alleged violations of labor and employment laws.

Proposed Noncompete Changes

HB 4399 would drastically change Michigan’s noncompete statute. Employers would not be able to obtain noncompete agreements from employees without satisfying various requirements, including posting a summary of the noncompete agreement in a conspicuous place in the worksite. Also, under no circumstances would an employer be able to obtain a noncompete agreement from a “low-wage employee”. Under the bill, a low-wage employee means either a minor or an employee who receives annual wages at a rate that is less than 138% of the federal poverty line for a family of three (3) individuals. For reference, in 2023, that amount is $34,307.00, approximately $16.00 an hour for a full-time employee. This bill is similar to laws prohibiting the use of noncompete agreements with low-wage employees that have been enacted in Maryland, New Hampshire, Rhode Island, and Virginia.

The bill comes with enforcement teeth. An employer who obtains a noncompete agreement from a low-wage employee would be ordered to pay a civil fine of not more than $5,000.00 for each employee or applicant who is a subject of the violation. The bill also includes a fee-shifting provision. If a court were to void or otherwise limit the noncompete agreement pursuant to this proposed law, the court would be required to award to the employee both the actual costs of defending against enforcement of the agreement (including attorney’s fees) and all income lost as a result of actual or threatened enforcement of the agreement. 

Payment of Wages and Fringe Benefits Act Proposed Changes

The lion’s share of the new bills affect the Payment of Wages and Fringe Benefits Act (“PWFBA"). The PWFBA sets the requirements for when and how employees are paid in the State of Michigan. Under the PWFBA, employees who believe their rights have been violated under the Act may make a complaint to the department of licensing and regulatory affairs (“LARA”). LARA then has the responsibility of investigating the complaint.

One of the most consequential of the new bills related to the PWFBA is HB 4390. The bill would make the misclassification of an employee as an independent contractor a standalone violation of the PWFBA. Any employer who violates this provision of the PWFBA could be accessed a civil fine of not more than $10,000.00. Additionally, the employer would be liable for wages due to the employee, fringe benefits, and a penalty of 100% of the wages and benefits due to the employee. The employer could be ordered to pay a penalty in the amount equal to the estimated federal taxes and Medicare payments it did not make based on the misclassification. Finally, the state could order exemplary damages of up to three (3) times the amount of wages and benefits that were due to the employee if the violation is flagrant or repeated.

Also of consequence is HB 4406, which would create a pay transparency requirement under the PWFBA, much like the pay transparency laws that we reported on here. Specifically, it would require employers to provide employees (within 30 days of their request) with wage information for similarly situated employees covering a period of not more than three (3) years before the date of the request. Employers would be permitted to redact the names of similarly situated employees, but would be required to provide information about the sex and seniority of the similarly situated employees. Wage information would include not just salary and hourly wage information but also bonus pay, overtime pay, and other forms of compensation provided by the employer.

Currently, under Section 13a of the PWFBA, employers are, inter alia, prohibited from requiring as a condition of employment nondisclosure of wage information by employees and from discriminating against employees who discloses their wages. HB 4400 would apply the criminal code to employers who violate Section 13a of the PWFBA. HB 4401 would make an employer who violated Section 13a a second or subsequent time guilty of a felony punishable by imprisonment for not more than two (2) years, a fine of not more than $10,000.00, or both, for each violation.

The Whistleblowers’ Protection Act Proposed Changes

HB 4396 would expand protections afforded by the Michigan Whistleblower’s Protection Act (“WPA”) so that independent contractors and prospective employees could assert claims under the Act. HB 4396 would also expand what constitutes protected activity under the WPA to include participating in investigations, hearings, and inquiries held by a public body or a court, as well as an employee’s protest or refusal to participate in planned or suspected violation of the WPA. The bill also significantly increases the civil fine for a violation of the act from $500.00 to $10,000.00 for each violation. Finally, the bill creates a bounty reward for the employee who reported the violation, allotting 30% of the money recovered to the reporter. 

Appropriations to the Payroll Fraud Unit

HB 4393 concerns appropriations for the Payroll Fraud Enforcement Unit. As you remember, in 2019, Michigan Governor Gretchen Whitmer created the unit through Executive Directive No. 2019-15. The unit investigates the misclassification of employees as independent contractors. HB 4393 would appropriate $5 million to the unit with the purpose of hiring 25 full-time equivalent employees, signaling a desire to increase investigations and enforcement.

Looking Forward

We will continue to monitor the progress of these bills and report any developments. In the meantime, if you have any questions or concerns about the prospective changes, please feel free to contact one of Honigman’s Labor and Employment Attorneys here.