Michigan Court of Claims Restores Laws Regarding Paid Leave and Minimum Wage – What Employers Need to Know

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On July 19, the Michigan Court of Claims issued a decision restoring two significant Michigan employment laws – the Earned Sick Time Act (“ESTA”) and the Improved Workforce Opportunity Wage Act (“IWOWA”). The decision has significant implications for Michigan employers, as discussed below.

As background, in 2018, two groups circulated ballot initiative petitions seeking to enact legislation that would grant mandatory employer paid leave benefits (ESTA) and incremental minimum wage increases (IWOWA). After collecting sufficient signatures, the groups submitted the initiatives to the Michigan Legislature in accordance with the Michigan Constitution. The Michigan Legislature enacted both the paid sick leave and minimum wage initiatives and then immediately amended them, revising key provisions in the process. In amending the laws, the Legislature also changed the name of the ESTA to the Paid Medical Leave Act (“PMLA”). The petitions’ sponsors challenged the Legislature’s actions in the Michigan Court of Claims.

The Michigan Court of Claims ruled on July 19 that the Legislature’s “adopt and amend” strategy violated the plain language of Michigan’s Constitution and undermined Michigan voters. The Court of Claims voided the amendments for “thwart[ing] the power of the People to initiate laws and then vote on those same laws.” The effect of the Court of Claims’ decision was to allow the original ballot initiatives – that is the ESTA and the unamended version of the IWOWA – to take effect.

On July 29, the Court of Claims entered an order staying the effect of its July 19, decision until Feb. 19, 2023, at which point the voter-initiated versions of IWOWA and ESTA will be enforceable. This was done to give employers and state agencies time to comply with the new requirements. Of course, the original decision may be overturned on appeal and the Legislature could take further action.

Paid Leave Requirements

The original ESTA as it appeared in the ballot initiative is more onerous on employers than the PMLA that the Legislature passed. Highlights of what the law requires of employers are, as follows:

Employers and Employees “Covered” Will Expand

Under the ETSA, Michigan employers with 10 or more employees must provide 72 hours of paid sick leave to all employees annually. Michigan employers with less than 10 employees (essentially employers with at least one employee) must provide 40 hours of paid sick leave to all employees annually.  Under the PMLA, only employers with 50 or more employees had to provide paid sick leave and that was only for 40 hours annually.

Additionally, all employees, including employees exempt under the Fair Labor Standards Act, are covered by the ESTA regardless of hours worked. This means that exempt, part-time, temporary, and casual employees are eligible for earned sick time, as are employees covered by collective bargaining agreements.

Expansive View of “Family Member”

The ESTA defines “family member” expansively to include domestic partners and other individuals related by blood or affinity whose close association with the employee is equivalent to a family member. Under the PMLA, such individuals were not considered “family members” for purposes of paid sick leave.

Accrual Rates to Change

If left in effect, the ESTA requires that employees accrue 1 hour of sick leave for every 30 hours worked. Currently under the PMLA, the required accrual rate is 1 hour for every 35 hours worked.

Paid Sick Leave Allowance Must Accrue

The ESTA does not allow employers to front load an employee’s paid sick leave allowance. If left in effect, employers must allow employees to accrue their paid sick leave as they work. The PMLA currently allows for the “lump sum” method. The ESTA also requires that employers allow employees to carry over unused leave from year to year.

Leave Increments

Under the ESTA, employers must allow employees to use their leave time in increments no greater than one hour or the smallest increment otherwise available in the employer’s payroll system or handbook.

Enforcement Mechanisms Expand

The ESTA provides employees with a private cause of action for an employer’s violation. Further, employees’ actions are not subject to an administrative exhaustion requirement. This means that employees can forego filing a complaint with Michigan’s Department of Licensing and Regulatory Affairs and directly file suit in court.

If a court finds that a violation of the ESTA took place, employees could be entitled to recovery of liquidated damages, back wages, reinstatement, costs, and attorneys’ fees. Employers should also be aware that a rebuttable presumption of retaliation exists if employers take adverse action against an employee within 90 days of the employee’s use of earned paid sick leave.

Limits on Supporting Documentation

Employers are prohibited from requesting documentation supporting an employee’s qualified need for paid sick leave unless the employee is absent for more than three days. Employers would also be responsible for any expenses employees incur in obtaining any requested documentation.

Minimum Wage Requirements

The Legislature’s amendment to IWOWA after enacting it delayed the minimum wage increase to $12 per hour from 2022 to 2030, removed additional inflation-based increases, and eliminated provisions regarding tipped employees.

Reinstatement of the IWOWA in its original form will result in an immediate increase in Michigan’s minimum wage from the current $9.87 per hour to $12.00 per hour, and the minimum wage would increase annually to account for inflation. Currently, under the Legislature’s version of the IWOWA, the minimum wage would not have reached $12.00 until at least 2030. IWOWA in its current form also does not address inflation-based increases. Moreover, under the current version, no minimum wage increase would have occurred if the unemployment rate exceeded 8.5% for the previous year. The original ballot initiative, however, did not include such a limitation.

Additionally, under the original ballot initiative, the tip credit for employees would be eliminated by January 1, 2024, with the immediate effect of increasing the minimum cash wage for tipped employees to $9.60 per hour. Beginning January 1, 2023, the minimum cash wage would increase to 90% of the inflation-adjusted current minimum wage. By contrast, under the current IWOWA, the minimum cash wage for tipped employees is currently set at 38% of the full minimum wage at an industry guarantee of $3.75 per hour.

Looking Ahead

Employers should be aware that updates to the law are on the horizon and begin to review their own workplace policies to determine what steps they may have to take if and when original ballot initiative requirements take effect.  In light of the uncertainty of appeal, employers should consider early preparation specifically by examining their leave and attendance policies and considering the financial implications of being required to pay employees a $12 minimum wage.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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