Michigan: Minimum Wage and Paid Sick Time - Significant Changes May Take Effect for all Employers on February 20th

By Masud Labor Law

January 19, 2023

In 2018, Michigan special interest groups began gathering signatures for two ballot initiatives, the Improved Workforce Opportunity Wage Act (the “IWOWA”) and the Earned Sick Time Act (the “ESTA”).  The IWOWA sought to raise the minimum wage, whereas the ESTA sought to provide employees of businesses with 10 or more employees with 72 hours of paid sick leave per year, and employees of businesses with 1 to 9 employees with 40 hours of paid sick leave per year.  

After being certified as having obtained a sufficient number of signatures, the ballot initiatives were submitted to the Legislature.  The Legislature adopted and amended both ballot initiatives.  In doing so, the ESTA became the Paid Medical Leave Act (the “PMLA”), which required employers with 50 or more employees to provide certain employees with at least 40 hours of paid sick leave per year.  The IWOWA was adopted without its name being changed, but the Legislature amended the initiative to slowdown the rate at which the minimum wage would increase.  

The Legislature’s adoption and amendment of the two ballot initiatives was immediately challenged by the special interest groups who claim that the Legislature’s actions violated the Michigan Constitution.  On July 19, 2022, the Court of Claims heard the challenge, and ruled in favor of the special interest groups by holding that the Legislature lacked the authority to amend the ballot initiatives and, therefore, the initiatives as originally submitted to the Legislature, and adopted by it, were to go into effect.  The Court of Claims, however, stayed enforcement of its ruling through February 19, 2023, meaning that the unamended IWOWA and ESTA would not go into effect until February 20, 2023.  

The decision of the Court of Claims was appealed to the Michigan Court of Appeals and oral argument in the case was heard on December 13, 2022.  Although all parties requested that the Court of Appeals extend the Court of Claim’s stay or issue an expedited decision, the case remains pending and no further stay has been issued as of the date of this update.  Accordingly, employers must prepare for the unamended IWOWA and ESTA to go into effect on February 20, 2023.  

Key points of the ESTA that employers must know include the following:

•         It applies to employers who employ at least 1 person (as opposed to the PMLA, which only applied to employers with 50 or more employees).

•         Employers with 1 to 9 employees must allow employees to take up to 40 hours of accrued paid sick time per year and must allow them to take up to an additional 32 hours of unpaid sick time.

•         Employers with 10 or more employees must allow employees to take up to 72 hours of accrued paid sick time per year.

•         Employees must accrue earned sick time at a rate of 1 hour for every 30 hours worked (as opposed to 1 hour for every 35 hours worked under the PMLA).

•         All accrued earned sick time must be allowed to carry over from year to year (although employers are not required to pay employees out for unused accrued sick time).

•         Employers cannot ask for documentation from an employee to support an absence covered by the ESTA until the employee is absent for at least 3 consecutive days.

•         Practically, all employees are eligible for paid sick leave under the ESTA, including part-time employees and exempt employees (the PMLA excluded from coverage part-time, exempt, and variable employees, among others).

•         The ESTA contains notice and posting requirements, prohibits retaliation, and permits employees to bring a private cause of action for alleged violations.  

•         Unlike the PMLA, the ESTA does not expressly allow an employer to “front-load” paid sick time, raising questions as to whether “front-loading” is permitted under the ESTA.  

Regarding the IWOWA, employers should be aware that if the no further action is taken by the Court of Appeals prior to February 19, 2023, the state minimum wage will increase to $13.03 per hour effective February 20, 2023, with annual adjustments for inflation.  In addition, the tip credit for tipped employees will be eliminated by January 1, 2024, and the minimum wage for tipped employees effective February 20, 2023, will be $11.73 per hour.

Unless the Court of Appeals takes further action, clients should prepare to revise their pay structures and paid leave policies in the event that the unamended IWOWA and ESTA go into effect on February 20, 2023.  If you have questions or would like assistance, please do not hesitate to contact us.

UPDATE:

On January 26, 2023, the Michigan Court of Appeals ruled that the Michigan Legislature’s 2018 decision to adopt and then amend two ballot initiatives during the same legislative session did not violate the Michigan Constitution.  As originally adopted, the two ballot initiatives, the Improved Workforce Opportunity Wage Act (the “IWOWA”) and the Earned Sick Time Act (the “ESTA”), sought to raise the state minimum wage and require employers to provide up to 72 hours of paid sick leave per year, respectively.  

The Michigan Court of Appeals’ ruling overturns a lower court’s decision which would have enforced the IWOWA and ESTA’s requirements, as originally adopted, beginning on February 20, 2023.  This means that employers can continue their current minimum wage and paid sick leave practices and do not need to make any changes on February 20, 2023.   

For now, the Court of Appeals ruling relieves employers of having to make changes to their minimum wage and sick leave policies.  The case, however, will likely be appealed to the Michigan Supreme Court.  Masud Labor Law Group will continue to monitor the case going forward.  In the meantime, employers seeking more information should contact us with any questions.

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