Michigan Court of Appeals Hears Arguments on Substantial Changes to Michigan Minimum Wage and Paid Sick Leave Laws

Last week, a panel of Michigan Court of Appeals judges heard arguments over a July Court of Claims ruling regarding two voter-initiated laws, the “Earned Sick Time Act” (“ESTA”) (renamed the Paid Medical Leave Act) and the “Improved Workforce Opportunity Wage Act” (“IWOWA”).  As discussed in more detail below, if implemented as law, the original Michigan ESTA and IWOWA laws would, among other things, have substantial impact on Michigan’s minimum wage and employers’ obligations to provide paid sick leave to employees. In a July 19, 2022 decision, a lower court (the Michigan Court of Claims) held that the Michigan Legislature did not have the constitutional authority to amend the initiatives in the same legislative session as they were adopted and ruled that the original initiatives must be reinstated as law.  The Court of Claims later issued an order delaying the reinstatement of the original ESTA and IWOWA until February 19, 2023, to give businesses time to prepare. The Court of Appeals is now considering the case, and attorneys for the parties have asked for a ruling by February 1, 2023. Mika Meyers provided a basic summary of the voter-initiated Michigan sick leave laws for 2023 in a previous Client Alert.  A more detailed summary of the changes facing Michigan employers if the Court of Claims decision stands is set forth below. Changes to Minimum Wage and Tipped Wages The minimum wage is currently set at $9.87 per hour ($3.75 for tipped workers) and will increase to $10.10 per hour ($3.84 for tipped workers) on January 1, 2023.  If the original IWOWA is implemented, the minimum wage would be increased to $13.03 in 2023.  The tipped wage would jump to $11.73 per hour in 2023 (90% of the minimum hourly rate) and would be the same as the normal minimum wage rate in 2024. Employees under the age of 18 may be paid 85% of the general minimum hourly wage.  That rate will increase to at least $8.59 per hour (85% of $10.10) in 2023.  If the minimum wage increases to $13.03 under the original IWOWA, the hourly rate for minors will be $11.08. Current law permits new employees who are under the age of 20 may be paid a training hourly wage of $4.25 for the first 90 days of the employee’s employment.  This provision will be unaffected by the implementation of the original IWOWA. Employers seeking to utilize the tipped workers’ minimum wage must already ensure that certain requirements are met.  The original IWOWA, if implemented, would add to those requirements.  The IWOWA’s additions are shown in italics in the below list of requirements for using the tipped workers’ minimum wage:

1. The employee must receive the gratuities in the course of his or her employment.
2. The gratuities must equal or exceed the difference between the tipped minimum hourly wage and the regular minimum hourly wage.
3. The gratuities must be proven gratuities as indicated by the employee’s declared tips.
4. The entirety of the gratuities must be retained by the employee who receives them, except as voluntarily shared with other employees who are directly or indirectly part of the chain of service and whose duties are not primarily managerial or supervisory.
5. The employee was informed by the employer of the provisions of this section in writing, at or before the time of hire, and gave written consent.

Employers will also have to retain records showing compliance with the tipped wage requirements, including the new written disclosure and employee written consent requirements, for at least three (3) years after the employee’s last pay period. Changes to Paid Medical Leave Requirements Currently, the Paid Medical Leave Act (“PMLA”) only applies to employers with fifty (50) or more employees.  It also only applies to “eligible employees.”  There are several exceptions to the definition of “eligible employees,” including employees who are exempt from overtime requirements, employees who worked fewer than twenty-five (25) hours per week during the prior calendar year, etc. The following is a summary of the current paid leave requirements under the PMLA:

• Eligible employees must accrue at least one hour of paid medical leave for every 35 hours worked.
• Employers are not required to allow an eligible employee to accrue more than one hour of paid medical leave in a calendar week.
• Employers may limit an eligible employee’s accrual of paid medical leave to 40 hours per benefit year.
• Employers are not required to allow an eligible employee to carry over more than 40 hours of unused accrued paid medical leave from year to year.
• Employers may cap the amount of paid medical leave an eligible employee uses to 40 hours in a benefit year.
• Employers may prorate paid medical leave if eligible employees are hired during the benefit year.

The ESTA, if implemented, would apply to all employers with one or more employees, except the United States Government. The ESTA’s paid sick time requirements are summarized as follows:

• Employers must provide earned sick time to all employees.
• Employees must accrue at least one hour of sick time for every 30 hours worked.
  • The ESTA does not allow employers to limit accrual to one hour per calendar week.
• Employees will be entitled to use at least 72 hours of paid sick time per year, unless the employer chooses a higher limit.
• Unused, earned sick time must carry over from year to year.
• Employers may not require an employee to search for or find a replacement as a condition for using earned sick time.
• All of the ESTA requirements would apply to employees who are exempt from overtime requirements. An employee who is exempt from overtime requirements would be assumed to work 40 hours each work week, unless the employee’s normal work week is less than 40 hours.

The ESTA contains special provisions for small businesses.  An employer would be considered a small business if fewer than 10 individuals work for compensation.  The worker count would include full-time workers, part-time workers, and temporary workers, including individuals who working through a temporary service or staffing agency.  Under the ESTA, small business employees must accrue one earned hour of sick time for every 30 hours worked and would be entitled to use up to 40 hours of paid earned sick time per year.  Employers can choose, of course, to allow employees to use more than 40 hours of sick time per year.  Employees who accrue more than 40 hours of paid sick time would also be entitled to use up to 32 hours of unpaid sick leave, for a total of 72 hours of sick time.  Those employees would be entitled to use earned sick leave before unpaid sick leave. When Would Sick Time Accrue? Under the ESTA, in Michigan earned sick time would begin to accrue on the effective date of the ESTA or when the employee begins employment, whichever is later.  Employers may still require new employees to wait ninety (90) days before using accrued sick time. What Leave Will Count as Sick Leave? Currently, there is a rebuttable presumption that an employer is in compliance with the PMLA if it provides at least 40 hours of paid leave to an eligible employee each year.  There is no such rebuttable presumption in the ESTA.  Under the ESTA, non-small business employers may comply with the paid leave requirements by providing any paid leave in the same amounts, as long as the paid leave may be used for the same purpose and is accrued at a rate equal or greater to one hour per 30 hours worked.  This includes paid vacation days, personal days, and paid time off.  Small businesses may also comply by providing any paid leave, but small business employees would be entitled to use paid earned sick time before using unpaid earned sick time. Retaliation The PMLA deleted the section of the ESTA which discussed retaliation.  If the ESTA is implemented, employers will be prohibited from interfering with, restraining, denying the exercise of, or the attempt to exercise, any right protected by the ESTA.  Employers may not take any retaliatory personnel action or discriminate against an employee because the employee exercised a right under the ESTA.  Finally, an employer’s absence control policy cannot treat earned sick time as an absence that may lead to or result in retaliatory personnel action.  There is a rebuttable presumption of a violation of the prohibition against retaliation if an employer takes an adverse personnel action against an employee within ninety (90) days.  Unlike the PMLA, the ESTA also gives employees a personal right of action to bring a lawsuit against their employer within three (3) years of an alleged violation. Retention of Records Under the PMLA, employers are required to retain records documenting the hours worked and paid medical leave taken by eligible employees for at least one (1) year.  If the ESTA is implemented, employers will be required to retain records for three (3) years.  If an employer does not maintain or retain adequate documents showing the hours worked and earned sick time taken by an employee or does not allow the Department of Labor and Economic Opportunity reasonable access to the records, and there is a question whether that employer violated the ESTA, there would be a presumption that the employer violated the act.  That presumption can only be rebutted by clear and convincing evidence. We will continue to monitor developments surrounding the status of the Improved Workforce Opportunity Wage Act and the Earned Sick Time Act for Michigan in 2023. If employers have specific questions about how these laws affect – or may affect – their businesses, they should contact Nikole Canute (ncanute@mikameyers.com), Nate Wolf (nwolf@mikameyers.com), Dominic Clolinger (dclolinger@mikameyers.com), Kathryn Zoller (kzoller@mikameyers.com), or Scott Dwyer (sdwyer@mikameyers.com) as soon as practicable.