Business Issue to Watch

Court ruling for paid-sick leave time and minimum wage rules

Background

In 2018, there was a citizen-petition ballot initiative set to go to Michigan voters that, if approved, would have significantly changed the state’s regulations with minimum wage and requirements for paid-sick leave. It would have required businesses of all sizes to provide paid sick leave to full-time and part-time employees and allow unused sick time to carry over to the next year. Employees would be entitled to 72 hours of paid sick time each year. For small businesses with fewer than 10 employees, the 72 hours could be split between 40 hours paid and 32 hours unpaid.

The ballot measure would have raised the state’s minimum wage to $12 an hour and include tipped wait staff to be paid the same rate by 2024. Waiters are currently paid 38% of minimum wage because most of their compensation comes from tips. Also, the state’s minimum wage would climb annually by the CPI rate.

Anticipating harms to businesses, state lawmakers prevented this measure from going to voters by adopting the ballot proposal, and then amending it with legislation that methodically increased the state’s minimum wage (currently $9.87 an hour and reaching $12.05 an hour in 2031) and exempted most small employers from some of the paid-sick leave mandates. A Michigan Court of Claims judge ruled this summer the Legislature’s adopt and amend actions were unconstitutional, because undermined state voters and violated Constitutional language.

Several business groups – led by the Michigan Chamber of Commerce, Michigan Manufacturers Association and Small Business Association of Michigan – appealed the decision to the Michigan Court of Appeals. A stay on implementing the new laws is in effect until February 19, 2023, while the appeals process takes place. Governor Gretchen Whitmer said recently she was open to negotiating a resolution with lawmakers before the courts ruled.

The Livonia Chamber of Commerce will stay neutral and not get involved in the appeals process; however, it has researched the impact to businesses

Impact

• The new rules would have minimal impact on larger businesses and smaller ones with 50 or more employees as it already pays most employees more than $12 an hour and offers at least the minimum number of paidsick hours required in the new rules.

• While most employers would prefer to set their own compensation and benefits plans based on market factors, they do not want to protest this measure this at a time they are short workers and in need of talent.

• The new rules would be harmful to restaurants – particularly to those with tipped wait staff. Those in the industry believe the current arrangement nets more pay for servers as it provides immediate incentives for good service. Some restaurants have tried this higher per-hour pay before and the servers generally got less tips, netted less money, and left for other jobs. As one Livonia restaurant owner put it: “There are going to be servers leaving the industry, and $20 burgers.”

• Small business owners with nine or fewer employees would be required to provide at least five paid-sick leave days a year, and 10 or more would be required to provide at least nine paid-sick leave days, and employees would be entitled to carry over unused time to the next year.