Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
UPDATE: On August 21, 2024, the Attorney General and State of Michigan asked the Michigan Supreme Court to clarify – no later than September 15, 2024 – various rulings in its July 31, 2024 decision, e.g.: 1) How the state should calculate CPI adjustments for the preset minimum wage rates in 2025 through 2028; 2) Whether, aside from in 2025, future minimum wage rates will take effect on February 21 or January 1; and 3) Whether the court intended to have the minimum cash wage increase from 80% (2028) to 100% (2029) rather than 80% (2028), 90% (2029), and then 100% (2030).
|
On July 31, 2024, the Michigan Supreme Court, in a 4-to-3 decision, found unconstitutional legislative amendments that significantly revised minimum wage, tip, and paid sick leave standards.
For some quick background, in September 2018, rather than have voters decide the issue, the Michigan legislature adopted as law two proposed ballot measures, the Earned Sick Time Act (ESTA) and the Improved Workforce Opportunity Wage Act (IWOWA). However, a few months later during a lame duck session, the legislature enacted two bills substantively amending both Acts and renamed the ESTA the Paid Medical Leave Act (PMLA). Legal challenges followed.
In July 2022, a Michigan Court of Claims judge held that the legislature’s maneuver violated the Michigan Constitution. Then, in January 2023, a three-judge panel of the Michigan Court of Appeals reversed that decision and upheld the amendments. Now, after years of litigation, and almost six years after the ESTA and IWOWA were originally enacted, the state supreme court has voided the lame duck session amendments and ordered both laws reinstated as originally written.
As a result, on February 21, 2025:1
- The paid sick leave provisions in the ballot proposal adopted by the legislature in 2018 will again become “the law” in Michigan.
- For the minimum wage, the $10 per hour minimum that the other ballot measure scheduled for 2019 will become “the” minimum wage – except, given the time that has elapsed, and because the ballot measure called for annual adjustments to the rate based on inflation, the court directed the state to increase the $10 minimum wage commensurate with inflation through July 31, 2024. Per the court, this “remedy revises the constitutional status quo while accounting for the passage of time.” Accordingly, the rate likely will exceed the $10.56 per hour rate that would have applied in 2025 had the legislative maneuvers been upheld.
- The minimum cash wage for tipped employees will be 48% of the minimum wage.2
Significantly, the opinion does not clarify several critical issues for employers and employees in Michigan:
- What minimum wage, minimum cash wage, and tip credit are required by law from July 31, 2024 through February 20, 2025?
- What happens to paid sick leave employers provided or employees accumulated under the voided law?
- Do employers have an obligation to allow additional paid sick leave accruals under the voided law until February 21, 2025?
In response to an inquiry from Littler concerning these issues, the Michigan Department of Labor and Economic Opportunity’s Wage & Hour Division responded:
The Department of Labor and Economic Opportunity is currently reviewing the court’s decision. We are committed to collaborating with the labor and business communities on educational outreach to ensure a thorough understanding and smooth implementation of the court’s ruling.
In a possible complication, the opinion allows the legislature and governor to amend the revived law by majority vote. Given the freshness of the opinion, however, it is not possible to predict what steps, if any, elected officials might take to revise the minimum wage, tip, and paid sick leave standards further before the reinstated laws take effect next year.
With the caveat that further legislative action remains possible, below we summarize the standards that are currently scheduled to take effect on February 21, 2025.
Minimum Wage
On February 21, 2025, the Michigan minimum wage will be $10 plus a forthcoming adjustment due to inflation. Additionally, in future years the rate will be as follows:
- February 21, 2026: $10.65 plus the court-ordered adjustment for inflation through July 31, 2025
- February 21, 2027: $11.35 plus the court-ordered adjustment for inflation through July 31, 2025
- February 21, 2028: $12.00 plus the court-ordered adjustment for inflation through July 31, 2025
- February 21, 2029: The February 21, 2028 minimum wage adjusted for inflation in accordance with the revived law.
Before the revived and voided laws, the minimum wage in Michigan was $9.25 per hour in 2018 and was scheduled to be adjusted for inflation on January 1, 2019 unless unemployment was 8.5% or higher.
Minimum Cash Wage for Tipped Employees
The minimum cash wage will be 48% of the Michigan minimum wage on February 21, 2025. Additionally, in future years the rate will be as follows:
- February 21, 2026: The minimum cash wage will be 60% of the minimum wage.
- February 21, 2027: The minimum cash wage will be 70% of the minimum wage.
- February 21, 2028: The minimum cash wage will be 80% of the minimum wage.
- February 21, 2029: Tip credits are prohibited, so tipped employees must be paid the full minimum wage.
- Note: In the court’s order, the minimum cash wage transitions from 80% of the minimum wage on February 21, 2028, to 100% of the minimum wage on February 21, 2029. However, under the rate schedule in the reinstated law, there is a one-year period in between in which the minimum cash wage is to be 90% of the minimum wage.
Before the revived and voided laws, the minimum cash wage was 38% of the minimum wage.
Other Wage & Hour Differences
Examples of other differences that will become part of the revived law that were not part of the voided law or what the law was beforehand include, for example:
- Tips are the property of the employee who receives them unless a valid and voluntary tip sharing agreement exists, regardless of whether an employer claims the tip credit.
- Tips and service charges paid to an employee are in addition to, and do not count towards, the minimum wage.
- Employers must provide employees and consumers written notice of their plan to distribute service charges.
- Employers must keep records showing compliance for no less than 3 years from the date of employee’s last pay period.
- No exemption for junior ice hockey players.
Paid Sick Leave
February 21, 2025 will not mark a total sea change when it comes to requirements under the voided Paid Medical Leave Act (PMLA) and revived Earned Sick Time (ESTA). For example, Michigan’s Department of Labor & Economic Opportunity will continue to enforce the law, although now it will have rulemaking authority. Additionally, employers that were subject to the PMLA will see similar requirements under the ESTA concerning the following: who is a covered family member (traditional, that is, with a new type of “other” family member); covered reasons employees can use leave (for sick and safe, but not other, reasons); when employees begin to accrue leave (except the effective date component is different); what a “year” is under the law; the waiting period employers can impose before employees can use leave; the rate of pay when employees use paid sick leave (similar default standard, but other differences exist); and employers need not cash out unused leave when employment ends. In the chart below, we highlight some notable differences between the laws:
|
Issue |
PMLA (Voided) |
ESTA (Revived) |
|---|---|---|
|
Covered Private Employers |
Employers that employ 50 or more individuals are covered. |
All private employers are covered, but different standards apply to employers with 9 or fewer employees. |
|
Covered Employees |
An individual engaged in service to an employer in the business of the employer and for whom an employer is required to withhold for federal income tax purposes. |
An individual engaged in service to an employer in Michigan. |
|
Employees Not Covered |
Multiple exceptions. |
None. |
|
Does Law Apply if CBA Exists? |
No, if CBA is in effect. |
Generally, yes. CBA in Effect on Law’s Effective Date: The law applies on the CBA’s stated expiration date, notwithstanding any statement that it continues in force until a future date or event or the execution of a CBA. |
|
Family Members (Other) |
None. |
An individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship. |
|
Other Uses |
|
Same 3 reasons plus:
|
|
Accrual Rate |
1 leave hour for every 35 hours worked. |
1 leave hour for every 30 hours worked. |
|
Accrual Cap |
Employer may limit accrual to not less than 40 hours per year. |
The law is silent on this issue. |
|
Carryover Cap |
Yes. Employer not required to allow carry over of more than 40 hours from one year to another. |
No. Leave must carry over from year to year. |
|
Use Cap |
Employer not required to permit use of more than 40 hours in a year. |
Small Business: Generally, employees not entitled to use more than 40 hours in a year unless employer selects a higher limit. Employees Can Accrue More than 40 Hours Per Year and/or Impact of Carryover: Employees entitled to use an additional 32 hours of unpaid leave that year unless employer selects a higher limit. Other Businesses: Employees not entitled to use more than 72 hours of paid leave per year unless employer selects a higher limit. |
|
Frontloading Without Carryover |
Yes. An employer may provide at least 40 hours of leave to an employee at the beginning of a benefit year. If an employer frontloads, carry-over is not required. |
The law is silent on this issue. |
|
We Have a PTO Policy, Must We Provide Additional Leave? |
No. There is a rebuttable presumption of compliance if each benefit year an employer provides at least 40 hours of paid leave (includes, but is not limited to, paid vacation days, paid personal days, and paid time off). |
No. An employer complies if it provides any paid leave (includes but is not limited to paid vacation days, personal days, and paid time off) that complies with the law (i.e., same amounts, same purposes, same conditions and accrued at a rate equal to or greater than what law requires); for small businesses, also must entitle employees to use paid leave before unpaid leave. |
|
Minimum Increment of Use |
Leave must be used in 1-hour increments unless employer has a different increment policy written in an employee handbook or other employee benefits document. |
Leave may be used in the smaller of hourly increments or the smallest increment that the employer’s payroll system uses to account for absences or use of other time. |
|
Advance Notice |
The law is silent on this issue, but employees must comply with employer’s usual and customary notice and procedural requirements for requesting leave. |
Foreseeable Absence: An employer may require an employee to provide advance notice, not to exceed 7 days before the date leave will begin. Unforeseeable Absence: An employer may require an employee to give notice as soon as practicable. |
|
Documentation Requests |
Generally: The law is silent on this issue, but employees must comply with employer’s usual and customary procedural and documentation requirements for requesting leave. Safe Time: Employer may require employee who is using leave to provide documentation that leave has been used for that purpose. |
For leave used on more than 3 consecutive days, an employer may require reasonable documentation that leave was taken for a covered reason. |
|
Rate of Pay for Multiple Jobs / Pay Rates |
The law is silent on this issue. |
If the hourly wage varies based on work performed, leave must be paid at the employee’s average hourly wage in the pay period immediately before the pay period leave was used. |
|
Excluded from Rate of Pay |
|
The law is silent on this issue. |
|
Reinstate Leave When Rehired |
Reinstatement is not required. |
Within 6 months of separation. |
|
Notices and/or Posters |
Poster: A poster must be conspicuously displayed at the employer’s place of business in a place that is accessible to employees that contains all the following information:
|
Notice (Time of Hiring / Generally): Employer must provide written notice at time of hiring or by February 21, 2025, whichever is later, including but not limited to all of the following:
Poster: Employer must conspicuously display a poster at the place of business in a place that is accessible to employees that contains information in the notice. Language: Provide notice-poster in English, Spanish, and any language that is the first language spoken by at least 10% of the employer’s workforce if state labor department provided translation. |
|
Recordkeeping |
For not less than 1 year, an employer must keep records documenting hours worked and leave taken by employees. |
For not less than 3 years, an employer must keep records documenting how worked and leave taken by employees. |
|
Can Employees File a Lawsuit? |
No |
Yes |
|
Statute of Limitations |
Charge: 6 months |
Lawsuit / Charge: 3 years after violation or date employee knew of violation, whichever is later. |
Next Steps
Actions a business may want to consider in response to the Michigan Supreme Court decision can vary for numerous reasons. For example, the wage and hour development will be less urgent for employers without tipped employees or whose employees earn significantly more than the minimum wage. Similarly, the paid sick leave changes might not affect employers that, without a legal obligation, voluntarily provide generous paid time off benefits that employees can use for the reasons and to care for the family members specified in the legislation. Businesses whose profit margins could be significantly affected by compliance, however, may need to review and revise forecasted labor budgets to account for staffing cost increases that might occur due to the increased minimum wage and/or expanded paid sick leave benefits.
Whichever approach is right for your business, consider monitoring the website of Michigan’s Department of Labor and Economic Opportunity for information about the recent state supreme court decision, as well as for informal guidance or formal rulemaking connected to the minimum (cash) wage and paid sick leave. Additionally, consider paying even closer attention to what is happening in Lansing, liaising with state or local chambers of commerce, industry associations and fellow business owners, and consulting with employment counsel about compliance issues in what has proved an ever-changing legal landscape.
See Footnotes
1 This date is 205 days after the court’s July 31, 2024 opinion. The court said it used this timeframe because this amount of time would have elapsed before the adopted ballot measure would have taken effect.
2 Although a footnote in the opinion says the tip credit will be 48% of the minimum wage, the provision that the court is addressing and enforcing is actually the minimum cash wage.
