On September 5, 2018, the Michigan Legislature adopted as law a proposed ballot measure that will require employers to provide their employees paid leave that can be used for “sick” and “safe” time purposes. Michigan’s Earned Sick Time Act (ESTA) is the Midwest’s first statewide paid sick and safe time (PSST) law. It follows a common theme familiar to employers subject to one or more PSST laws, but as currently written, omits some common PSST components.

The Legislature also adopted as law a proposed ballot measure concerning the state’s minimum wage, entitled the “Improved Workforce Opportunity Wage Act” (IWOWA). That act contains a series of annual hikes to the state’s minimum wage, ultimately reaching $12.00 per hour in 2022. In addition, the IWOWA phases out the tip credit afforded to employers of service employees who receive gratuities over the same timeframe.

This article discusses how the proposals became law and what they require, while highlighting notable provisions that are not (yet) included.

How We Got Here

This process began when the initiatives collected enough signatures to qualify for the November 2018 election. The State Constitution requires qualifying ballot measures to go through the State Legislature, which may adopt the proposal as-is, reject the measure and have voters determine the measure’s fate, and/or propose a different version for voters to also consider. The Legislature chose to adopt the initiatives as written. According to the State Constitution, the Governor’s signature was not required to enact the proposals. Many observers might be scratching their heads, wondering how these laws could pass in a state with a Republican Governor and Republican majorities in both State houses. However, as we will briefly explain, the move may not be as radical as some might think.

PSST ballot measures have been very successful. In recent history, only two proposals have failed to pass. In Berkeley, California, failure was actually the desired result. There were two measures on the ballot: the original item proposed, and a measure proposed by the city council as an alternative. Instead, all parties agreed on a compromise proposal that the city eventually adopted, which occurred before the measures could be removed from the ballot. Both the city and original measure drafters then advocated successfully for constituents to vote down the measures. In Albuquerque, New Mexico, a measure lost by less than a thousand votes. With this history in mind, PSST may have seemed “inevitable” to Michigan legislators, so adopting the measure was a way to take greater control of the issue.

Had the issues gone to, and been approved by, the voters, employers would be left scrambling to adjust operations because the laws would have taken effect 10 days after the date of the official declaration of the vote. Because the Legislature took control, both laws will take effect 90 days after the current legislative session ends. Based on our estimations, the effective date should be around April 1, 2019, unless the Legislature adjourns earlier than expected.¹ As a result of the Legislature’s action, employers have more lead time to review and revise their leave policies and procedures. This additional time will be appreciated by employers with multi-state or nationwide operations, especially those subject to a patchwork of PSST laws.

In addition to providing this valuable lead time for employers, the Legislature’s choice to adopt the initiatives enabled it to amend, clarify, and refine the laws.² As we will discuss below, the PSST law as currently enacted contains many gaps and omissions that could be addressed to add clarity. Legislators have recaptured the power to create a more considered law and to regulate some crucial PSST issues, such as accrual caps.

The Legislature’s move has invited controversy. Drafters of the minimum wage ballot measure question legislators’ motives and fear the Legislature will gut the measure via amendments. They have vowed to file suit against the State Legislature. Any such challenge may face an uphill battle because the State Constitution grants the Legislature to authority to do exactly what it did.

With that background in mind, let’s turn to review the provisions of each new law.

Michigan’s Earned Sick Time Act

Covered Employers, Employees & Relations

The ESTA will apply to all private employers employing one or more individuals. Different standards will apply depending on whether an employer has 10 or more, or fewer than 10 (i.e., small employers), individuals on its payroll during any 20 or more calendar workweeks in either the current or preceding calendar year.

An individual engaged in service to an employer in the employer’s business is a covered employee. Generally, the ESTA contains no employee exceptions. However, employees covered by a collective bargaining agreement (CBA) in effect on the law’s effective date will not be subject to the law until the CBA expires. Importantly, evergreen clauses in pre-ESTA CBAs will not be recognized for ESTA purposes, meaning that, when the CBA expires, employees covered thereunder will be covered under the law, regardless of what the CBA says about its continued validity.

Employees can use leave for themselves or to care for or assist a family member. In this context, family members include a child, grandchild, grandparent, parent, sibling, spouse, and any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship.

Accrual, Caps, and Carry-Over

Employers can comply with the ESTA by providing paid leave (e.g., vacation, personal days, PTO), as long as that leave: (1)  accrues at a rate equal to or greater than what the ESTA requires; (2) is at least the same amount; and (3) may be used for the same purposes and under the same conditions. Additionally, for small employers, employees must be entitled to use paid leave before using unpaid leave.

Otherwise, employees must begin accruing leave on the law’s effective date or when employment begins – whichever is later – at a rate of at least one leave hour for every 30 hours worked. Generally, employees accrue paid leave, but employees of small businesses will accrue paid, then unpaid, leave. If employees are covered by the executive, administrative, professional, or outside sales exemptions under the federal Fair Labor Standards Act, they are assumed to work 40 hours each workweek, but, if their normal work week is less than 40 hours, they accrue leave based on hours worked in their normal workweek.

As currently written, the ESTA does not contain an annual or overall accrual cap, and simply provides that accrued leave must carry over from year to year. The law does not discuss whether employers can avoid accrual tracking and carry-over requirements via front loading, i.e., providing a specific amount of leave at the beginning of each year. We hope these issues will be addressed by the enforcement agency, or will be the subject of future legislative amendments.

Using, Requesting, Documenting, and Paying for Leave

An employee may use leave as it is accrued. For employees hired after April 1, 2019, employers may require that they wait until the 90th calendar day after commencing employment before using it.

Employees are not entitled to use more than 72 leave hours per year, unless the employer selects a higher limit. For employees of small employers, however, 72 leave hours breaks down to 40 paid and 32 unpaid hours, and employees may use paid leave before having to use unpaid leave.

Leave may be used in hourly increments or the smallest increment an employer's payroll system uses to account for absences or use of other time, whichever is smaller.

Under the ESTA, leave can be used to tend to the (1) mental or physical illness, injury, or health condition of an employee or covered relation; (2) medical diagnosis, care, or treatment thereof; or (3) preventative medical care. If an employee or covered relation is a victim of domestic violence or sexual assault, leave can be used for various “safe” time purposes, including:

• to undergo medical care or psychological or other counseling;
• to obtain services from a victim services organization;
• to relocate;
• to obtain legal services; and
• to participate in any civil or criminal proceedings.

Additionally, an employee can use leave if his or her workplace, or child’s school or place of care, has been closed by a public official due to a public health emergency. Leave may also be used when health officials or a health care provider determines that an employee's or covered relation's presence in the community would jeopardize others’ health because of exposure to a communicable disease. Finally, employees can use leave to attend meetings at a child's school or childcare facility related to the child's health or disability, or the effects of domestic violence or sexual assault on the child.

If the need to use leave is foreseeable, an employer may require advance notice of the employee’s intention to use leave, which cannot exceed 7 days before the date leave will begin. If the need is unforeseeable, an employer may require the employee to give notice as soon as practicable. Whether foreseeable or unforeseeable, an employer cannot require an employee to disclose details relating to domestic violence, sexual assault, or a medical condition as a condition of providing leave.

If an employee uses leave for more than three consecutive days, an employer may require reasonable documentation that leave has been used for a covered purpose. If requested, an employee must provide documentation in a timely manner, but the law does not address what “timely” means. For “sick” time purposes, documentation signed by a health care professional indicating that leave is necessary is considered reasonable. For “safe” time purposes, one of the following documentation types – selected by the employee – is considered reasonable: a police report; a signed statement from a victim and witness advocate; or a court document indicating that the employee or covered relation is involved in legal action related to domestic violence or sexual assault.

If documentation is requested, an employer must pay all out-of-pocket expenses an employee incurs to obtain the documentation. If the employee has health insurance, the employer must pay any costs charged to the employee by a health care provider for providing the specific documentation required by the employer.

Health information or information pertaining to domestic violence or sexual assault about an employee or covered relation that an employer possesses must be treated as confidential and cannot be disclosed except to the affected employee or with the affected employee’s permission.

An employer cannot require that documentation explain the nature of the illness or the details of the violence, nor can it delay leave beginning until it has received documentation.

Under the ESTA, employees using leave must be paid their normal hourly wage or the state minimum wage, whichever is greater. If an employee’s hourly rate varies depending on the work performed, leave must be paid at the employee’s average hourly wage in the pay period immediately before the pay period in which leave was used. Notably, the law does not address common PSST pay rate calculations for, e.g., exempt employees, employees earning commissions, tipped employees. Nor does the law discuss what is not included when calculating an employee’s pay rate.

Employer Notice, Posting & Recordkeeping Requirements

At the time of hiring or by April 1, 2019—whichever is later—an employer must provide each employee written notice that includes, at a minimum, all of the following information:

• the amount of leave required to be provided under the law;
• the employer's choice of how to calculate a "year;"
• the terms under which leave may be used;
• that retaliatory personnel action against an employee for requesting or using leave is prohibited; and
• the employee's right to bring a civil action or file a complaint with the Department of Licensing & Regulatory Affairs for any violation.

Additionally, an employer must conspicuously display a workplace poster, where accessible to employees, containing the information in the required notice. The notice must be—and the poster should be—in English, Spanish, and any language that is the first language spoken by at least 10% of the employer's workforce, as long as the department has translated the notice or poster into such language.

For not less than 3 years, an employer must retain records documenting the hours worked and earned sick time taken by employees. If a question arises as to whether an employer has violated an employee's right to earned sick time and the employer does not maintain adequate required records, or does not allow the department reasonable access to those records, there is a presumption that the employer has violated the law, which can be rebutted only by clear and convincing evidence.

Transferred, Separated, & Rehired Employees and Successor Employers

If an employee is transferred to a separate division, entity, or location, but remains employed by the same employer, the employee retains all previously accrued earned sick time and may use it.

Upon an employee's termination, resignation, retirement, or other separation from employment, an employer is not required to pay the employee for accrued but unused leave. However, if an employee separates from employment and is rehired by the same employer within six months, previously accrued but unused leave must be reinstated and the employee can use that leave and accrue additional leave upon reinstatement.

If a different employer succeeds or takes the place of an existing employer, the successor employer assumes the responsibility for leave accrued by employees who remain employed by the successor employer, which can be used in accordance with ESTA.

Prohibitions, Penalties, Damages, and Enforcement

Under the ESTA, an employer cannot require an employee to search for or secure a replacement worker as a condition for using leave. Also, a contract or agreement between an employer and employee, or acceptance by an employee of a paid or unpaid leave policy that provides fewer rights or benefits than the law provides, is void and unenforceable.

An employer or any other person cannot interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right protected under the law. Additionally, an employer cannot retaliate or discriminate against an employee for exercising protected rights, including using sick time, filing a complaint; cooperating with investigations; or informing others of their rights under the law. There is a rebuttable presumption of retaliation if an employer takes adverse personnel action against an individual within 90 days after that person exercises any of the aforementioned protected rights and/or opposes any unlawful policy, practice, or act. The law’s protections apply to any person who mistakenly but in good faith alleges a violation of the law.

An employer's absence control policy cannot treat earned sick time taken under the law as an absence that may lead to or result in retaliatory personnel action.

At any time within 3 years after a violation or the date when the employee knew of a violation – whichever is later – an aggrieved employee may bring a civil action or file a claim with the Department of Licensing & Regulatory Affairs (which is not a prerequisite to filing suit).³

An employer that fails to provide earned sick time or retaliates against a current or former employee is subject to a civil fine of not more than $1,000. An employer that willfully violates the law’s notice or posting requirement is subject to a civil fine of not more than $100 for each separate violation.

Aggrieved employees may recover the follow relief, as appropriate: payment for used earned sick time; rehiring or reinstatement; back wages; reestablishment of employee benefits to which the employee would have been eligible if the employee had not been subjected to retaliation; an equal additional amount of liquidated damages; and costs and reasonable attorney’s fees.

The Improved Workforce Opportunity Wage Act

While the IWOWA does not create a new statutory framework like the ESTA, the changes it effects on Michigan’s minimum wage are nevertheless significant. Under the IWOWA, the minimum hourly wage will increase annually. When the law takes it effect, the minimum wage will rise from the current rate of $9.25 to $10.00.⁴ On January 1, 2020, the minimum hourly wage will increase to $10.65, and again on January 1, 2021 to $11.35. Ultimately, the minimum wage will be set to $12.00 on January 1, 2022. Thereafter, every October beginning in 2022, the state treasurer will calculate an adjusted minimum wage rate, which will increase based on the rate of inflation and take effect on the subsequent January 1.

The IWOWA also includes a phase-out of the lower minimum wage paid to service employees who receive gratuities. The minimum hourly wage paid to these workers will gradually increase each year and is scheduled to match the Michigan minimum wage by January 1, 2024. The act also expressly permits voluntary tip pooling. While the IWOWA addresses the impact of tip credits on service employee wages, ambiguity remains as to how tip credits are to apply through 2024. On the one hand, the IWOWA provides a framework for phasing out the tip credit by 2024; yet in a subsequent subsection, the law states that “[g]ratuities and service charges paid to an employee are in addition to, and may not count towards, wages due to the employee.” Hopefully this sentence is clarified through amendment or administrative action. Employers should stay tuned because, as noted earlier, there are already rumblings about potential litigation over the enactment and potential alteration of the IWOWA. There may be significant litigation and further legislation before the dust settles and employers have a clear understanding of the future of the minimum wage in Michigan.

Next Steps

Employers should watch for amendments the Legislature may propose and/or adopt during the remainder of the current legislative session or in the next term. They should also monitor the website of the Michigan Department of Licensing and Regulatory Affairs for any future FAQs and/or regulations. (Of course, the Department may or may not move forward with guidance or administrative rules depending on whether, and how, the Legislature amends these laws in the future.) If a lawsuit is in fact filed against the State Legislature, employers may consider periodically checking in with counsel about the litigation’s status as well as the laws’ ongoing impacts.