As you may know, last month State of Michigan lawmakers adopted as law two ballot initiatives that otherwise would have been decided by Michigan voters next week. One law, Michigan’s Earned Sick Time Act (“ESTA”), requires all Michigan employers with one or more employees to provide paid sick time accrued at the rate of one hour per 30 hours worked (certain small businesses cap out at 40 paid hours per year), which for the most part can be used by employees with very little notice and no documentation. The second law, the “Improved Workforce Opportunity Wage Act” (“IWOWA”), increases the minimum wage to $10 per hour effective in 2019, with annual increases eventually reaching $12 per hour in 2022; thereafter, cost of living adjustments are made annually with a limited exception based on high unemployment in Michigan. Further, the IWOWA gradually phases out beginning in 2019 the tip credit afforded to employers of service employees who receive gratuities, with a complete phase-out effective January 1, 2024. Thereafter, service employees must be paid at least the same minimum hourly wage as other employees.
Both laws will not become effective until late March 2019, although, as explained below, the exact date is yet to be determined. It is also possible that the Michigan Legislature may amend one or both of these laws prior to their effective date. For planning purposes, however, employers should begin to prepare for these laws to become effective as written.
Concerning the ESTA, the law is somewhat complicated requiring prudent employers to think through changes to time off policies that may be necessary to comply. There will also be financial implications for many employers. Further, changes in employee handbook policies will almost certainly be required. Regarding the IWOWA, with the exception of service employees, the key change consists of complying with the annual increase to the minimum wage.
This article briefly describes the unusual way that the ESTA and IWOWA became law, describes certain key provisions of each law and is intended for informational purposes only. You should seek legal counsel from your attorney on the application of these laws to your business or organization.
If you wish to discuss the application of these laws to your situation, please contact Norm Hawkins directly at (616) 747-7922, or via email at ndh@msblaw.com. Alternatively, contact your other McShane & Bowie attorney.
BACKGROUND
The ESTA and IWOWA were adopted into law after enough signatures were collected to qualify them as ballot measures for the November 2018 election. The State of Michigan Constitution requires qualifying ballot measures to go to the State Legislature, which may:
• Adopt the ballot initiative into law as written (the Governor’s signature is not required).
• Reject the ballot initiative and have voters determine whether it will become law.
• Propose a different version for voters to also consider, along with the ballot initiative.
The Republican-controlled House and Senate voted to adopt the ballot initiatives as law. There has been discussion on the intention of the Legislature in adopting these ballot initiatives which are not generally supported in the business community, and whether the adoption was a political maneuver to try and keep the ballot initiatives out of the hands of the voters as (i) a 75% approval of the House and Senate would be required to amend the laws if passed by Michigan voters whereas a simple majority vote is required to amend these laws as adopted in the House and Senate; and (ii) the laws will not take effect until the 91st day after final adjournment of the 2018 regular session in December 2018. Accordingly, the laws will not be effective until late March 2019 (although it could be as late as April 1, 2019), whereas if the laws would have been passed by Michigan voters, they would have become effective 10 days after the official declaration of the vote. Thus, the Legislature has ensured that Michigan employers have more time to prepare for compliance.
This article first addresses the ESTA and then the IWOWA.
COVERED EMPLOYERS UNDER THE ESTA
The ESTA applies to all employers in Michigan with one or more individuals on their payroll during any 20 or more calendar work weeks in either the current or preceding calendar year. The ESTA defines an employee as “an individual engaged in service to an employer in the business of the employer”, except any individual employed by the United States government. The broad language defining employee may sweep in individuals who would otherwise be independent contractors. Similar to the broad definition of employee, the definition of employer is very broad under the ESTA and includes any person, firm, business, or other entity that employs one or more individuals, except it does not include the United States government.
For employers with a union, the ESTA does not apply to employees covered by a collective bargaining agreement in effect on the effective date of the ESTA until the stated expiration date in the collective bargaining agreement (disregarding any evergreen clause in the collective bargaining agreement that it continues in force past expiration). Accordingly, employers with employees covered by a collective bargaining agreement have more time to plan, but must be prepared for negotiations and implementation based on the date of expiration of the collective bargaining agreement.
CERTAIN KEY ELEMENTS OF THE ESTA
The ESTA draws a distinction between small employers with one to “fewer than 10” individuals (defined in the ESTA as a “Small Business”) and employers with 10 or more employees on the payroll in either the current or preceding calendar year.
• Small Businesses must provide one hour of earned sick time for every 30 hours worked, but employees are not entitled to use more than 40 hours of paid earned sick time in a year unless the employer voluntarily selects a higher limit. However, employees are entitled to use an additional 32 hours of unpaid earned sick time in that year (again, unless the employer selects a higher limit).
• On the other hand, for employers with 10 or more individuals on the payroll as described above, employees must accrue a minimum of one hour of paid earned sick time for every 30 hours worked but individuals are not entitled to use more than 72 hours of paid earned sick time per year (unless the employer selects a higher limit).
• For both Small Businesses and other employers, employees must work 2,160 hours to reach the 72 hours, although working more than 2,160 hours will result in more than 72 hours which must be carried over to the following year (along with the other accrued hours not used). There is no annual or overall accrual cap provided in the ESTA. For both Small Businesses and other employers, earned sick time must carry over year to year, although a Small Business is not required to permit an employee to use more than 40 hours of paid earned sick time and 32 hours of unpaid earned sick time in a single year, while other employers are not required to permit an employee to use more than 72 hours of paid earned sick time in a single year.
For all covered employers, the following applies:
• Earned sick time must begin to accrue on the effective date of the law (note the different effective dates where there is a collective bargaining agreement in place) or upon commencement of the employee’s employment, whichever is later.
• An employee may use earned sick time as it is accrued except that an employer may require an employee hired after April 1, 2019, to wait until the 90th calendar day after commencing employment before using accrued earned sick time.
• Earned sick time may be used in the smaller hourly increments or the smallest increment that the employer’s payroll system uses to account for absences or use of other time.
• Concerning the definition of “year”, it means a regular consecutive 12-month period as determined by the employer.
• An employee who is exempt from overtime requirements under the Fair Labor Standard Act is assumed to work 40 hours in each workweek unless the employee’s normal work week is less than 40 hours, in which case earned sick time accrues based upon that normal work week.
• For non-exempt employees, sick time is earned on overtime hours just like it is earned on regular hours worked.
• In general, an employer may comply with the ESTA by providing for paid leave that at least meets the requirement of the ESTA, whether vacation, personal days, or otherwise. (For best practices, such policies should be carefully written and note compliance with the ESTA).
• An employer must pay each employee using paid earned sick time at a rate equal to the greater of either the normal hourly wage for that employee or the minimum wage.
• An employer cannot require an employee to search for or secure a replacement worker as a condition for using earned sick time.
PURPOSES FOR WHICH EARNED SICK TIME MAY BE USED
Under the ESTA, earned sick time can be used for any of the following five categories (quoted from the ESTA):
• The employee’s mental or physical illness, injury or health condition; medical diagnosis, care or treatment of the employee’s mental or physical illness, injury, or health condition; or preventative medical care for the employee.
• For the employee’s family member’s mental or physical illness, injury, or health condition; medical diagnosis, care, or treatment of the employee’s family member’s mental or physical illness, injury, or health condition; or preventative medical care for a family member of the employee.
• If the employee or the employee’s family member is a victim of domestic violence or sexual assault, for medical care or psychological or other counseling for physical or psychological injury or disability; to obtain services from a victim services organization; to relocate due to domestic violence or sexual assault; to obtain legal services, or to participate in any civil or criminal proceedings related to or resulting from the domestic violence or sexual assault.
• For meetings at a child’s school or place of care related to the child’s health or disability, or the effects of domestic violence or sexual assault on the child.
• For closure of the employee’s place of business by order of a public official due to a public health emergency; for an employee’s need to care for a child whose school or place of care has been closed by order of a public official due to a public health emergency; or when it has been determined by the health authorities having jurisdiction or by a health care provider that the employee’s or employee’s family member’s presence in the community would jeopardize the health of others because of the employee’s or family member’s exposure to a communicable disease, whether or not the employee or family member has actually contracted the communicable disease.
Regarding these permitted uses, if the employee’s need to use earned sick time is foreseeable an employer may require advance notice not to exceed seven days prior to the date the earned sick time is to begin. Otherwise, an employer may require the employee to give notice of intention to use earned sick time as soon as practicable.
Concerning the definition of “family member”, it is extremely broad and is similar but even more expansive than even under the Family and Medical Leave Act, and includes domestic partner, child of the domestic parent, grandparent, grandchild, and “[a]ny other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship.”
DOCUMENTATION, RECORDKEEPING, NOTICE, AND OTHER SELECTED ESTA REQUIREMENTS
The ESTA severely restricts all employers’ ability to require documentation from employees to use earned sick time. To use earned sick time of less than three days, the employer cannot require any documentation. Only for earned sick time use of more than three consecutive days may the employer require reasonable documentation, limited to documentation that the earned sick time has been used for a permitted purpose. Upon the employer’s request, the employee must provide the documentation in a timely manner. However, the employer cannot delay the commencement of use of earned sick time on the basis that the employer has not received documentation.
The ESTA requires an employer to accept documentation of a health care professional that the earned sick time is necessary which includes any person licensed under federal law or the law of the State of Michigan to provide health care services including, but not limited to, nurses, doctors, emergency room personnel and a certified midwife. Accordingly, restricting documentation to a physician is not permitted. Further, an employer is not permitted to require documentation explaining the nature of the illness or details of the violence.
Another feature of the ESTA is that it places the responsibility for cost on employers rather than on employees when employers require documentation for earned sick time. In short, the employer is responsible for paying “all out-of-pocket expenses the employee incurs in obtaining the documentation.” If the employee does not have health insurance, the employer is responsible for paying any costs charged to the employee by the health care provider in obtaining the documentation required. Concerning domestic or sexual violence, the ESTA identifies certain types of documentation that are considered reasonable and restricts an employer from requiring details.
Regarding recordkeeping, the ESTA requires the employer to retain for at least three years records documenting hours worked and earned sick time taken by employees. If a question arises as to whether an employer has violated an employee’s rights to earn sick time under the ESTA and does not maintain adequate records (or does not allow the required reasonable access to those records) there is a presumption the employer has violated the ESTA which can be rebutted only by clear and convincing evidence.
Concerning notice, all covered employers must provide employees at the time of hiring or by the effective date of the ESTA, whichever is later, with notice concerning certain elements of the law. Further, there are posting requirements. Hopefully, the Department of Licensing and Regulatory Affairs (“Department”) will issue a standard notice and posting prior to the effective date but, if not, we will prepare and provide a sample to use upon request.
Regarding recordkeeping, the ESTA requires the employer to retain for at least three years records documenting hours worked and earned sick time taken by employees. If a question arises as to whether an employer has violated an employee’s rights to earn sick time under the ESTA and does not maintain adequate records (or does not allow the required reasonable access to those records) there is a presumption the employer has violated the ESTA which can be rebutted only by clear and convincing evidence.
Other selected (but not exhaustive) ESTA requirements are listed below:
• An employee transferred to a separate division, entity, or location but with the same employer retains all earned sick time that was accrued at the prior division, entity, or location.
• If an employee who separates from employment is rehired by the same employer within 6 months, the employer must reinstate all previously accrued unused earned sick time and permit the employee to use that time upon reinstatement.
• If a different employer succeeds the existing employer the successor assumes the responsibility for the earned sick time rights.
• Importantly, the ESTA does not require an employer to provide financial or other reimbursements to an employee for accrued earned sick time that was not used upon the employee’s separation from employment regardless of the reason. (As a practical matter this provision will likely increase the usage of earned sick time during any resignation notice period.)
• Explicit non-interference and non-retaliation provisions.
• An employer’s absence control policy cannot treat earned sick time under the ESTA as time that may lead to a result in discipline.
• Protection of any person who mistakenly but in good faith alleges a violation of the ESTA.
• Importantly, there is a rebuttable presumption of a violation of the ESTA if an employer takes adverse personnel action against a person within 90 days after the person does any of the following: (i) files a complaint with the Department or court alleging a violation; (ii) informs any person about an employer’s alleged violation of the ESTA; (iii) cooperates with the Department or any person in investigation or prosecution of any violation of the ESTA; (iv) opposes any policy practice or act that is prohibited under the ESTA; or (v) informs any person of his or her rights under the ESTA. This incredibly broad language, unless revised by the Legislature, will end up in many more lawsuits going to trial given the “rebuttal presumption” language. It is further reason for employers to require arbitration with employees for the resolution of disputes, if such an agreement is not already in place.
• An employer may not enter into an agreement with an employee waiving or diminishing any rights under the ESTA.
EMPLOYEE REMEDIES UNDER THE ESTA
The ESTA explicitly permits the employee to file a lawsuit at any time within three years after the violation or date when the employee knew of the violation, whichever is later. Among other things the employee may:
• File a lawsuit in court and seek payment for unused earned sick time and seek rehire or reinstatement, payment of back wages, reestablishment of employee benefits which the employee would have otherwise been entitled an equal amount as liquidated damages (parroting a concept under the Fair Labor Standards Act, but without the express option of no such award if the employer acted in good faith), and recovery of costs and reasonable attorney’s fees.
• File a claim with the Department, which may investigate, and if the Director determines there is reasonable cause to believe that an employer violated the ESTA and is unable to obtain voluntary compliance, may bring a lawsuit on behalf of the employee and employees similarly situated at the same work site.
• An employee is not required to select a remedy and may file both a lawsuit and a claim with the Department.
The ESTA also provides that an employer who fails to provide earned sick time in violation of the law or takes retaliatory personnel action against an employee or former employee is subject to a civil fine of not more than $1,000. Further, an employer that willfully violates a notice or posting requirement is subject to a civil fine of not more than $100 for each separate violation.
COVERED EMPLOYERS UNDER THE IWOWA
While the IWOWA defines an employer a bit differently than under the ESTA, the bottom line is that it applies to all Michigan employers and a person acting in the interest of the employer, employing two or more employees at any one time within a calendar year. Such an employer is subject to the IWOWA during the balance of that calendar year.
CERTAIN NEW KEY ELEMENTS OF THE IWOWA
The key change applicable to all employers under the IWOWA is the increase to the annual minimum hourly wage rate as follows (subject to certain limited exceptions*):
• Beginning January 1, 2019, $10.00 per hour (recall the language was adopted by the Michigan Legislature as written for the ballot initiative. This would now be effective instead in late March 2019).
• Beginning January 1, 2020, $10.65 per hour
• Beginning January 1, 2021, $11.35 per hour
• Beginning January 1, 2022, $12.00 per hour
Every October beginning in October 2022, the Treasurer for the State of Michigan is required to calculate an adjusted minimum wage rate and publish it by November 1 of each year, to reflect the rate of inflation. The adjusted minimum wage rate would be effective beginning January 1 of the succeeding year, except if the unemployment rate as determined by the United States Department of Labor, Bureau of Labor Statistics, shows an unemployment rate in Michigan of 8.5% or greater for the year preceding the year of the projected increase, no raise is implemented.
* For a new employee less than 20 years of age, a training wage of $4.25 per hour may be paid for the first 90 days of employment. For employees less than 18 years of age, the minimum wage is 85% of the general minimum wage.
Regarding employees who receive gratuities, the ESTA is somewhat complicated but generally provides for phasing out the tip credit afforded to employers of service employees who receive gratuities and requires employers to increase the minimum wage of such service employees as follows:
• Beginning January 1, 2019, 48% of the minimum hourly wage (again, recall the language was adopted by the Michigan Legislature as written for the ballot initiative. This would now be effective instead in late March 2019).
• Beginning January 1, 2020, 60% of the minimum hourly wage
• Beginning January 1, 2021, 70% of the minimum hourly wage
• Beginning January 1, 2022, 80% of the minimum hourly wage
• Beginning January 1, 2023, 90% of the minimum hourly wage
• Beginning January 1, 2024, and thereafter, 100% of the minimum hourly wage
The IWOWA also expressly permits voluntary tip pooling.
CONCLUDING REMARKS REGARDING THE ESTA AND IWOWA
Regarding the ESTA, employers should review their paid time off policies to determine what changes are necessary to comply with the new law. There are numerous open questions regarding certain provisions of the ESTA and some questions under the IWOWA, which may be addressed by Legislative amendment or by Department rulemaking at some point. Concerning the IWOWA, employers should review their wage policies to determine what changes are necessary. While the Michigan Legislature may make amendments to one or both of these laws, employers should nonetheless prepare for compliance.
