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Published in Economic Development
Photo: Phillip Hofmeister (CC BY-SA 3.0) Photo: Phillip Hofmeister (CC BY-SA 3.0)

Biz groups ‘stunned’ by adopt-and-amend ruling; warn of restaurant and lodging closures

BY Wednesday, July 20, 2022 11:31am

Editor’s note: This story has been updated with comments from labor attorneys at Varnum LLP and Warner Norcross + Judd LLP.

Statewide business advocacy groups are raising alarms over a Tuesday court ruling that determined state lawmakers in 2018 illegally watered down ballot initiatives that would have strengthened the state’s minimum wage and paid sick leave requirements.

Michigan Court of Claims Judge Douglas Shapiro ruled on Tuesday that the GOP-led Legislature’s unprecedented “adopt and amend” strategy for the separate ballot initiatives was unconstitutional. The ballot proposals called for increasing Michigan’s minimum wage to $12 an hour and requiring up to 72 hours of paid sick leave per year. 

To prevent the proposals from going to voters, lawmakers passed the laws before swiftly amending them to weaken requirements on employers.

The initiatives, as initially adopted, are now in effect under Shapiro’s order. Legal experts expect to see a swift appeal from the state or at least a stay on the order.

The minimum wage law immediately raises the statewide wage to $12 and annually adjusts for inflation. The law also eliminates a lower tipped wage for restaurant workers. Under the ruling, restaurants are now required to pay tipped workers at least 80 percent of the minimum wage, which increases to 90 percent on January 1, 2023, and 100 percent by Jan. 1, 2024.

Michigan Restaurant & Lodging Association President and CEO Justin Winslow said in a statement that restaurant operators under Shapiro’s ruling “would immediately experience 156 percent labor cost inflation at a time when their recovery is already tenuous and the average wage for tipped employees in Michigan is currently $24 per hour.”

Winslow added that the ruling — if not immediately stayed under an appeal — would result in “instantaneous menu price increases and significant layoffs during peak travel season.”

The paid sick leave law requires 72 hours of paid sick leave per year. Lawmakers previously amended the provision to 40 hours per year and exempted employers with 50 or fewer workers.

The Michigan Chamber of Commerce similarly criticized the ruling, raising concerns about the “crippling effect” it could have on both employers and workers.

“While we are still sorting through the details, we are stunned by this determination and its many varied implications,” Wendy Block, the Michigan Chamber’s vice president of business advocacy and member engagement, said in a statement Tuesday night. “The talent shortage has employers already paying historic wages and benefits — all while facing rising inflation and supply chain chaos — just to keep the doors open. Employees should be equally concerned about the cost pressures this decision will place on businesses and the impact it could have on employee hours and benefits.”

Block added that the Michigan Chamber will be “mapping out possible options moving forward.”

Maureen Rouse-Ayoub, a labor and employment attorney at Varnum LLP’s Novi office, said employers should avoid a “knee-jerk” reaction, noting that an appeal and a temporary stay on the ruling are likely.

“Honestly, I think everything is quite up in the air right now,” Rouse-Ayoub told MiBiz. “The court ruling was very specific: It specifically states that the statutes that went into effect in 2018 have been voided and now the language on the ballot is now in effect.”

Rouse-Ayoub also noted that Shapiro’s order does not address whether employers would have retroactively pay back wages or benefits.

“That’s going to be a significant issue of concern for all employers,” Rouse-Ayoub said.

Robert Dubault, executive partner at Warner Norcross + Judd who who specializes in labor and employment law, called the ruling a “game-changer” that — if kept in place or upheld — would bring swift changes for employers.

“Certainly it’s going to require all Michigan employers to now have to take a very good, hard look at their paid time off policies,” said Dubault, adding that restaurant operators who still operate under the tipped system with hourly wages around $3 will “have to take a hard look at their business model.”

“Long story short, I think human resources and benefits departments are going to be pretty busy the next few days looking at this and saying: ‘We’ve now overlaid a more generous statute under the old law, and where does that leave us midway through the year?’” Dubault said.

Will of the voters

However, critics have maintained that lawmakers circumvented the voter initiative process and sought a court ruling to back their claims that the move was illegal. The Michigan Supreme Court in 2019 declined to deliver an opinion on whether the strategy was constitutional.

In May 2021, ballot initiative organizers sued the state in the Court of Claims, arguing that the move was unconstitutional. 

Shapiro agreed with the initiative organizers.

The state constitution “does not permit the Legislature to adopt a proposed law and, in the same legislative session, substantially amend or repeal it. Were the Court to adopt the state’s argument, it would mean that anytime a simple majority of the Legislature opposed the content of an initiative, it could, by legislative sleight-of-hand, prevent the initiative from ever becoming law without ever allowing the People to vote on it,” Shapiro wrote.

Attorney General Dana Nessel — whose office argued on both sides of the case, including as the state’s defendant — called Shapiro’s order “a victory for the residents of Michigan whose efforts to bring an issue before their elected representatives were wrongly circumvented by the Legislature in 2018.”

“The actions undertaken by the Legislature in 2018 denied the will of the people and distorted the purpose of Michiagn’s citizens initiative process,” Nessel said in a statement. “This is a victory for Michiganders and for democracy.”

CORRECTION: An earlier version of this story incorrectly said the ruling was issued on Monday. It was issued on Tuesday.

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