Full-service Michigan restaurants are at risk of losing the tip credit due to a court decision reinstating a $12-an-hour minimum wage for all workers in the state, including waiters and bartenders.
The same ruling also raises the possibility that most employers will require paid sick leave.
The situation dates back to a proposed ballot initiative that aired in 2018. Under Michigan law, residents may petition the state to put a nomination on the ballot in the next election. If the measure goes to a vote and a majority of voters signal their approval, it becomes law.
Labor supporters rallied signatures to get a minimum wage of $12 on the ballot, covering both tip workers and conventionally paid hourly workers. Another petition called for voters to be allowed to decide whether employers should be mandated to provide paid sick leave.
However, the Michigan Constitution allows the state legislature to preempt a vote by passing the proposal beforehand.
Knowing that the two initiatives would almost certainly be passed if put before voters, the Republican-controlled Statehouse went ahead and passed the wage increase and paid vacation mandates, assuming they would pass the laws thereafter cancel or at least change.
In fact, lawmakers have raised the minimum wage to $12 an hour starting in 2022, effectively agreeing to let the tip credit die out. The loan allows employers of tipped employees to pay those workers a lower wage if they collect the remainder of the mandatory minimum wage in bonuses. The tips count as part of their compensation.
Without the loan, Michigan restaurateurs would have to pay waiters and bartenders $12 an hour directly instead of just $3.75.
Lawmakers then changed the law to make it more palatable to businesses. They passed an amendment that raised the wage floor to $12.05 an hour by 2030 and increased the obligation to tip to $9.60.
The legislator has also passed a law that weakens the exemption initiative with an exception for companies with fewer than 50 employees.
The legislative action was immediately challenged in court by worker groups, who accused the legislature of manipulating the system to undermine what Michigan citizens wanted.
On Tuesday, the state Court of Claims ruled that lawmakers violated the so-called Acceptance and Amendment provision of the Michigan Constitution. Judge Douglas Shapiro wrote that lawmakers could thwart a ballot initiative in three ways: pass the proposal into law; defeat the measure and thereby kill them; or approve a version they like better – essentially a modified version.
But, Shapiro decided, they couldn’t pass and change a law in one sitting. According to his interpretation of the constitution, there should be at least one election between actions.
He ordered the amended law to be scrapped and the $12-an-hour no-tip version reinstated.
However, state labor inspectorates have not indicated whether they will begin enforcing the standards. There is almost universal expectation that the Court of Claims decision will be challenged in higher courts until it reaches the Michigan Supreme Court.
“We respectfully disagree with Judge Shapiro’s interpretation and strongly recommend that the judgment be stayed pending the inevitable appeals process,” Michigan Restaurant & Lodging Association CEO Justin Winslow said in a statement. “The inevitable result would be immediate increases in menu prices and significant layoffs during peak tourist season.”
Union activists and workers’ advocates, on the other hand, cheered the lawsuit.
“Today the courts in Michigan have defended the right of these millions of workers and millions of voters to demand that Michigan workers be paid a full, livable wage with tips on top,” said Saru Jayaraman, head of the union-backed Restaurant Opportunity Centers in an opinion. “Today we made history!”
If the court ruling stands, Michigan would become the eighth state in the nation to ban tip credit.
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