Michigan minimum wage to rise, tipped wage to disappear, under blockbuster ruling

• Michigan’s Supreme Court orders minimum wage increase, phase out of tipped wage for restaurant workers
• Justices say Michigan lawmakers violated voter rights by adopting but quickly amending a 2018 ballot initiative
• Labor groups praise ruling, but restaurant industry warns it could be ‘catastrophic’ due to expected cost increases

LANSING — Tens of thousands of Michigan minimum wage workers – including restaurant workers who typically rely on tips – are in line for raises following a blockbuster ruling by the state Supreme Court.

The decision means Michigan's $10.33 minimum wage will likely climb above $12 next year and continue to rise through 2028, depending on inflation calculations by the state, which has not yet confirmed figures.

A lower minimum wage for tipped workers — now $3.93 — will be completely phased out over the next four years.

The move could dramatically alter the state’s restaurant industry, advocates said, through cost increases to cover the increase and by changing tipping practices long-accepted by servers and their customers.

The 4-3 ruling capped a half-decade legal battle over what had been a potential 2018 ballot proposal prompted by a petition signed by hundreds of thousands of Michigan voters. The Republican-led Legislature adopted the initiative to keep it off the ballot but then quickly amended it. 

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In doing so, the Legislature “violated the people’s constitutionally guaranteed right to propose and enact laws,” Justice Elizabeth M. Welch wrote in the majority opinion. 

Changes made by lawmakers “dramatically altered and virtually eliminated the changes voters sought through the initiative process,” added Welch, who was elected to the court in 2020 after nomination by the Michigan Democratic Party. 

In their ruling, justices included a schedule requiring the state to adjust its minimum wage, beginning in February and continuing through 2028, at which point inflation could cause additional increases. 

The initial increase is expected to bring the state minimum wage above $12 an hour next year, according to an inflation adjustment tool cited by the state Supreme Court. The Michigan Treasury declined comment, with a spokesperson saying the department is still reviewing the ruling. 

The decision leaves restaurant owners scrambling as the lower tipped wage for restaurant workers will begin increasing next year, starting at 48% of the full minimum wage, before elimination in February 2028.

Mixed reactions on ruling

Justin Winslow, president and CEO of the Michigan Restaurant and Lodging Association, was quick to blast the ruling as “tone-deaf.” 

In a statement immediately following the court’s decision, he called the pending worker wage increase “a likely existential blow to Michigan’s restaurant industry.”

Restaurant owners, many of whom recalled struggling during the state-ordered closings and capacity limits during the pandemic, predicted in the spring that 20% of full-service establishments would close permanently if minimum wage changed for their servers.

“We urgently call on the Michigan Legislature to act swiftly, implementing a compromise solution that prevents this impending catastrophe before it is implemented,” Winslow said.

That action needs to address industry needs and tipped employees “who have overwhelmingly expressed their preference to preserve the tip credit and the earning potential it provides,” he added.

One Fair Wage, a national group that has pushed for Michigan minimum wage increases, praised Wednesday's ruling as a win for "more than 490,000 workers” they said would be in line for a raise. 

"We have finally prevailed over the corporate interests who tried everything they could to prevent all workers, including restaurant workers, from being paid a full, fair wage with tips on top," One Fair Wage President Saru Jayaraman said in a statement. 

Attorney General Dana Nessel, a Democrat, also praised the ruling as a "landmark victory for Michigan voters and a resounding affirmation of the power of direct democracy."

The Michigan Chamber of Commerce warned the ruling could have “damaging consequences'' for job providers, their workers and customers. 

Like Winslow, Chamber President and CEO Jim Holcomb slammed the court ruling, saying justices failed to “put politics aside and focus on the text of the Michigan Constitution.”

Potential ‘ramifications’

According to a survey conducted for the Michigan Restaurant and Lodging Association that the advocacy organization released in June, changing the tipped wage structure could result in:

• 94% of restaurants raising prices
• 25% menu price increases
• Staff layoffs of up to 60,000 restaurant workers across the state

“The ramifications of this decision will be deep and felt by job providers and workers alike,” added Wendy Block, senior vice president of business advocacy for the Michigan Chamber. 

“It’s difficult to imagine how our state’s restaurants and hospitality establishments will absorb this large of an increase in their labor costs or how employers will make the required sweeping and costly changes to their leave policies without drastically cutting back elsewhere.”

With many now trying to figure out what the ruling means for Michigan, both immediately and in the long run, some form of Legislative intervention seems inevitable.

Senate Majority Leader Winnie Brinks, who wrote on social media that the Legislature’s lawyers would review the decision "over the following days."

"Here's what I know to be true: The Legislature has a responsibility to uphold the will of the people," the Grand Rapids Democrat said in a statement, adding that the "people of Michigan deserve clarity."

But House Minority Leader Matt Hall, a Richland Township Republican, called for lawmakers to “return to the Capitol immediately” following the court’s ruling in order — one he claims “will completely disrupt the livelihoods of hard-working Michiganders.” 

“The court has ruled,” Hall said in a statement, “and now it’s time for the people’s representatives to take action.”

Lawmakers are on their regularly scheduled summer break and are expected to return to the Capitol later this year.

The ruling also changes Michigan’s Paid Medical Leave Act, which requires any Michigan business with 50 or more employees to set up a paid sick time policy with 40 hours of paid time off. 

The original ballot proposal had called for most Michigan businesses to provide up to 72 hours of paid sick leave per year, before the Legislature reduced the duration and set the 50-employee benchmark. 

Business advocates, including the Small Business Association of Michigan, had called the move unfavorable in particular to smaller employers.

“Employers must now adhere to one of the most comprehensive paid sick leave laws in the country, requiring major adjustments to PTO policies and procedures,” the Grand Rapids Chamber of Commerce told its members on Wednesday. 

A labor initiative

The legal battle started in 2018, when political organization One Fair Wage’s proposal to eliminate Michigan’s tipped minimum wage was passed by the Republican-led legislature before it could reach the ballot. 

Legislators quickly modified the new laws amid pressure from business groups and the restaurant industry, significantly paring down the plan. They extended the timeline for increasing the minimum wage above $12 to 2030 and kept the lower tipped minimum wage in place. 

“At every single turn over the last 10 years, Republicans have — with their friends in the restaurant association — attempted to block people of Michigan from their democratic right to vote for a raise,”  Jayaraman told Bridge Michigan on Tuesday.

The group had been hopeful that the Supreme Court would “finally recognize the rights of the citizens of Michigan,” she said. 

“It goes way beyond low wage records at this point,” Jayaraman said. “It's about democracy.”

Jayaraman said One Fair Wage’s next goal is to encourage residents to vote to increase the state minimum wage to $15 an hour for all employees.

An initiative to raise that to $15 per hour by 2027 was not allowed on the 2024 ballot after petitions were not certified. 

“The Supreme Court is issuing something that would give workers a … raise — our message to the legislature is, ‘Don't stop there,’” she said. 

An industry and worker issue

Workers who spoke with Bridge about the ruling were divided on whether the change will help or hurt. Many had publicly supported their employers, saying they didn’t want to lose their existing tip structure. 

Bartender Emma Ogline is making $8 an hour working full-time at Gravity Smokehouse in Holt, with her wages supplemented by tips.

Eliminating employers’ tipped wages credit that allows a lower minimum wage is a “double-edged sword” for Michigan workers, Ogline said. 

On a good night, Ogline’s tips are higher than her weekly paycheck. Even on a bad night, she collects upward of $120 from the jar, making her hourly income closer to $21. 

Ogline can’t say the same for her coworkers. During the slow summer season, many servers have to find other work to make ends meet.

Tipped employees deserve to earn the standard minimum wage from their employers, she said. But their hourly wage can be higher than the new minimum wage, particularly in fine dining restaurants. Those workers may experience a wage loss if the tip structure changes, including if customers — possibly facing higher menu prices — reduce their tipping.

Ogline said it’s difficult for her to envision the change coming after Wednesday’s court order.

“I understand that this is the industry that I choose to work in,” she said. “But at the end of the day, I would hate to see my income disappear.”

Michigan’s restaurant industry already faces uncertain profits, according to the MRLA survey. About 40% of restaurant owners said their operation was not making money, and 74% of those that are making money said earnings are less than a year ago.

“The state of the industry is a lot more precarious than we had understood or anticipated,” Winslow said in June. 

Leisure and hospitality is the sixth largest business sector in Michigan, accounting for 430,300 jobs in June — a number that grew just 0.2% since a year earlier.

Among them, 281,000 are food service workers, with 48,000 people employed as services and another 10,0000 as bartenders, according to state labor data.

With many restaurants struggling this year, Winslow said in June, many dreaded the ruling. 

Small, independent operators are likely to be most affected, since they “don’t have the capacity to spread the (labor cost) increase around.”

Others may change operations, swapping out counter orders for table service, Winslow predicted in June if the ruling went as it did on Wednesday. 

Restaurant owners have been preparing “a lot of alternative scenarios,” Winslow said.

On the other side, eliminating tipped wages will benefit workers and keep Michigan’s restaurant industry alive, One Fair Wage’s Jayaraman said, disputing industry expectations that jobs and restaurants will be lost.

“If you want to eat out in a sustainable restaurant industry, you have to pay people enough — not only to survive, not only to work in these jobs — but to live anywhere near where the jobs are,” she said.