Michigan restaurants warn of price hikes over wage, sick day laws

• House lawmakers held their first hearing on bills to reject Michigan’s pending changes to sick leave and tipped wage laws on Tuesday
• Legislation would keep tipped worker pay at 38% of state minimum wage and raise Michigan’s $10.33/hour minimum wage to $15 by 2029
• Senate Democrats, meanwhile, argue tipped wages should increase to 60% of minimum wage by 2035. Negotiations are expected to continue.

LANSING — A tense debate over Michigan's minimum wage and paid sick leave laws escalated Tuesday as a new Republican-led committee began debate on bills to scale back pending changes.

The hearing, the first since the GOP retook control of the state House, comes amid urgent business industry pleas to intervene before a Michigan Supreme Court order takes effect next month.

Under court order, the state will raise its minimum wage to $14.97 by 2028, phase out a lower wage for tipped workers and require employers to offer and track paid sick leave.

Should that happen, people will leave the industry, restaurants will be forced to raise their menu prices and some may choose to close their doors for good, predicted Marianne “Lu” Hayoz, owner and operator of The Peppermill Cafe in Grand Rapids. 

Hayoz was one of the dozen-plus people to testify in support of changing incoming changes to state law, telling lawmakers Tuesday the only way she could afford to comply with the coming changes is to raise her cafe’s prices “and to add service fees.” 

“This is something that I don't want to do, but unfortunately, there's no other option,” she said.

Hayoz’s warning came days after a southeast Michigan restaurant – John Cowley & Sons in Farmington — announced it will add a 20% "service charge" to customer bills to cover costs associated with the new law.   

At issue are wage and sick leave rules first proposed as part of a 2018 ballot drive led by labor groups. The Michigan Supreme Court last summer ruled that lawmakers violated the state constitution when they adopted but then quickly weakened the initiated legislation before it took effect. 

Under the court’s interpretation, Michigan’s current $10.33 an hour minimum wage will rise to just under $15 by 2028, starting with a planned increase on Feb. 21. The state’s lower wage for tipped workers — currently $ 3.93 an hour — would slowly phase out to match the standard rate by 2029.

Republicans, restaurant owners and some employees contend the change would not just eliminate tipping — which some workers say pays them well — but bring about increased menu pricing and incentivize layoffs.

Related:

• Michigan plans $14.97 minimum wage by 2028 — but seeks court clarity first
• Businesses fear worst from Michigan’s new sick time law. Will lawmakers act?
• As Michigan moves toward $15 minimum wage, workers rally to keep tip system

While raising the minimum wage is something she absolutely supports, Hayoz said doing away with Michigan’s lower base rate for tipped workers was something people in the food service industry never asked for.

“Either we add the fees and raise our prices, or we close our doors,” she told lawmakers, adding that “good, hardworking people will lose their jobs.”

But that’s not what national data suggests, argued Sam Taub, one of the few to speak in opposition to Tuesday’s bills. 

Taub, a server and state organizer with the national advocacy organization One Fair Wage — which has spearheaded efforts to do away with tipping credits nationwide — rebutted employee and employer arguments.

While people can make well above minimum wage on a tipped rate, Taub contended it was not the case for every person who worked in a field that relied on tips to increase income.

Under Michigan law, employers must supplement the difference to employees on a tipped wage rate should their tips not be enough to bring their earnings to a minimum wage rate. 

“There is no evidence that we (servers) would make less money,” Taub said. “There is no evidence that people will stop tipping, because that did not happen in any of the other states with this law in place.”

House changes to tipped, minimum wage

Under legislation introduced last week by House Republicans, tipped wages would stay at 38% of standard minimum wage, which would rise to $15 an hour by 2029 — one year later than what the state Supreme Court ordered.

The minimum wage would not increase if unemployment rates for any given year reached 7.5%, up from the current rate of 8.5%.

Rep. John Roth, R-Interlochen, and Rep. Jay DeBoyer, R-Clay, are leading House Republicans’ efforts to amend the pending law change.

“The changes mandated by the Supreme Court decision will have a catastrophic impact on many small businesses, particularly restaurants, which operate at razor thin profit margins,” Roth told fellow lawmakers on Tuesday, noting that many servers choose to work in the restaurant industry because of the opportunity for tips.

Doing away with the tipping wage, he argued, could potentially result in a loss of earnings for servers, should patrons choose not to tip after learning their servers make minimum wage.

DeBoyer, meanwhile, said what the court prescribed regarding sick time requirements was largely unworkable for the state’s smaller businesses, adding, “my phone has not stopped on this matter.”

“We all are concerned about our workers in Michigan being provided sick leave, sick time — and I do think it is the right thing to do as an employer, to provide for your employees and to not take advantage of your employees,” DeBoyer said. “But, it's not a one-sided coin.”

Sick time alterations

House Republicans also want to change pending paid sick time rules. 

The Michigan Supreme Court order, set to take effect Feb. 21, will require businesses with 10 or more employees to provide up to 72 hours of paid sick leave each year. Smaller firms would need to provide up to 40 hours of paid sick time.

The court order additionally allows workers to carry over unused sick days into new work years and have at least three consecutive instances of a “no call, no show” — meaning a person does not call in sick, nor do they show up for work that day — before requiring an employee provide documentation as to why they cannot or could not attend work.

But the House plan would significantly scale those changes back, exempting any operation with fewer than 50 employees — up from the 10-employee limit outlined in the court’s ruling — from adhering to these sick leave changes.

The House proposal would also:

• Allow paid time off to be frontloaded for the year rather than accumulated over time. Should an employer offer block leave at the beginning of the year, they would not be required to calculate and track the employee’s accrual of leave.
• Let employees accrue at least one hour of paid earned sick time for every 30 hours worked, should their employer choose to not frontload earned sick time.
• Allow employers to cap paid sick leave at 72 hours, even if an employee accrues or carries over additional time
• Allow employers to discipline employees who miss work for three or more consecutive days without contacting the employer.
• If an employee was fired or quit, but then rehired by their employer within a six-month period, they would still be entitled to previously accrued sick time under the package.

A case for, a case against

Coming out in support of the bills was a wide array of industries, including food service employees, small business owners, emergency dispatch operators, mechanical contractors and more. 

Lisa Hall, central dispatch director for Midland County, said the concept of “no call, no shows” just simply can’t occur in their line of work by virtue of emergency response efforts being a round-the-clock necessity. 

Though she said she recognized and appreciated the intent of the new sick leave rules, she thinks staffing shortages in an already overtaxed and understaffed industry such as theirs could have severe repercussions.

“While ensuring that employees have access to leave time is crucial to health and well being, it is just as crucial for us to be able to protect them from misuse and abuse of leave time,” Hall said. 

“This increases forced overtime, decreases morale and begins a vicious circle of employees calling out last minute just to get the day off.”

Similar arguments were made throughout the day by others, with Michigan Small Business Association President Brian Calley telling lawmakers that in his six years of overseeing the group, “I have never seen the level of concern, fear and frustration that we are seeing from entrepreneurs today in association with the Earned Sick Time Act.”

But that concern is somewhat unfounded, argued Ryan Sebolt, director of legislative affairs at the Michigan State AFL-CIO union. 

The GOP bills represent a proposed pay cut for Michigan’s minimum wage employees, he said, noting that Michigan’s rate is currently poised to rise to $12.48 on Feb. 21 but would be set at $12 under the legislation. 

And because most private businesses in Michigan have fewer than 50 employees, exempting those firms from the new sick leave rules would be “telling large portions of your constituents they do not deserve the benefit of earned sick leave,” he told lawmakers, urging them to reject the bills.

Democrat-led Senate has other ideas

Senate Democrats last week proposed their own changes to the pending sick leave and wage changes, but their plan differs from the House GOP measures in some notable ways. 

The Senate plan would retain the state’s tipped credit but raise it from 38% to 60% of the standard minimum wage by 2035. It would raise that minimum wage to $15 by 2027 — one year earlier than the court order.

On sick leave, the  Senate plan would define a small business as any organization with fewer than 25 employees — up from the 10 employees as called for in the court’s ruling, but down from the 50-employee threshold proposed by House Republicans. 

If a business or organization has mandated staffing ratios, the Senate plan would provide an exemption to the requirement that an employee let their employer know about sick leave usage within a window of seven days or "as soon as foreseeable." Instead, that organization's human resources policy would take precedent.

Spearheading the changes for Democrats are Sen. Sam Singh of East Lansing, Sen. Darrin Camilleri of Trenton and Sen. Kevin Hertel of St. Clair Shores. 

Hertel, in a statement last week announcing the bills, said Democrats’ package is the result of “open, honest conversations with those who are most impacted by the legislation.”

“Thanks to their input I’m hopeful the legislature can find a reasonable compromise that sets us on a path to create a fairer, more robust economy that works for everyone,” he added.

Already, however, some in the business community have come out to say the Senate package falls short of what employers were hoping for and prefer the House-sponsored bills.

Senators have not yet held a hearing on their bill package, and as of publication, one is not currently scheduled.