19 April 2023

Michigan House Labor Committee Considers 16 Bills That Could Significantly Change Michigan Employment Laws

On April 13, 2023, the Michigan House of Representatives Labor Committee heard testimony on a 16-bill package that, among other things, significantly limits when workers qualify as independent contractors, restricts the use of non-compete clauses, requires employers to disclose employees’ wages, and increases the civil and criminal penalties for wage violations.

The bills are just that – bills.  They are not the current law in Michigan, and the House Labor Committee has not yet referred them to the entire House for consideration.  However, Democrats in the legislature and Governor Gretchen Whitmer have proven that they will move quickly to enact their sweeping agenda.  They already repealed Right to Work, amended the Elliott-Larsen Civil Rights Act, and passed gun legislation.  Wide-ranging employment reforms could be next.

Here’s a quick overview of the 16 bills and how they may change the landscape:

HB 4390: Independent Contractors

HB 4390 defines an “independent contractor” as a worker who meets all three of the following criteria:

  • the individual is free from control and direction of the payer in connection with the performance of the work, both under contract and in fact;
  • the individual performs work that is outside the usual course of the payer’s business; and
  • the individual is customarily engaged in an independently established trade, occupation, or business of the same work performed by the individual for the payer.

This definition is almost identical to California’s “ABC Test,” which is largely regarded as the strictest standard in the nation.  Few workers will qualify as independent contractors under this standard.

Under the proposed law, employers have the burden of proving that workers are properly classified as independent contractors.  If employers fail to carry that burden, they must pay any unpaid wages due to the employee, fringe benefits, a penalty of 100% of the wages and fringe benefits owed the employee, exemplary damages up to three times the amount of wages and fringe benefits owed (if the violation is flagrant or repeated), a civil fine of up to $10,000, and a penalty equal to the estimated federal taxes and Medicare payments that would have been due if not for the misclassification.  The law also requires the Wage and Hour Department to notify the Department of Treasury (taxes) and Unemployment Insurance Agency of the misclassification.

HB 4391: Independent Contractor Disclosures

The bill adds a page to the instruction booklet accompanying each state income tax return that explains independent contractors and the rules and factors listed above.  It also requires the Department of Treasury to send a notice to each payee listed on a Form 1099-MISC that explains the independent contractor standards and factors.  Clearly, the intent is to provide workers with more information so that they will self-report alleged misclassification issues.

HB 4399: Non-competes

HB 4399 first prohibits employers from requiring employees to agree to a non-compete unless all of the following are met:

  • The employer provides each applicant for the position with written notice that a non-compete is required for the position;
  • Before hiring the employee, the employer must disclose to the employee or applicant in writing the terms of the non-compete agreement; and
  • The employer must post the law or a summary of its requirements in a conspicuous place in the worksite.

The bill also prohibits non-competes with “low-wage employees,” who are defined as employees who are paid less than 138% of the last published federal poverty line for a family of three individuals (if the law was in effect today, it would prohibit non-competes with employees who make $34,306.80 or less).

These proposed restrictions seem relatively modest in light of recently enacted restrictions in other states.  Colorado, for example, prohibits non-competes with employees who make less than $101,250; Illinois prohibits non-competes with employees who make less than $75,000.

HB 4406: Required Wage Disclosures

The bill will require employers to provide wage information for “similarly situated” employees within 30 days of an employee’s request.  “Wage information” includes salary, hourly wage, bonus pay, overtime pay, and other forms of compensation provided by the employer.  Employers may redact the names of similarly-situated employees, but must provide their gender and seniority.

“Similarly-situated employees” are those within the same job classification as the employee requesting the information, or those whose duties are comparable in skill, effort, responsibility, working conditions, and training.  For employers with many employees in the same position, producing this wage information may be burdensome and time consuming.

Unlike the laws in other states, HB 4406 does not require Michigan employers to disclose a position’s wage range in a job posting.

HB 4392 and 4396: Whistleblower Protections

These bills expand the scope of whistleblower protections to include independent contractors (under the current law, only “employees” are protected) and to expand the type of protected activities.

HB 4394 and 4395: Confidential Complaints

HB 4394 and 4395 prohibit, upon the employee’s request, disclosure to the employer of the identity of an individual who files a complaint under the Payment of Wages and Fringe Benefits Act and Improved Workforce Opportunity Wage Act.  It is not clear how employers will be able to effectively respond to a complaint that an employee was not properly paid wages without knowing the employee’s identity.

HB 4401, 4402, 4403, and 4404: Increased Civil and Criminal Penalties

  • HB 4401 increases penalties for employers that prohibit employees from disclosing their wages. Employers that are found to violate the law more than once are guilty of a felony that is punishable by up to two years in prison and/or up to a $10,000 fine for each violation.
  • HB 4402 establishes sentencing guidelines for violations regarding the payment of wages and fringe benefits.
  • HB 4403 increases the civil and criminal penalties for employers that, with the intent to defraud, fail to pay wages and fringe benefits.
  • HB 4404 increases the civil penalty for a violation of the Payment of Wages and Fringe Benefits Act.

HB 4393, 4397, 4398, and 4405: Other Proposals

  • HB 4393 provides marketing funding for the Attorney General’s payroll fraud division.
  • HB 4397 creates the Office of the State Employee Ombudsman.
  • HB 4398 creates a Michigan false claims act and establishes civil sanctions and penalties.
  • HB 4405 revises the notice period for certain deductions related to wage garnishments.

Although the bills are not yet law, we encourage you to review your current classifications, policies, and procedures (especially if, for example, you make extensive use of independent contractors or regularly require all employees to sign a non-compete agreement).  The attorneys in Miller Johnson’s Employment and Labor practice group are closely monitoring the bills and are ready to answer your questions.