Michigan court freezes minimum wage, preserves tip credit

In a win for restaurants, the state Court of Appeals essentially ensured that the status quo will persist after Feb. 19.
Michigan's tip credit has been preserved. / Photo: Shutterstock

Restaurants in Michigan have been spared a jump in the state’s minimum wage and a big cut in the tip credit as the result of a decision handed down late last week by the state Court of Appeals.

The unanimous ruling by the court’s three-judge panel freezes the minimum wage for non-tipped hourly workers at $10.10 an hour. Employers can pay tipped employees as little as $3.81 an hour if gratuities bring the workers’ income up to the state’s hourly minimum.

Had at least two of the judges agreed with the plaintiffs, the minimum wage would have jumped on Feb. 20 to $13.03 and the minimum due tipped employees would have risen to $11.73. The difference between the minimum wage for tipped employees and all workers would have disappeared in 2024.

The plaintiffs included such labor groups as One Fair Wage, the union-supported advocate for killing the tip credit nationwide, and Restaurant Opportunities Centers, or ROC, its major benefactor. ROC receives funds from the Service Employees International Union, or SEIU.

Thursday’s decision was the latest in a string of developments that turned Michigan into a battleground on the tip credit. Back in 2018, voters approved a state initiative to raise the minimum wage to $12 an hour and phase out the tip credit.

Immediately afterward, the state legislature adopted the initiative as legislation, then amended the law to delay adoption of a $12.05 wage mandate until 2030 and keep the required pay for tipped workers at 38% of the general minimum, or at $9.60. The lawmaking body was controlled by Republicans at the time.

The process, permitted under the Michigan constitution, is known as “adopt and amend.”

But it was challenged in court by labor advocates, who argued that the legislature was ignoring the preference of state residents. Their lawsuit contended that at least one election period should fall between the adoption and amendment stages of the process to ensure lawmakers were held accountable for their actions and reflect the true preferences of voters.

In July 2022, a judge from the state Court of Claims agreed with the plaintiffs. Justice Douglas Shapiro ruled that the wage provisions set by the 2018 ballot initiative should go into effect on Aug. 8.

On Aug. 1, Shapiro issued a ruling that adoption of the new wage laws would be delayed until Feb. 19 to give employers time to adjust their payrolls and business models. He asserted at the time that a higher court was unlikely to reverse his decision and that employers should prepare for the wage hikes.

Labor groups filed a lawsuit in the Michigan Court of Appeals to end the delay and ensure the provisions of the 2018 ballot initiative prevailed as law. The expectation was that the higher court would decide by Feb. 19 what wage standards would be in effect afterward.

The Court of Appeals ruled that nothing in the Michigan constitution expressly requires the adopt and amend process to spread across two legislative sessions, and that lawmakers were acting in accordance with the law in 2018 and ’19.  

The plaintiffs in the Court of Appeals case are widely expected to appeal the decision by the court to the Michigan Supreme Court.

Still, the decision handed down Thursday by judges Christopher Murray, Michael Kelly and Michael Riordan was a major victory for Michigan’s full-service restaurants and the industry as a whole.

"We are relieved and appreciative of the unanimous ‘adopt and amend’ decision out of the Court of Appeals today that will allow Michigan and its 18,000 restaurants and hotels to move forward with greater certainty as to their operating future,” the Michigan Restaurant & Lobbying Association said in a statement to the media. “We are optimistic that the Michigan Supreme Court will recognize the same and allow this industry to redirect its focus to the daunting task of recovering from a pandemic that decimated it so completely."

One Fair Wage has said that efforts to eliminate the tip credit during current legislative sessions are underway in 23 states.

Residents of Washington, D.C., voted in a 2022 referendum to end their jurisdiction’s tip credit, but adoption was delayed because of Congressional wrangling over the omnibus federal spending bill. The District of Columbia is technically under the supervision of the U.S. Congress.

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