Mich.'s battle over the tip credit takes a bizarre turn

Suddenly, organized labor seems to be working against its own cause, affording restaurants a puzzling but appreciated wait-and-see opportunity.
Language has greatly complicated an already complex situation in the state. | Photo: Shutterstock

A nine-year struggle to preserve Michigan’s tip credit took a bizarre turn Friday when regulators discovered that proponents of killing the break for employers had actually called for protecting it.

Advocates of phasing out the credit had collected enough signatures last year to put a proposal on the next general-election ballot to phase out the credit. The proposal stated that gratuities would not count as part of the wages tipped employees like servers and bartenders were due.

If a majority of voters agreed, the tip credit would end and restaurants would be obliged to directly pay all workers the full minimum wage, which the referendum additionally called for raising to $15 an hour.

But in making what were characterized as slight and approved changes in the referendum’s language, the word “not” was deleted from the wording. Instead of saying tips would not count as wages, now the proposal stated unequivocally that they would. Approval of the referendum by voters would validate the credit’s existence.

The language pertaining to a $15 minimum wage was also tweaked. Looking to have the mandate benefit most workers in the state, labor advocates were allowed to change the referendum’s definition of who’s an employer. Instead of applying that tag to anyone with at least “2 employees,” as the copy originally stated, the section was edited to replace the “2” with a “1”.

But the editor failed to strike out the “2,” so an employer subject to Michigan’s minimum-wage mandate was defined as anyone with at least 21 employees.

“Between 85 and 90% of Michigan businesses have fewer than 21 employees,” observes Justin Winslow, CEO of the Michigan Restaurant & Lodging Association, or MRLA. If the referendum passes, those places would all be exempted from Michigan’s requirement that employees be paid at least $10.10 an hour. Instead, they’d be required to pay at least the federal minimum wage of $7.25 an hour.

“This is the most complicated, convoluted issue I’ve dealt with in my many years of advocacy,” said Winslow, who became CEO of the state restaurant association in 2015.

Part of the weirdness has been the reaction of organized labor, the main proponent of the wage referendum and the force pushing to kill the tip credit. When the language issues came to light on Friday, a labor proxy called Raise the Wage Michigan said the changes were purposeful and not errors.

Raise the Wage Michigan did not respond to a Restaurant Business request for an explanation or comment on why it seemingly undercut its own mission with the changes. Nor was an explanation aired by the group’s lawyer, a political veteran named Mark Brewer, who insisted to local media that the changes were intentional.

Brewer went further than defending the changes, asserting that state regulators were obliged under state law to put the referendum as currently written on the 2024 ballot. He’s contended that voters who signed the petition calling for the referendum had seen the current language, meaning they endorsed its particulars as they currently stand.

The regulators, however, are deadlocked on whether to let the referendum proceed. Approval is required by a four-person bipartisan board. The two Republican members have voted to block the initiative from going forward, while the two Democrats have given it a thumbs-up.

The stalemate is likely to land the issue in court, with Raise the Wage expected to initiate the action. In the meantime, the restaurant industry is observing rather than acting.

“Sometimes it’s best just to stand on the side and see what happens,” Winslow remarks.

The restaurant association and its allies, who’ve formed an alliance called Michigan Opportunity, have been waiting for another court action that could determine the fate of the state’s tip credit.

Before the 2018 election, advocates of killing the credit collected enough signatures to put a proposal on the ballot to phase out a lower direct wage for servers, bartenders and hosts. The employer break looked doomed.

But a peculiarity in Michigan’s legislative system allows state lawmakers to pre-empt a referendum by voting on legislation that delivers the same effect. With the support of the restaurant industry, the legislators approved a bill that called for eliminating the tip credit, then subsequently amended the law to make it “more business-friendly,” in Winslow’s words. Employers would be required to pay tipped workers a direct cash wage of $9.60 an hour instead of the full minimum of $12.05, provided at they collected at least $2.45 an hour in gratuities.

The law passed. But pro-labor groups immediately sued, arguing that the state’s so-called “adopt and amend” function is intended to extend across two sessions of the state legislature, and not be concentrated into one. Otherwise, labor argued, lawmakers were subverting the clear desires of voters.

A Michigan court initially agreed with that argument. Then a judge granted a 205-day stay on disallowing the tip credit to give restaurants a chance to prepare for the upswing in labor costs.

During that time, the lower court’s decision was appealed to the Supreme Court of Michigan, where opening arguments were scheduled to begin this month. The case is expected to begin before Nov. 1.

If the court decides that the tip credit should be ended, Michigan would become the eighth state to prohibit the tabulation of gratuities as part of tipped workers’ wages.

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