Michigan’s Labor Committee Considering Significant Changes to Employment Laws

In April of 2023, the Labor Committee from Michigan’s House of Representatives met to hear debate on a 16-bill package which proposes major changes for employers. These bills, among other things, creation restrictions on independent contractor classifications and non-competes, require employers to disclose wages, and increase civil and criminal penalties for wage violations. In today's post, the business attorneys at Thompson Legal will discuss the anticipated changes expected to have an impact on your business operations.

Please note that this post is not exhaustive, and every situation is unique. In the event that you have questions about your business, it’s advisable to speak with a licensed attorney. Contact Thompson Legal to schedule a discovery call with a Michigan business attorney.

Independent Contractors

The classification of workers as independent contractors versus employees has long been a point of contention in the law. In recent years, there has been a focus on redefining these terms, with lawmakers and regulatory bodies increasingly cracking down on companies that misclassify employees as independent contractors. The consequences of misclassification can include fines, back pay, and even litigation.

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.

Under the proposed law, employers have the burden of proving that workers are properly classified as independent contractors.  If employers fail, 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. The law also requires the Wage and Hour Department to notify the Department of Treasury (taxes) and Unemployment Insurance Agency of the misclassification.

If a violation is repeated or flagrant, the employer could be liable for exemplary damages up to three times the amount of wages and fringe benefits owed, 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. 

Non-Compete Agreements

Non-compete agreements have been a longstanding tool for businesses to protect their proprietary information, client relationships, and trade secrets. Previously employers were only expected to limit the geographical scope and time to stay compliant. However, these broad agreements have faced increased scrutiny in recent years for stifling competition.

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 employers from entering into 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 (around $34,306.80 or less).

Wage Disclosure

Wage transparency has become a significant focus for legislators and advocates recently. HB 4406 proposes changes which require employers, upon request, to provide wage information for “similarly situated” employees within 30 days.  “Wage information” includes salary, hourly wage, bonus pay, overtime pay, and other forms of compensation provided by the employer. 

“Similarly situated employees” are those employees within the same job classification, duties, skills, or training. For employers with many employees in the same position, producing this wage information may be burdensome and time consuming. Employers may redact the names of similarly situated employees but must provide their gender and seniority.

One thing to note, however, is that unlike the similar laws in other states, HB 4406 does not require Michigan employers to disclose a position’s wage range in a job posting.

Whistleblower Protection

Whistleblower protections are essential for encouraging employees to report unlawful activities within their organizations. Anticipated changes in whistleblower protection laws may expand the scope of protected activities and enhance the legal safeguards for whistleblowers.

HB 4392 and 4396 extend whistleblower protections to include independent contractors and to expand the type of protected activities. These changes can increase the likelihood of employees coming forward with concerns about wrongdoing within a company. Therefore, it is important for businesses to establish whistleblower protection policies and procedures now to ensure compliance with evolving laws and maintain an ethical corporate culture.

Confidential Complaints

Confidential complaint processes within companies are essential for addressing workplace issues. Anticipated changes for employers may require businesses to maintain more secure and confidential reporting processes, as well as providing employees with alternative channels for lodging complaints outside of their organizations.

HB 4394 and 4395 prohibit, upon request of an employee, disclosure to the employer of the identity of an individual who files a wage and benefits complaint.  It is not yet 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.

Conclusion

The legal requirements for employers are constantly changings, so staying informed about anticipated changes is essential for maintaining compliance and mitigating risks. Thompson Legal is committed to helping businesses navigate these changes and ensuring their legal strategies remain effective and compliant. If you have questions about your business, contact Thompson Legal to schedule a discovery call with an experienced Michigan business lawyer. 

This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a business attorney about your case Contact Us at (734) 743-1646 to schedule a consultation.