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Federal law does not mandate any amount of paid leave for employees, but Michigan’s paid leave obligations may change in dramatic fashion.

In 2018, you may recall there were two employment-related ballot initiatives set to appear on the general election ballot. One of them, the Improved Workforce Opportunity Wage Act (“IWOWA”), aimed to raise the minimum wage and eliminate the tip credit. The other, the Earned Sick Time Act (“ESTA”), sought to provide paid sick time to virtually all Michigan employees. In September of 2018, the Michigan Legislature adopted the ballot initiatives before the election, then amended them, making both initiatives less burdensome on employers. When the Legislature amended the ESTA, the Legislature replaced it with the Paid Medical Leave Act (“PMLA”), which is the law currently in effect as of this writing.

On July 19, 2022, however, the Michigan Court of Claims held that the Legislature was not permitted to amend the ballot initiatives in the way it did. In other words, the Legislature’s adoption of these ballot initiatives was lawful, but the amendments to them were not. As a result, the Court held that both the IWOWA and ESTA must be established as law, as they were written for the ballot. Unless the Michigan Court of Appeals or Michigan Supreme Court reverses the decision, the more pro-employee versions of the IWOWA and ESTA will go into effect. The Court of Claims delayed the effective date of the change until February 19, 2023.

While there is still some chance that the Court of Claims decision will be reversed on appeal, we’ve described your business’s obligations below if the ESTA and the IWOWA go into effect.

The ESTA Basics

The ESTA would require Michigan employers to provide paid sick time to their employees. When an employee uses paid sick time under the ESTA, they must be paid their normal hourly wage.

Most employment laws impose some restrictions on who is entitled to benefit from the law. The ESTA, however, does not impose any such restrictions.[1]

How Much Leave Must Be Available?

Employees will be entitled to one (1) hour of paid sick time for every thirty (30) hours they work.[2]

• For “small employers” (fewer than 10 employees), the number of hours of paid sick time can be capped at 40 hours, regardless of how much the employee works. An employee of a small employer can also accrue up to 32 hours of unpaid sick time if they exceed the 40-hour cap for paid sick time.
• For “larger employers” (10 or more employees), the cap for paid sick hours is 72 hours. For overtime-exempt employees (salaried employees), the ESTA assumes that they will work 40 hours in a week, even though salaried employees often do not track their hours.

This will require carefully tracking the hours of each employee to determine the proper rates of accrual. Remember that employees accrue one (1) hour of paid sick time for every 30 hours worked. For example, even if a part-time employee only works 10 hours per week, you must provide the part-timer with at least one (1) hour of paid sick time every three weeks.

Accrual

Employees begin accruing paid sick time immediately, though ESTA will permit an employer to impose up to a 90-day restricted period for new hires, during which the employee is not permitted to use the time accruing.

Carryover Requirements

Paid sick time not used in the calendar year must be permitted to carry over into the next year as follows: small employers must permit 40 hours to roll over, while large employers must permit 72 hours to roll over in a single year.[3] Despite the mandated roll over, note that you are only required to allow an employee to use 40 hours (if a small employer) or 72 hours (for large employers) in a single year, regardless of how many hours the employee has banked.

Written Notice

Employers must provide written notice of the following information:

• The amount of sick time employees may receive under the ESTA;
• How you will calculate a “year” (calendar year or a different 12-month period);
• The reasons an employee may use paid sick time;
• Protections for retaliation; and
• Information about the right to bring civil lawsuits or file complaints with the Department of Licensing and Regulatory Affairs.

Qualifying Use of Paid Sick Time Under the ESTA

The ESTA permits paid sick time to be used in ALL of the following situations:

• Personal or family member[4] mental or physical illness, injury, or health condition. This includes time off for the illness/injury as well as time for diagnosis, treatment, or preventative care.
• Time off for medical or psychological care, to obtain victim services, to relocate, to obtain legal services, or to participate in legal proceedings if the employee or a family member is the victim of sexual assault or domestic violence.
• School meetings needed as the result of the employee’s child’s disability or effects of domestic violence or sexual assault.
• Closure of the employee’s place of business or their child’s school or place of care, due to a public health emergency.
• Prerequisites for using sick time under ESTA.

You can require advanced notice of the need for paid sick time if the need for the time off is foreseeable (e.g., for a pre-scheduled doctor’s appointment). However, you cannot require notice more than seven (7) days prior to the need for leave. If the need for leave is not foreseeable (e.g., the employee wakes up not feeling well), you can require notice “as soon as practicable.” In practice, this means that an employee should notify you as soon as they are reasonably able to do so.

You may only request documentation for paid sick time if the sick time is for more than three (3) consecutive days of work. Upon request, employees must provide documentation “in a timely manner.” You cannot deny the use of paid sick time pending proper documentation. Any documentation signed by a health care professional (e.g., doctor, nurse, physician’s assistant, nurse practitioner) stating that the use of paid sick time is necessary is sufficient to meet the employee’s obligations under the ESTA.

How is ESTA different from the PMLA currently in effect?

The PMLA was the Legislature’s replacement for the ESTA. It has been in effect since March 2019. Unless the Court of Claims’ July 2022 decision is reversed, the ESTA will replace the PMLA.

The ESTA departs from the PMLA in a number of important ways.

• PMLA only applied to employers with 50 or more employees, but ESTA applies to all employers.
• PMLA did not allow all employees to accrue and use paid sick time, but ESTA allows all employees, regardless of how many hours they work, to accrue and use paid sick time.
• PMLA capped accrual at 40 hours. ESTA caps paid leave accrual at 40 hours for smaller employers but allows up to 32 hours of unpaid leave for small employers. For larger employers, the cap is 72 hours of paid sick time.
• Under the PMLA, employers could follow their normal procedures to request documentation from absent employees. Under the ESTA, employers can only request documentation if the absences are for more than three consecutive days.

Preparing for ESTA

Certainly, ESTA is not yet the law and it is possible that the ESTA will not ever become the law depending on the outcome of appeals pending in front of Michigan’s appellate courts. However, we recommend preparing for the possibility that the ESTA will go into effect as soon as February 2023.

• First, assess whether you’re a small (fewer than 10 employees) or large employer (10 or more employees).
• Next, determine how much paid leave you currently offer. If you do not already meet the hourly thresholds described above (at least 40 hours for small employers; at least 72 hours for larger employers), then you must plan to increase your paid leave allowances.
• Ensure that you have a plan to track accrual and use of paid sick time for all employees. If your current policies only permit paid sick time for certain employees, those will need to be greatly expanded to cover all employees. Your payroll processing company may be able to assist here.
• Determine whether you will offer a separate paid sick time bank or an all-purpose leave such as PTO.
• Familiarize your decision makers with the permitted reasons to take paid sick time. Some of the permitted reasons go beyond what was traditionally allowed for sick time.

A note about minimum wage and tip credit changes

In addition to reinstating the ESTA, the Court of Claims also reinstated the ballot version of the IWOWA, which means:

• An immediate increase in the minimum hourly wage rate to $12 on Feb. 19, 2023.
• Annual adjustment to the minimum wage rate every year:
  • Increases by the rate of inflation January 1 of each year;
  • No cap on rate increases.

• Phased elimination of the tip credit:

• • Minimum wage rate for tipped employees must be at least:
    • $10.80 as of Feb. 19, 2023;
    • $12.00 in 2023.
  • Tips cannot be used to make up the minimum wage.
  • Tips still belong to the employee receiving them; it appears tip pooling is still permitted.

[1] The most notable feature of the ESTA is how broadly it applies. Unlike most other employment laws that only apply to employers of a certain size, the ESTA applies to all Michigan employers, regardless of how many employees they have. Even if a company has only a few part-time staff, the ESTA imposes paid sick time obligations on those operations. ESTA defines “employee” as “an individual engaged in service to an employer in the business of the employer.” Given how broad that definition is, all employees count toward a total employee count. That means anyone on the payroll counts to determine whether you are a small or a large employer, including full-time, part-time, temporary, and seasonal employees. Properly classified independent contractors will not count.

[2] Importantly, the ESTA allows any paid leave to count towards the minimums, such as paid sick time, vacation, personal time, and general PTO. Therefore, an employer who provides an all-purpose paid time off (“PTO”) bank is not required to create an entirely new sick leave system if the PTO accrual already meets the minimums set by the ESTA. However, for employers with no paid leave options, this new law requires significant action.

[3] Of course, you may choose to permit more than the law allows. If the employer wants to allow more accumulation of paid sick time, it may. If the employer wants to permit employees to use more paid sick time in a single year than the ESTA requires, it may do that as well.

[4] “Family members” include children, parents, spouses, non-married domestic partners, grandparents, grandchildren, siblings, or any other non-related person “whose close association with the employee is the equivalent of a family relationship.” All relationships include biological, adopted, foster, and step- relationships.

By Attorney Chad Karsten

This publication is intended for educational purposes only. This communication highlights specific areas of law and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.