The Supreme Court of Michigan has cleared the way for eliminating the state’s tip credit by 2029 and raising the minimum wage for all workers to $15 an hour by 2028.
The court ruled that the state legislature violated the state constitution when it used a peculiar aspect of Michigan law known as the adopt and amend provision to temper measures that were passed via ballot initiative.
Michigan voters approved a proposal on the 2018 ballot to make the pay changes cleared Thursday by the court, though more quickly. The measure called for raising Michigan’s minimum wage to $12 and eliminating the tip credit by 2024.
The state legislature subsequently passed a law embodying the pay standards that had been approved by voters, then amended the legislation to phase in a $12.05 minimum wage by 2030 and keep the tip credit at 38% of that threshold.
That use of the adopt and amend provision was challenged in a state appeals court by labor advocates as being unconstitutional. Groups like One Fair Wage and Mother Justice argued that the legislature had ignored the will of Michiganders. They also noted that the adopt and amend process usually stretches across an election, so that the amending is done by lawmakers newly elected to their jobs and hence theoretically more attuned to residents’ preferences.
The Court of Appeals agreed with the plaintiffs. That decision was then appealed to the Supreme Court, which affirmed the lower court's ruling on Wednesday morning after months of deliberation.
It is not clear what will happen next, since the original target dates for the tip credit phase-out and the higher minimum wage have already passed. But the delayed enactment dates have in essence been scratched.
Michigan’s minimum wage is currently $10.33, and tipped employees are entitled to a direct wage payment from their employers of $3.93 per hour. Because of the state’s tip credit, restaurateurs can treat the reported gratuities of servers and bartenders as part of the $10.33 they’re due under state law. If tips don’t bring those workers up to that level, the employer is required to make up the difference.
The restaurant industry is almost certain to resist efforts to kill the credit however advocates of disallowing it choose to proceed. The expectation is that the matter will be thrashed out in the state legislature.
"We urgently call on the Michigan legislature to act swiftly, implementing a compromise solution that prevents this impending catastrophe before it is implemented," Justin Wilson, CEO of the Michigan Restaurant & Lodging Association, said in a prepared statement. "This action must consider the perspectives of both industry operators and tipped employees who have overwhelmingly expressed their preference to preserve the tip credit and the earning potential it provides."
“The Michigan Supreme Court decision makes clear that the legislature can listen to tipped workers and once again take action to stop the elimination of the tip credit," Mike Whatley, VP of state affairs and grassroots advocacy for the National Restaurant Association, said in a statement. "The National Restaurant Association supports the efforts of the Michigan Restaurant and Lodging Association to protect the state’s tip credit and will continue to work closely with them in the weeks ahead.”
Loss of the break will increase employers' payroll costs by $48.2 million, according to the Employee Policies Institute, an employer-funded group based in Washington, D.C.
“Today’s Michigan Supreme Court ruling means small businesses will soon be straddled with skyrocketing labor costs,” Rebekah Paxton, The EPI's research director, said in a statement. “Reinstating this misguided proposal means tens of thousands of employees will lose their jobs and small businesses will shut down completely. The legislature must act on a new fix before the court’s timeline runs out.”
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