?On April 13, the Michigan House of Representatives Labor Committee heard testimony on a 16-bill package that would significantly limit when workers qualify as independent contractors, restrict the use of non-compete clauses, require employers to disclose employees’ wages, and increase the civil and criminal penalties for wage violations.
The bills are just that – bills. They are not the current law in Michigan, and the House Labor Committee has not yet referred them to the entire House for consideration.
However, Democrats in the legislature and Gov. Gretchen Whitmer have proven that they will move quickly to enact their sweeping agenda. They already repealed right to work, amended the Elliott-Larsen Civil Rights Act, and passed gun legislation. Wide-ranging employment reforms could be next.
Here’s a quick overview of the 16 bills and how they may change the landscape.
Independent Contractors
House Bill 4390 would define an “independent contractor” as a worker who meets all three of the following criteria:
- The individual is free from the employer’s control and direction in connection with the performance of the work.
- The individual performs work that is outside the usual course of the employer’s business.
- The individual is customarily engaged in an independently established trade, occupation, or business of the same work performed by the individual for the employer.
This definition is almost identical to California’s “ABC Test,” which is largely regarded as the strictest standard in the nation. Few workers will qualify as independent contractors under this standard.
Under the proposed law, employers have the burden of proving that workers are properly classified as independent contractors. If employers fail to carry that burden, they must pay any unpaid wages due to the employee, fringe benefits, a penalty of 100 percent of the wages and fringe benefits owed the employee, exemplary damages up to three times the amount of wages and fringe benefits owed (if the violation is flagrant or repeated), 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.
The bill also would require the Wage and Hour Department to notify the Department of Treasury and Unemployment Insurance Agency of the misclassification.
House Bill 4391 would add a page to the instruction booklet accompanying each state income tax return that explains independent contractors and the rules and factors listed above. It would require the Department of Treasury to send a notice to each payee listed on a Form 1099-MISC that explains the independent contractor standards and factors. The intent is to provide workers with more information, so they will self-report alleged misclassification.
Noncompete Agreements
House Bill 4399 would prohibit employers from requiring employees to agree to a non-compete clause, unless all of the following are met:
- The employer provides each applicant with written notice that a non-compete is required for the position.
- Before hiring the employee, the employer must disclose in writing the terms of the non-compete agreement.
- The employer must post the law or a summary of its requirements in a conspicuous place in the worksite.
The bill would prohibit non-competes with “low-wage employees,” who are defined as employees who are paid less than 138 percent of the federal poverty line for a family of three individuals. If the law was in effect today, it would prohibit non-competes with employees who make $34,306.80 or less per year.
Wage Disclosures
House Bill 4406 would require employers to provide wage information for “similarly situated” employees within 30 days of an employee’s request. “Wage information” includes salary, hourly wage, bonus pay, overtime pay, and other forms of compensation provided by the employer. Employers may redact the names of similarly-situated employees, but must provide their gender and seniority.
“Similarly-situated employees” are those within the same job classification as the employee requesting the information, or those whose duties are comparable in skill, effort, responsibility, working conditions, and training. For employers with many employees in the same position, producing this wage information may be burdensome and time-consuming.
Unlike the laws in other states, HB 4406 would not require Michigan employers to disclose a position’s wage range in job postings.
Whistleblower Protections
House Bills 4392 and 4396 would expand the scope of whistleblower protections to include independent contractors. Under the current law, only employees are protected. The bills would expand the type of protected activities.
House Bills 4394 and 4395 would prohibit, upon the employee’s request, disclosure to the employer of the identity of an individual who files a complaint under the Payment of Wages and Fringe Benefits Act and Improved Workforce Opportunity Wage Act. It is not 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.
Increased Civil and Criminal Penalties
- House Bill 4401 would increase penalties for employers that prohibit employees from disclosing their wages. Employers that are found to violate the law more than once are guilty of a felony that is punishable by up to two years in prison and/or up to a $10,000 fine for each violation.
- House Bill 4402 would establish sentencing guidelines for violations regarding the payment of wages and fringe benefits.
- House Bill 4403 would increase the civil and criminal penalties for employers that fail to pay wages and fringe benefits with the intent to defraud.
- House Bill 4404 would increase the civil penalty for a violation of the Payment of Wages and Fringe Benefits Act.
- House Bill 4397 would create the Office of the State Employee Ombudsman.
- House Bill 4398 would create a Michigan false claims act and establish civil sanctions and penalties.
- House Bill 4405 would revise the notice period for certain deductions related to wage garnishments.
- House Bill 4393 would provide marketing funding for the Attorney General’s payroll fraud division.
Although these bills are not yet law, we encourage you to review your current classifications, policies and procedures, especially if you make extensive use of independent contractors or regularly require employees to sign a non-compete agreement.
Matthew M. O’Rourke and Breanne N. Gilliam are attorneys with Miller Johnson in Grand Rapids, Mich. © 2023. All rights reserved. Reprinted with permission.
