Michigan Supreme Court Rules Minimum Wage Must Be Increased: 40 Percent of Restaurants Face Insolvency

by Scott McClallen

The Michigan Supreme Court ruled on August 1 that the Republican Legislature illegally blocked two ballot proposals in 2018, paving the way for a minimum wage hike and new paid leave requirements.

The 4-3 ruling increases the minimum wage and enacts a new paid sick leave that Michigan businesses say will destroy jobs.

“In sum, by adopting the Wage Act and the Earned Sick Time Act and then later stripping those acts of their key features in the same legislative session, the Legislature unconstitutionally violated the people’s initiative rights,” Justice Elizabeth Welch wrote. “Accordingly, we hold that the Amended Wage Act and the Amended Earned Sick Time Act are unconstitutional.”

The change will take effect Feb. 21, 2025, with a revised schedule to account for inflation.

The schedule for the minimum hourly wage and tip credit is as follows:

• Feb. 21, 2025: $10 hourly minimum wage plus the inflation adjustment. The tip credit will be 48% of the minimum wage.
• Feb. 21, 2026: $10.65 hourly minimum wage plus inflation adjustment. The tip credit will be 60% of the minimum wage.
• Feb. 21, 2027: $11.35 hourly minimum wage plus inflation adjustment. The tip credit will be 70% of the minimum wage.
• Feb. 21, 2028: $12 hourly minimum wage plus inflation adjustment. The tip credit will be 80% of the minimum wage.
• Feb. 21, 2029: The state treasurer shall calculate the inflation-adjusted minimum wage. The tip credit will no longer exist.

The ruling will harm job providers and workers, said Wendy Block, senior vice president of business advocacy for the Michigan Chamber of Commerce.

“It’s difficult to imagine how our state’s restaurants and hospitality establishments will absorb this large of an increase in their labor costs or how employers will make the required sweeping and costly changes to their leave policies without drastically cutting back elsewhere,” Block said.

The Legislature should act before the laws activate, said House Republican Leader Matt Hall, R-Richland Township.

“Restaurants and other small businesses will have to raise their prices, tipped workers will take home less pay, and some people will lose their jobs,” Hall said in a statement.

The new rule will have an “absolutely devastating effect” on small businesses, said Brian Calley, president and CEO of the Small Business Association of Michigan.

“A lack of legislative intervention would communicate a clear message to those in Michigan and those looking to come here: Michigan is not open for small business,” Calley said in a statement.

A recent Michigan Restaurant and Lodging Association survey estimated that two-thirds of restaurant operators would lay off employees if the tipped wage were eliminated, 94 percent of operators would raise prices, and one in five full-service restaurants would close permanently.

This ruling could eliminate up to 60,000 jobs, MRLA President and CEO Justin Winslow said in a statement.

“As our recent industry operations survey illustrated, 40 percent of full-service restaurants in Michigan are already unprofitable, meaning this decision is likely to force more than one in five of them to close permanently, eliminating up to 60,000 jobs along the way,” Winslow said.

About 40 percent of Michigan restaurants could go bankrupt as this ruling takes effect, Rep. Noah Arbit, D-West Bloomfield, posted on social media:

“40% of restaurants across Michigan could go out of business when the tip credit skyrockets,” Arbit wrote. “Thousands of servers will be laid off. I look forward to working w/ colleagues and partners on a fix that will not leave our beloved community restaurants on a cliff-edge this winter.”