By John I. Tesija, Esq. and Paul O. Catenacci, Esq.
Recently, the Michigan Supreme Court reinstated the Earned Sick Time Act (“ESTA”) that was approved by Michigan voters back in 2018. As you may recall, the legal challenge arose out of the so-called “adopt and amend” protocol that the Michigan Legislature engaged in to implement this and a companion minimum wage law in a form somewhat different than the voter approved referendum. As a result of this ruling, ESTA will now take effect on the later of February 21, 2025, or the expiration of any collective bargaining agreement then in effect for bargaining unit employees.
ESTA is significantly more robust than Michigan’s prior paid leave act (known as “PMLA”). The old law did not cover unionized workers, small employers (under 50 employees), or part-time workers (employed less than 25 weeks per year). ESTA will apply to every Michigan-based employer and every Michigan-based worker. In other words, part-time, seasonal, temporary, and “gig” employees will all be covered by this new law. There are no minimum work hour or similar restrictions for coverage - if an employee is based in Michigan, or primarily works in Michigan – including those that work from home in Michigan for out-of-state employers – they will be covered. This may prove to be a headache for both employers and employees who live or work along Michigan’s borders with Ohio, Indiana, and Wisconsin.
In a nutshell, the law requires that every covered employee accrue sick leave at a rate of one (1) hour per 30 hours worked, up to a maximum of 72 hours of sick leave every year. For large employers (10 or more employees), all 72 of these hours are paid, while for small employers there is a ratio of 40 hours paid and 32 hours unpaid. Unused leave hours can be carried over from year to year with no restrictions other than their use is limited to 72 total hours in any one (1) year. Accruals begin from the first day of employment – there is no permitted waiting period, but employers can impose up to a 90-day waiting period to actually take a leave.
Upon termination of employment, no cash-out option is available to the worker. In fact, employees lose all accumulated leave hours after a six (6)-month absence, although forfeited hours must be reinstated if the worker is reemployed by the same company before that six (6)-month window expires.
Given the accrual rate of one (1) leave hour for every 30 hours worked, it will take 2,160 workhours in a given year to accumulate the full 72 hours of leave (whether all paid or under the 40 paid/32 unpaid ratio applicable to small employers), which equates to nine (9) paid eight (8)-hour workdays off. An overtime hour counts the same as a regular hour, with no additional accruals for overtime pay. Accrued paid (or unpaid) sick time can be used for numerous reasons affecting the employees or their family members, such as mental or physical illness, sexual abuse, domestic violence, certain school conferences, and health pandemics. Both the definition of “family member” and the uses for paid sick leave are very broad and may lend themselves to some abuse if future regulations do not clarify them.
Employers can establish what the accrual year will be, although we anticipate that the calendar year will likely be used by most companies. While the accrual rate of one (1) hour per 30 hours worked is the floor, employers are free to adopt more generous rates or to “front load” the sick leave in full at the outset of the measurement period selected. It remains to be seen whether employees will rush to utilize any unused paid time off at the end of the accrual year before their employment with a transitory employer is about to come to an end. Even with non-transitionary employers, a “run on the sick bank” cannot be ruled out as a probable outcome given that the law as written has created a strong “use-it-or-lose-it” incentive. This is chiefly because (a) there is no mandatory payout option for unused accumulated hours; and (b) employees departing who are unlikely to return are in a true “use-it-or-lose-it” position. Even long-term employees will be incentivized to use their sick leave given the ability to start a new bank (up to 72 hours) every year.
Companies with existing paid or unpaid leave, PTO, or vacation programs will have to evaluate them closely to see if any part of those benefits can be applied towards ESTA’s paid (or unpaid) leave requirements. Of course, existing unpaid leave cannot be applied towards ESTA’s paid leave requirements, but existing paid leave can be applied towards both paid and the unpaid leave mandates, provided all ESTA’s requirements can be met. Those requirements include 1) accrual rate – one (1) hour for every 30 hours worked; 2) leave cannot be capped below the 72-hour annual maximum (40/32 combined hours for small employers); 3) permitted use must include those allowed by ESTA; and 4) carry-over and reinstatement rights must be allowed. Existing employer paid or unpaid leave programs that do not meet these new ESTA requirements cannot be used as an offset.
When qualified paid leave is taken, the employee need only be compensated for the lost wages (at the regular hourly rate) and not for any overtime, fringe benefits, commissions, premium pay, etc. The fringe benefit issue may be clarified by future regulations since the statutory language is a bit ambiguous in this area. Salaried employees typically do not have their compensation reduced for time off, as is the case with hourly workers, but if they do, their compensation (weekly, monthly, etc.) will have to be converted to an hourly rate and paid accordingly.
Employees cannot be required to give more than seven (7) days advance notice of covered leave – even less in case of emergencies. Reasonable documentation for the leave can only be requested for absences longer than three (3) days, and if there is any cost to obtaining such documentation, the employer must cover it. Leaves need not be taken as a full day off – whatever increments the employer uses for payroll (including fractions of an hour) can also be used for such leave. The ESTA also contains a notice posting requirement – there is a $100 penalty for each posting violation. A separate penalty for a violation of the law itself applies – up to $1,000 per violation. All employers must keep records of their ESTA compliance for a minimum of three years.
As noted at the outset, ESTA’s coverage, utilization, and payment requirements are substantially broader than Michigan’s current (PMLA) law, which is in effect through February 21, 2025 – later for unionized workers under a grandfather provision. Although we are hopeful for some legislative guidance or clarification, employers will have to work with the law as it currently stands when it goes into effect in a few months (for non-bargaining unit employees). Given the short window before the law takes effect, employers should waste no time in reviewing their current policies and adjusting them as needed to comply with the requirements of ESTA. We are available to discuss compliance issues with both groups and interested individuals.
About the Authors
John I. Tesija, Esq. (left) and Paul Catenacci, Esq. (right) are senior partners at Novara Tesija Catenacci McDonald & Baas, PLLC, with their practice focusing on employee benefits law.