MI Legislation: Wage Theft, Independent Contractors, Noncompetes

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From The National Law ReviewChristopher Mikula review proposed legislation in Michigan includes a bill to adopt the ABC test for classifying workers as independent contractors and imposing additional penalties for misclassifying workers. Chris writes:

The new legislation would make employee-friendly modifications to several Michigan statutes, including the Payment of Wages and Fringe Benefits Act (PWFBA), the Whistleblowers’ Protection Act (WPA), the Michigan Antitrust Reform Act (MARA), and the Improved Workforce Opportunity Wage Act (IWOWA), and would amend the Michigan Code of Criminal Procedure to create a new felony offense for employers that commit a second or subsequent violation of certain provisions of the PWFBA.

Summary Analysis of the Bills

Below is a summary of the initial drafts of the ten House bills in the package that would have the most significant effect on private employers. It is important to note, however, that these are initial drafts of proposed legislation and are a long way from being enacted into law, especially given the current composition of the Michigan Legislature. However, the intense interest from the attorney general’s office and any changes in the makeup of the House and Senate could give the bills momentum.

House Bill 4877. This bill would amend the PWFBA to prohibit misclassification of employees as independent contractors and impose penalties for such violations.

  • Three-part definition of “independent contractor. To be considered an independent contractor under the bill, the contractor must be:
    • free from control and direction by the entity paying for the contractor’s services;
    • one who performs work that is outside the usual course of the business performed by the entity paying for the contractor’s services; and
    • customarily engaged in an independently established trade, occupation, or business of the same work as that being performed for the entity paying for the contractor’s services.
  • Penalties for the misclassification of employees. The bill sets out numerous financial penalties for misclassifying employees as independent contractors, including:
    • assessment of wages and fringe benefits owed to an employee by virtue of the misclassification, plus a 10 percent penalty per year on all such amounts;
    • exemplary damages of up to two times the amount of the wages and fringe benefits that were due if the violation is flagrant or repeated;
    • attorneys’ fees and costs; and
    • assessment of a penalty in an amount equal to the estimated federal taxes and Medicare payments that would have been due to the employee had the employer not committed the misclassification.

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