Back to School for Michigan Employers–Minimum Wage Increase

Barnes Thornburg

As the kiddies get ready to go back to school, employers too should freshen up on a few items that are about to change in Michigan, including the minimum wage. Back on May 28, we reported on this blog that Michigan had passed The Workforce Opportunity Wage Act, by which the minimum wage will increase from $7.40 to $9.25 per hour over the next four years. The first incremental increase takes effect on September 4, when the minimum wage will increase to $8.15 per hour. So, if you haven’t done so already, please mark September 4 on your calendar.

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Michigan Minimum Wage Increases Enacted

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Michigan Governor Rick Snyder has signed the Workforce Opportunity Wage Act, mandating gradual increases in the state’s minimum wage to $9.25 an hour by January 1, 2018. The Act ties increases to the rate of inflation beginning 2019.

The first of four raises mandated by Senate Bill 934 (Public Act 138), to $8.15 an hour, occurs September 1, 2014. Michigan’s minimum wage since 2008 has been $7.40 an hour for workers who do not receive a tip and $2.65 an hour for workers earning tips, such as waiters.

Also beginning September 1, 2014, tipped employees would have a minimum rate that is 38 percent of the minimum for non-tipped workers, or about $3.51 an hour.

The state’s hourly minimum for non-tipped workers will increase as follows:

  • Beginning September 1, 2014, to $8.15.
  • Beginning January 1, 2016, to $8.50.
  • Beginning January 1, 2017, to $8.90.
  • Beginning January 1, 2018, to $9.25.

Starting in 2019, minimum wage increases will be tied to the rate of inflation, but any increase will be capped at 3.5 percent a year. The rate will adjust annually based on a five-year rolling average of inflation for the Midwest. Annual increases would take effect on April 1 of each year. No increase would occur if the state’s unemployment rate for the preceding year was 8.5 percent or higher.

Several other states, including Delaware and Minnesota, also have adopted increases this year, and the minimum wage for workers on new federal contracts has been raised to $10.10 per hour.

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Michigan Commission of Agriculture Approves Revised Generally Accepted Agricultural and Management Practices' (GAAMP) Limiting Scope of Right to Farm Act

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For over a year, the Michigan Ag Commission has considered expanding the scope of the “site selection” GAAMPs in order to bring even small livestock facilities within its scope. The site selection GAAMPs have traditionally applied to very large livestock production facilities, such as those that have at least 5,000 laying hens, 35 mature dairy cattle or 50 feeder cattle, and required those farms to be sited in agricultural areas. Consequently, because there were no siting requirements for small farms, these farms could be in urban areas – often contrary to zoning, which resulted in some conflict.

The Michigan Ag Commission recently voted to revise the site selection GAAMPs to eliminate the minimum animal threshold. Thus, the site selection GAAMPs now apply to all farms, and to comply with those GAAMPs, farms must be located in areas where local zoning allows for agricultural uses. Thus, the GAAMPs and local zoning are now in harmony rather than conflict.

According to Trevor Meachum, Vice-Chair of the Michigan Commission of Agriculture and Rural Development, “Local control is about being a good neighbor, and these GAAMPs – if farmers follow them – help people remain good neighbors.  Different communities have different ideas about what they want, and this accommodates those communities.” The changes to the GAAMPs were also endorsed by Michigan Farm Bureau. According to Matt Kapp, Government Relation Specialist with Michigan Farm Bureau, the new GAAMPs do not forbid livestock; they just allow for local decision-making. “While we think that will remove some conflicts, and if this new GAAMP does that, then it creates good neighbors. That’s what right-to-farm is all about, and that’s good public policy.”

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Sixth Circuit Appeals Court Upholds $6.1 Million Fraud Judgment Against Blue Cross Blue Shield of Michigan

Varnum LLP

The U.S. Court of Appeals for the Sixth Circuit has affirmed a $6.1 million fraud judgment against Blue Cross Blue Shield of Michigan. The Appeals Court agreed that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the Disputed Fees in contract documents.”  Its misleading information “helped sustain the illusion that BCBSM was more cost-competitive” than its competitors.

The ruling confirms last year’s judgment by a federal court in Detroit, which found that BCBSM collected millions of dollars in hidden fees over a 20-year period from Hi-Lex Controls, Inc. and Hi-Lex America, Inc., along with their self-insured employee health plan. Varnum attorneys representing Hi-Lex showed that BCBSM marked up employee hospital claims by as much as 22 percent and kept the markup. Reports provided to Hi-Lex did not disclose the hidden fees. Internal company e-mails showed that BCBSM’s managers knew customers were unaware of the markups, and that employees were trained to “downplay” the hidden fees if any customers discovered them.

“We are very happy that the judgment was affirmed,” said Varnum attorney Perrin Rynders, whose team has battled the issue for more than three years. “It’s been a long time coming, but we never doubted that this would be the ultimate outcome. We applaud our client who had the courage to stand up for what’s right and persevere through this lengthy legal process. Litigation was not our client’s preferred approach, but BCBSM refused at every turn to accept responsibility for its actions.”

The Hi-Lex matter was the first to reach judgment out of more than 35 similar ERISA cases that Varnum has filed against BCBSM on behalf of companies and their self-insured health plans.

Rynders noted that the ultimate result is a win for more than just those clients who have filed suit. BCBSM apparently discontinued its practice of rolling fees and surcharges into “hospital claims” for its self-insured clients in 2012, shortly after Varnum filed its first group of lawsuits.

“Employers work hard to manage their health care costs. It is upsetting that an organization trusted to help keep costs in line would violate that trust and take advantage of its customers,” Rynders said.  “The cases we are handling are good for companies and workers all across Michigan, because more money will be available for vital health care.”

The Sixth Circuit Court of Appeals issued its decision on May 14, 2014.

The original judgment was issued in May 2013 by U.S. District Court Judge Victoria A. Roberts. It concluded that BCBSM violated the Employee Retirement Income Security Act (ERISA) through its practice of collecting additional compensation without customers’ knowledge. The Court held that BCBSM engaged in illegal self-dealing and breached its fiduciary duties under ERISA.

Judge Roberts entered judgment in favor of Hi-Lex for $6.1 million, including a return of all hidden fees taken from Hi-Lex since 1994 plus interest.

U.S. Supreme Court Upholds Michigan’s Law Prohibiting Use of Race in College Admissions

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On Tuesday, April 22, 2014, the U.S. Supreme Court issued an opinion that upholds a Michigan law prohibiting the use of race as a factor in admissions to public collegesand universities. In Schuette v. BAMNCase No. 12-682 (argued Oct. 15, 2013) the high court reversed a Sixth Circuit Court of Appeals ruling that overturned the voter-enacted state constitutional amendment referred to as “Proposal 2” or Article I Section 26. Although the court’s 6-2 opinion stated “this case is not about the constitutionality, or the merits, of race-conscious admissions policies in higher education,” the decision is likely to influence other states to adopt similar constitutional bans on affirmative action in state-funded higher education.

Since 2003, Michigan has provided a venue for legal challenges to affirmative actionprograms in education. In that year, the U.S. Supreme Court reviewed the constitutionality of race-based admission policies of both the University of Michigan’s undergraduate college and its graduate law school. The outcomes of these cases were mixed. In Gratz v. Bollinger, 539 U.S. 234 (2003) the court struck down the undergraduate admission policy as a violation of the Equal Protection Clause of the U.S. Constitution’s 14th Amendment. In contrast, the court ruled in Grutter v. Bollinger, 539 U.S. 306 (2003) that the school’s more limited admissions policy for its law school was constitutionally permissible. Following those decisions, a number of states, including Texas, California, Oklahoma, Florida and Washington, have adopted constitutional amendments or other laws that prohibit affirmative action in school admissions and public employment.

In 2006, Michigan voters approved the following amendment to the state constitution by a margin of 58-42 percent: “The University of Michigan, Michigan State University, Wayne State University, and any other public college or university, community college, or school district shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.” In a 8-7 decision issued in November 2012, the 6th Circuit Court of Appeals held this language as unconstitutional because Proposal 2 placed “special burdens on minority interests” by targeting a program that “inures primarily to the benefit of the minority.”

In Justice Kennedy’s opinion, joined by Chief Justice Roberts and Justice Alito, the court considered whether authority existed to overturn a constitutional amendment adopted by a state’s ballot initiative. In order to do so, and based on the appellate court’s strong reliance on Washington v. Seattle School Dist. No. 1, 458 U.S. 457 (1982) the court would be able to overturn a ballot initiative that made it “more difficult for certain racial minorities than for other groups” to “achieve legislation that is in their interest.” This expansive reading, Justice Kennedy reasoned, could not conform to principles of equal protection because courts should not be required to declare which political policies serve the interests of a group defined in racial terms. Justice Kennedy cautioned: “…in a society in which those [racial] lines are becoming more blurred, the attempt to define race-based categories also raises serious questions of its own. Government action that classifies individuals on the basis of race is inherently suspect and carries the danger of perpetuating the very racial divisions the polity seeks to transcend.”

This significant decision upholds states’ rights to enact constitutional amendments by voter ballot initiatives. The broader implications of the Schuette decision are unclear. However, the outcome confirms public universities and government employers have a vested and ongoing interest in the changing shape of affirmative action policies.

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Right to Work Passes, Signed by Michigan Governor

Barnes & Thornburg

As expected, the Michigan House voted today to enact the pending Right to Work bills. Michigan Governor Rick Snyder signed the bills this evening, making Michigan the 24th Right to Work state in the nation. The changes to the law become effective 90 days following the end of the 2012 legislative session, making the effective date likely to be on or about April 1, 2013.

The full text of the final bills is available on the Legislature’s website and can be accessed by clicking on the links below:

SB 116(private employees)
HB 4003(public employees)

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