A three-judge panel on the Michigan Court of Appeals unanimously reversed a lower court decision Thursday – a move that stops the state’s minimum wage from rising by nearly $3 in February and preserves the tip credit for restaurants. Local restaurant owners expressed relief at the ruling, saying that eliminating the tip credit would have posed an “existential threat” to the industry. The decision is expected to be appealed to the Michigan Supreme Court.

In a decision that went into effect immediately, the Court of Appeals overturned a lower court ruling that would have raised Michigan’s minimum wage from $10.10 to $13.03 in February. The ruling also halts increases to earned sick time and the elimination of the tip credit. If those measures had gone ahead, the tipped minimum wage would have increased from $3.84 an hour to $11.73 an hour this year before eventually being eliminated entirely in 2024, with tipped employees moving to regular minimum wage. Instead, the tipped minimum wage will remain at $3.84 (tipped employees must still earn at least the state minimum wage with their tips included or employers make up the difference).

Local restaurant owners previously expressed deep concern about the elimination of the tip credit. Michigan would have become one of only a handful of states without one, and restauranteurs told The Ticker a 200 percent incease in wages for tipped employees could wipe out restaurants already operating on thin margins. “That big of a swing can take a restaurant that’s making 10 percent net to one that’s losing money,” Pam Marsh, co-owner of Red Ginger, previously told The Ticker. The Workshop Brewing Company owner Pete Kirkwood agreed, calling the proposal an “existential threat” to the service industry. Both Marsh and Kirkwood said their employees make well beyond minimum wage, with Kirkwood noting that “not including tipped income” in calculations of how restaurant employees are fairly compensated represents a fundamental misunderstanding of the industry.

Those and other operators celebrated Thursday after the Court of Appeals decision was announced. “This is a great day for our servers and the industry,” said Marsh. “It was voted unanimously 3-0 by the Michigan Court of Appeals. This means that the February 19 implementation date…is no longer relevant, and the status quo wages and regulatory requirements will remain intact.” Kirkwood said his team was “very relieved” at the ruling. “We honestly didn’t know what we were going to do,” he said. “But it definitely would have been disruptive.”

Honest Hospitality, which owns Mama Lu’s, The Flying Noodle, and The Burrow TC, praised the ruling on The Burrow’s Instagram page. “This would have been detrimental to our industry,” the post stated. “To be clear: NO ONE on our team makes anywhere near minimum wage. And EVERYONE on our team gets paid time off. But the loss of the tip credit would have been a nightmare for operators and devastating to so many restaurants.” In a statement, Michigan Restaurant & Lodging Association (MRLA) President and CEO Justin Winslow said the organization was “relieved and appreciative” of the ruling, stating that it will “allow Michigan and its 18,000 restaurants and hotels to move forward with greater certainty as to their operating future.”

The Court of Appeals determined that a controversial “adopt-and-amend” approach taken by the Michigan Legislature in 2018 was legal. Ballot petitions that year sought to increase the minimum wage and paid sick time requirements – forcing the legislature to either offer a statewide vote on the proposals or pass legislation to enact them. Lawmakers passed the legislation, but then subsequently watered down the bills with additional amendments.

Ballot petitioners sued. Last summer, Michigan Court of Claims Judge Douglas Shapiro ruled that the legislature can’t circumvent a ballot petition vote by passing legislation and then amending it in the same session. At least one election needs to take place in between, he said, allowing voters to mobilize if they desire. However, the Court of Appeals determined Thursday that the “adopt-and-amend” tactic was a legal strategy for lawmakers.

“The absence of any prohibition on the legislature amending initiated laws during the same session…compel the conclusion that the legislature is not prohibited from amending an initiated law enacted by the legislature during the same legislative session,” Judge Christopher Murray wrote in his opinion. He noted that “the initiatives successfully forced the legislature to act on the policies contained in the proposals,” and “then, in amending the proposals, the legislature continued to address those issues with all the legislators’ constituents’ interests in mind.”

However, though Judge Michael Kelly agreed the “adopt-and-amend” strategy was legal, he sharply criticized the actions of lawmakers. “Although this procedure is permissible under the language of our constitution, this ploy – adopting an initiative into law so as to prevent it from going onto the ballot and then promptly and substantially amending that law in a manner that has left it essentially defanged – is anti-democratic,” Kelly wrote. “I cannot believe that this drastic action is what the drafters of our constitution even contemplated, let alone intended.” Kelly added: “When the history of this legislature is written, it is difficult to imagine anybody saying that this was their finest hour.”

Mothering Justice, one of the organizations backing ballot petitioners, vowed to appeal the decision to the Michigan Supreme Court. “We are extremely disappointed by the Michigan Court of Appeals'’ decision to side with the former Republican-controlled legislature’s ‘adopt-and-amend’ shenanigans. The decision, once again, delays a much-needed and deserved pay increase for Michigan workers,” said Eboni Taylor, executive director of Mothering Justice. Taylor added that while the court ruling is “a setback and another needless delay to a common-sense economic policy, we vow to appeal and seek justice before Michigan’s Supreme Court.”

The Michigan Supreme Court is not obligated to hear the case. Each year, "the Supreme Court receives over 2,000 applications for leave to appeal from litigants primarily seeking review of decisions by the Michigan Court of Appeals," according to the court's website. "The Supreme Court's authority to hear cases is discretionary. The Court grants leave to those cases of greatest complexity and public import, where additional briefing and oral argument are essential to reaching a just outcome." While waiting to hear whether the Michigan Supreme Court will hear the case, the MRLA’s Winslow said in the meantime that the Court of Appeals ruling protects industry businesses and workers and expressed optimism a higher court would uphold its findings.

“Through this ruling, countless restaurants and 50,000 hospitality jobs have been at least temporarily saved,” Winslow said. “We are optimistic that the Michigan Supreme Court will recognize the same and allow this industry to redirect its focus to the daunting task of recovering from a pandemic that decimated it so completely.”