What happened: This week, a Senate committee advanced legislation that would severely restrict how businesses can use independent contractors, while requiring new wage disclosure rules and imposing harsh penalties for wage and hour violations — including the possibility of criminal charges and jail time of 20 years in certain cases.
Why Independent Contractor Restrictions Matter: Senate Bills 6 and 7 would reshape employment laws in Michigan by adding problematic and onerous new “wage transparency” mandates and penalties on ALL employers and industries. Although the Senate Labor Committee limited the California-style independent contractor test to the construction industry (NAICS Sector 23), the change will significantly hinder the industry’s ability to use contractors and subcontractors — including business-to-business relationships — ultimately driving up costs across the board.
Zooming in: The bills, which now sit before the full Senate:
- Create an “ABC Test” for construction. For a worker to be considered an independent contractor, a worker must meet all 4 criteria: (1) Paid for the work; (2) Free from control; (3) Work is outside the core business; an (4) Runs an independent business doing that work.
- Translation: Other industries are off the hook — for now — but there’s no guarantee it couldn’t be expanded later.
- Codify the current economic realities test. The bill makes the Biden administration’s test (based on control, independence and risk) permanent in state law.
- Michigan courts have relied on the economic realities test for since at least the early 1990s — but it hasn’t ever been in statute.
- Leave the outlandish and draconian penalty provisions unchanged. The bills still include language allowing for criminal charges — even prison — for wage or benefit miscalculations.
- Wage transparency stays in. Employees could access 3 years of pay data for “similarly situated” coworkers.
- This language will ultimately put employers in the difficult spot of having to justify wage differentials based on merit pay, resume gaps, education levels, and more.