This week, a Senate committee moved forward with legislation that could change how businesses in Michigan use independent contractors. The proposed bills would also introduce new wage disclosure rules and impose strict penalties for violations related to wages and working hours. In certain cases, these penalties could include criminal charges and up to 20 years of jail time.
Senate Bills 6 and 7 aim to reshape employment laws by introducing “wage transparency” mandates and penalties affecting all employers across various industries. While the Senate Labor Committee has limited the California-style independent contractor test specifically to the construction industry (NAICS Sector 23), this change is expected to significantly impact the industry’s ability to utilize contractors and subcontractors, potentially increasing costs overall.
The bills are now under consideration by the full Senate. They propose an “ABC Test” for determining whether a worker in construction can be classified as an independent contractor. To qualify, workers must meet four criteria: they must be paid for their work, operate free from control, perform work outside the core business activities, and run an independent business doing that work. Although other industries are currently not affected by this test, there is no assurance that it won’t be expanded in the future.
Additionally, the legislation seeks to make permanent a version of the economic realities test based on control, independence, and risk assessment. This test has been used by Michigan courts since at least the early 1990s but has never been codified into state law until now.
Despite these changes, penalty provisions within the bills remain unchanged. They still allow for criminal charges or even prison sentences for errors in wage or benefit calculations.
Moreover, wage transparency measures are included in the proposals. Employees would have access to three years of pay data for coworkers in similar positions. This requirement may place employers in challenging situations where they need to justify wage differences based on factors like merit pay or educational background.
