Frontloaded ESTA Leave: Is Clawing Back Unearned Leave Legal?

As detailed in our February 24, 2025 E-Blast, and updated in the March 2025 School Law Notes, the Michigan Earned Sick Time Act (ESTA) took effect on February 21, 2025. For a school that frontloads ESTA leave time at the beginning of the school’s ESTA benefit year, the school may encounter a situation where an employee uses all frontloaded ESTA leave and separates from employment before the school’s ESTA benefit year concludes. An FAQ issued by the Michigan Department of Labor and Economic Opportunity on March 7, 2025 indicates that, in certain circumstances, school officials may claw back the value of the used leave if the employee used more ESTA leave than the employee would have accrued as of the employee’s separation date.

Michigan law generally prohibits a school from clawing back frontloaded ESTA leave by charging such leave against an employee’s last paycheck unless such a deduction is authorized in a collective bargaining agreement (CBA) or if the employee has provided full, free, and written consent for that paycheck.

Except for deductions expressly permitted by law or by a CBA, the Michigan Payment of Wages and Fringe Benefits Act generally prohibits an employer from making a deduction from an employee’s wages without the “full, free, and written consent of the employee, obtained without intimidation or fear of discharge for refusal to permit the deduction.” Further, the Michigan Court of Appeals has held that for deductions not authorized by law or a CBA, a separate written consent is required for each paycheck subject to a deduction and the deduction cannot reduce gross wages to less than minimum wage. Thus, written consent only provides authorization for payroll deduction during one payroll period. Every subsequent deduction requires new written consent.

For an employee exempt under the Fair Labor Standards Act (FLSA), the FLSA generally prohibits deductions from pay. However, the FLSA’s regulations permit employers to make a deduction from pay when an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability. 

ESTA Section 12 provides that if employees are covered by a CBA in effect on February 21, 2025, and the CBA conflicts with ESTA, then ESTA will apply beginning on the CBA’s stated expiration date. Accordingly, school employees who are currently covered by a CBA that includes personal time off with uses for sick time or a similar benefit are subject to the terms of the CBA and not to ESTA until the CBA expires.

Whether a school may claw back frontloaded ESTA leave concerns wages and other terms and conditions of employment and is consequently a mandatory bargaining subject. Therefore, school officials should be prepared to address language in future CBA negotiations that will permit the school to charge the value of used ESTA leave against an employee’s pay if the employee uses more ESTA leave than the employee would have earned as of the employee’s separation date.

Employees Not Covered by a CBA

For non-union employees, school officials may choose to include language in an individual employment contract that authorizes the school to deduct any overpayment from the employee’s last paycheck due to use of ESTA leave. For non-union employees working without an individual employment contract, school officials should consider requesting that such employees sign an acknowledgement that, if the school will frontload ESTA leave, the employee consents to the deduction of overpayment of leave from the employee’s final paycheck. Schools may not make deductions that reduce an employee’s regularly scheduled gross wages to less than the state minimum wage.

Schools also may choose to provide frontloaded ESTA leave to employees without obtaining consent to claw back used leave time. In this circumstance, school officials should be aware that if an employee uses more frontloaded leave than the employee would have accrued as of the employee’s separation date, it may be harder to charge the employee for the used time. If you have questions or would like assistance with employment contracts or drafting an employee acknowledgement form for ESTA purposes, please contact your Thrun labor and employment attorney.