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The capital of the US automotive industry, Michigan has long been known as a centre for manufacturing. It has also become a leader in a number of other industries, including engineering, IT and office furniture. Indeed, from 1997-2004 Michigan had over 10,000 new business or expansion projects, the most of any state in the US. Legal considerations enhance Michigan’s appeal for those seeking to enter the US market, which this article briefly summarises.

Business organisations

Michigan makes available all of the major types of business organisations, which can be formed quickly and inexpensively. Its law also allows for flexibility in corporate governance. For example, a corporation’s board of directors can be composed of non-US citizens. Michigan lawmakers look to Delaware as a model for corporate law. Further, Michigan has a very active Corporate Bar Committee working diligently to keep the Michigan statutes concerning business organisations clear and up-to-date. Consequently, Michigan law concerning business organisations offers more predictability, which benefits businesses as they make business decisions involving legal issues.

Employment related issues

Michigan follows the at-will employment doctrine, which means that employers may hire and discharge employees at will without liability, unless the employer violates anti-discrimination laws or the employer’s action violates a contract with or promise to the employee. Michigan’s discrimination laws are very similar to standards throughout the US.

Michigan has a minimum wage statute that will require, starting in October 2006, employers to pay all nonexempt employees at least $6.95 per hour; that will increase annually to $7.40 per hour in 2008. Overtime pay is required at the rate of 1.5 times the employee’s normal hourly pay rate for any hours worked over 40 a week. Unionisation is on the decline, and less than 10% of the non-government US workforce is unionised. Michigan has historically had a higher unionisation rate due to the automotive industry and governmental employees, but rates for most Michigan industries are very low.

Michigan requires the following employee benefits in addition to those required by federal law:

• State workers compensation insurance, typically provided by contractual relationships with private insurance companies to pay statutory benefits to employees injured at work. Michigan’s workers compensation costs vary by industry and experience, but average 1-3% of payroll and are below the national average.
• An experience-rated unemployment compensation tax funds benefits for employees who lose their jobs. In Michigan, the “new employer” rate is 2.7% of the first $9,000 of each employee’s annual pay, with experience modifications thereafter, resulting in rates ranging from 1-10% of each employee’s annual pay up to $9,000.
• Employers are not required to offer retirement plans or any particular level of retirement benefits. If offered, however, retirement plans must comply with the federal “ERISA” law that sets vesting and funding standards.

Distributors and sales representatives

A company seeking to enter the US market may choose to do so through the appointment of one or more distributors or sales representatives. Michigan is home to many experienced organisations acting in such capacities, especially in areas of commerce, such as automotive, furniture, pharmaceuticals, chemicals and computer-aided design and manufacturing. Unlike several other jurisdictions, Michigan law allows manufacturers freedom to contract with sales representatives and distributors unfettered by mandatory tenure and indemnification requirements.

Taxation

Business activity in Michigan is not currently subject to an income tax; instead, there is a “Single Business Tax” (the “SBT”). The SBT is an annual value-added tax imposed on the privilege of doing business in Michigan. Currently, the SBT rate is 1.9%. The SBT does not tax inventory, and offers a generous investment tax credit. State Treasury Department data shows that 58% of Michigan businesses pay $1,000 or less in SBT, and 45% of all businesses pay no SBT. Purchases of real and personal property in Michigan may be deducted as investment tax credits that can be carried forward for 10 years. The SBT is repealed for tax years that begin after December 31, 2007. but will be replaced.

While the SBT is unique to Michigan, the overall tax structure of Michigan is similar to that of other states with typical property and sales taxes. When considering state and local tax burdens, however, Michigan businesses pay 39.4% of the state and local taxes compared to the national average of 43%. Michigan has a 6% state sales tax, and there are no city or county sales taxes. Many industrial and consumer goods and transactions are exempt from Michigan sales taxes. Michigan’s personal income tax is 3.9%, which ranks lower than all but 11 states.

Michigan has numerous tax incentives for businesses, including (1) Brownfield redevelopment programmes; (2) tax benefits for investments in state-sanctioned Renaissance Zones; (3) SBT credits for new or expanding businesses; (4) Economic Development Job Training grants for businesses training workers for new jobs or upgrading existing employees’ skills.

Environmental issues

The Michigan Department of Environmental Quality, charged with overseeing and enforcing Michigan’s environmental laws, has an Environmental Assistance Division devoted to helping new and existing businesses comply with environmental requirements and compete globally. The Michigan Economic Development Corporation, located within Michigan’s Department of Labor and Economic Growth, is focused on attracting new and expanding businesses to Michigan, and on working with them to understand and meet the environmental regulatory standards.

Michigan’s Brownfield redevelopment programme, rightly regarded as one of the nation’s pre-eminent Brownfield programmes, offers a comprehensive set of tools and incentives for the clean-up and reuse of contaminated former industrial sites and for blighted or under-utilised sites within the state. Through its unique Baseline Environmental Assessment (BEA) programme, companies are able to purchase property for industrial and commercial development without fear of having liability imposed upon them for preexisting contamination.

Dispute resolution

Michigan’s Chamber of Commerce, legislature and judiciary have helped make Michigan a business-friendly and cost-efficient location to resolve disputes. Michigan is a common law jurisdiction, in which statutes offer a framework but judicial interpretations shape the law. In Michigan, most legal disputes settle at an early stage, through voluntary facilitative mediation, case evaluation or other avenues, before coming close to trial. Michigan is a leader in Alternative Dispute Resolution (ADR) in both Federal and State Courts.

With ADR, business disputes have a greater chance of being resolved efficiently and with less expense outside of the courtroom. ADR provides an opportunity for dispute resolution by a knowledgeable adjudicator without many of the frustrations and delays associated with litigation and trials. The American Arbitration Association (AAA) has a major presence in Michigan. In AAA arbitration, attorneys expert in the area of law most pertinent to the conflict adjudicate the dispute. Michigan has a unique case evaluation process for certain cases in which primarily money damages or the division of property are at issue. Case evaluation is a form of ADR in which three neutral evaluators hear each party’s arguments and determine a fair outcome.

The parties are free to accept that decision or reject it and take the matter to court. However, rejecting the case evaluator’s decision puts a party at risk for a significant portion of the other party’s attorney fees, if there were a judgment from a court less favourable than the case evaluator’s decision. This contrasts with the general principle in Michigan and the US that the losing party in litigation is not liable for the other side’s attorney fees.

Even if a dispute proceeds to trial, Michigan limits tort liability. Michigan law does not allow a plaintiff to recover punitive damages, but does, though, recognise a plaintiff’s right to seek exemplary damages in certain limited cases. However, these damages are intended only to compensate the plaintiff (not to punish the defendant) for mental injury resulting from outrageous conduct.

Conclusion

Businesses considering locating in Michigan will find here a business-friendly legal environment. Michigan’s law concerning business entities is progressive and flexible; unions do not pose the threat some businesses fear; and Michigan’s pro-business tax structure and commitment to innovative forms of dispute resolution make it a cost-effective place to do business. We would welcome the opportunity to assist you in considering coming to Michigan.

Graig N. Meurlin
Warner Norcross & Judd LLP
900 Fifth Third Center
111 Lyon Street, NW
Grand Rapids, Michigan 49503-2487
Tel: 001 616 752 2000
Fax: 001 616 752 2500
E-mail: cmeurlin@wnj.com
Website: www.wnj.com

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