What are the fines, imposed, when it's determined that an employee is legally an employee and not a 1099 contractor in the state of Michigan?

Since this is a federal issue, its not governed by state law:

What Can Happen If a Worker is Improperly Classified?

If you improperly classify an employee as an independent contractor, you can be liable for:

additional state and federal income taxes
unemployment insurance penalties
workers compensation penalties
lawsuits by workers for unpaid wages
criminal fraud
Frankfurt Kurnit Klein & Selz PC (http://fkks.com/article.asp?articleID=192)

There are no set fines, its handled on a case by case basis.

If you are the employer, your best bet is to hire an ex-IRS agent to help you out of the mess without paying whopping penalties. There are many of them who specialize in this subject.