Nationwide Wage Hikes Spark Tension in Restaurant Industry

Aubrey Deboer, a waitress and bartender in Washington, regularly worked 12-hour shifts and often suffered unwelcome flirtations from customers because she feared losing out on the tips that added to her base pay of $3.89 an hour.

Deboer, who worked for nine years in the area, acknowledged relying on the tips would often make her take-home pay comfortable but almost always uncertain. Tipped workers in D.C. and in most markets around the country are guaranteed the minimum wage under federal law, but make a lower base pay than other workers.

But D.C. restaurant owner David Wizenberg said his wait staff on average make steep tips, as much as $30 an hour, double the $15 an hour minimum wage slated for D.C. by 2020. Wizenberg, who has six restaurants in the D.C. metro area, said he was already squeezed by rising labor costs, taxes, and fees in the over-saturated market.

Deboer and Wizenberg represent opposite sides of a fight that came to a head in the nation’s capital over what has become a key battleground for the restaurant industry: whether workers who receive tips should receive the same base pay as non-tipped workers. The restaurant industry argues that the elimination of the so-called tip credit will cripple businesses and reduce the workforce, while workers’ rights advocates want to see wages rise for the millions of workers.

The issue is of national importance with nearly every level of government discussing wage hikes, leaving employers scrambling to adjust their business practices. Ongoing debates in state and local governments nationwide, including New York state and the city of Chicago, could provide a test for the movement to increase wages for workers who long have relied on gratuities to reach the minimum wage.

Despite the Fight for $15 movement that inspired minimum wage increases nationwide, no state legislature in the last 20 years has secured an equal system for workers who receive gratuities. Only seven states have a uniform minimum wage for all workers. A raise to the minimum wage has proven politically feasible and something tangible that can be done to address poverty, but tipped workers haven’t been included in these efforts, said Yannet Lathrop, researcher and policy analyst with the National Employment Law Project.

“This is doable and viable,” Lathrop said of raising the tipped wage. “We think that throughout the country, the tipped worker should not be dependent on tips to make a living. That is the hope.”

In the end, the Washington, D.C. City Council killed a voter-approved ballot measure that would have increased base pay for tipped workers from $3.89 to the minimum wage, after one of the longest hearings in the body’s history and a lobbying campaign that saw workers and restaurants owners flooding both sides of the aisle. The battle in D.C. mirrors efforts in recent years in Michigan and Maine, where lawmakers squashed measures that had been approved after pushback from the restaurant industry and workers it rallied.

‘Wave of the Future’

The tip credit is the difference between the tipped minimum wage paid to an employee and the standard minimum wage. Currently, the federal tipped minimum wage is $2.13 an hour, and it hasn’t increased since 1991. The federal minimum wage is $7.25 an hour. An employer is required to pay the minimum wage in its jurisdiction and must make up the difference if tips don’t help workers reach the limit.

The tipped minimum wage ranges from the federal rate, which is used in 17 states, up to $9.35 an hour in Hawaii. The majority of states have tipped wages under $5 an hour. Oregon, Washington, California, Alaska, Montana, Minnesota, and Nevada don’t have a tipped wage. A statewide law to adopt an equal tipped wage hasn’t been passed since 2000.

This past year alone,16 states introduced legislation, known as “One Fair Wage” bills, that would eliminate the tipped wage and treat all wages equally. Several other states that have said they will push similar measures next year are Massachusetts, Pennsylvania, New Jersey, and Vermont. The U.S. House recently passed the Raise the Wage Act, H.R. 582, which would double the minimum wage to $15 an hour by 2025 and eliminate the distinction of a tipped worker.

In recent years, some restaurant chains have claimed they had to shutter because of the cost of wages. Lobbying groups say labor cost increases will be passed onto the consumer or lead to reductions in the workforce. In local battles, restaurant workers, not just owners, have pushed to keep the status quo, fearing that they’ll lose the high rate of tips they receive that push them far beyond typical minimum wages.

Over the past two years, attempts to eliminate the tip credit have been overturned, said Mike Whatley, National Restaurant Association vice president of state and local affairs.

“Restaurant operators face numerous challenges, from government regulations to skyrocketing rent,” Whatley said. “When faced with a major increase in labor costs, restaurant operators must make tough decisions including potentially reducing staff hours, automating certain aspects of the restaurant, or raising menu prices. Some owners will put off expanding their restaurant or not renew their lease.”

Restaurant workers make up about 81 percent of all tipped employees. There are more than 6 million tipped employees across the U.S., according to the Restaurant Opportunities Centers United. Advocates say the #MeToo and #TimesUp movement helped draw attention to sexual harassment in the service industry. Waitresses and bartenders say inappropriate behavior and treatment is common among women and people of color, according to a recent report.

A growing number of employers have joined the effort to increase both standard and tipped minimum wages in recent years, and the momentum is growing in state and local governments, said Saru Jayaraman, co-founder of ROC United and director of the Food Labor Research Center at the University of California, Berkeley.

“No one is trying to hurt restaurants in doing this,” Jayaraman said. “The House passed this. Many other states are looking at it. This is the wave of the future.”

Dueling Reports

New York Gov. Andrew Cuomo (D) said he wanted to explore eliminating the tipped wage, and the outpouring on both sides showed the stakes are high. The state’s Labor Department held hearings, and hundreds spoke on both sides of the dispute. Restaurant workers who make generous tips feared losing them, and owners feared rising costs. Others said a higher base pay would mean more certainty for workers.

A recent report, issued by the National Employment Law Project and the Center for NYC Affairs, analyzed the industry in New York state, following a minimum wage increase from $7.25 an hour at the end of 2013 to $13.50 in 2018.

The report, which aimed to influence the government to move forward on the tipped wage increase, found that the industry was “thriving,” with an expansion of restaurants that outpaces the national growth in employment, wages, and the number of restaurants.

It found that the increase benefited low-wage workers while restaurant sales rose an average of 6.6% yearly from 2014 to 2018.

By contrast, full-service restaurants in California suffer from those making the minimum wage, according to an April 2019 study from the University of California, Riverside. The report was paid for by the California Restaurant Association. It was clear from the data that there has been no growth in the full-service restaurant industry, despite rising incomes, said Christopher Thornberg, the University of Caifornia, Riverside professor who authored the report.

“It’s not a costless policy,” Thornberg said.

Restaurants Squeezed

The battle that played out in D.C. last year shows the uphill battle for this movement and how much the restaurant industry believes it stands to lose. A similar effort playing out currently in Michigan also shows the stakes on both sides. The Michigan Supreme Court is considering the state legislature’s attempt to scuttle a tipped wage increase.

A ballot initiative to eliminate the tipped wage was removed when the Republican-controlled legislature passed such a bill during its legislative session. The Republican lawmakers, before it could take effect, then gutted it.

Joel Panazzo, who owns a three-restaurant chain in Ann Arbor, Mich., fought for the “One Fair Wage” to take off in the state and testified before the legislature about his own experience with paying his workers the full minimum wage base salary of $9.85 an hour.

He said his labor costs account for about 50 percent of what it takes to run his business. For about half of his roughly 70 workers, he could lower his costs significantly by legally paying them $3.85 per hour, as long as they made it up in tips.

“We feel strongly about raising the bar across the board,” Panazzo said. “Having a workforce that knows when they can pay rent and put gas in their tank means you have workers that are committed to staying and working for you.”