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Published in Small Business

Raising minimum, tipped wages expected to cause ‘monumental shift’ for restaurants

BY Wednesday, December 21, 2022 03:46pm

Michigan’s minimum and tipped minimum wages are both set to increase in 2023, while pending litigation could cause even more significant changes for the hospitality industry that proponents say are overdue and some operators fear.

Under the state Improved Workforce Opportunity Wage Act of 2018, Michigan’s minimum wage is set to increase from $9.87 to $10.10 per hour on Jan. 1, while the tipped minimum wage will increase from $3.75 to $3.84 per hour. 

The voter-initiated law initially sought to raise Michigan’s minimum wage to $12 an hour by 2022 and eliminate the tipped minimum wage in 2024. However, the Republican-led Legislature in 2018 used a controversial “adopt and amend” strategy to water down the legislation and stall the increases for both wage structures. 

A July 2022 Court of Claims ruling voided the Legislature’s amended version of the Wage Act, but then subsequently ordered a delay of the decision until Feb. 19, 2023, to give employers and state agencies more time to adjust to the new requirements. Absent a court ruling halting the Court of Claims decision, the minimum wage will increase to $13.03 in February 2023 and increase to $11.73 for tipped employees.

Lucas Grill, who owns the 1983 Restaurants LLC group that operates multiple restaurants in Holland, supports raising the minimum wage, but not the tipped wage. 

He says the restaurant industry is unique, and a ruling eliminating tipped wages would upend the entire sector.

“To give workers more in their pockets is a great thing,” Grill told MiBiz. “(But) workers don’t want this as much as restaurant owners don’t want it. What you’ll see overnight is a tremendous shift in the service concept for a lot of restaurants. A lot will say, ‘We don’t have servers or bartenders anymore,’ they will cut those positions.”

Following an appeal of the Court of Claims ruling, a panel of state Court of Appeals judges in Detroit heard arguments on Dec. 13 about the future minimum wage laws. Attorneys asked the Court of Appeals to issue its ruling by Feb. 1, according to media reports.

Restaurant workers ‘bill of rights’ 

Meanwhile, a member of Congress from Michigan aims to recognize restaurant workers’ well being via recently introduced legislation known as the Restaurant Workers Bill of Rights.

During a virtual press conference this week, bill sponsor U.S. Rep. Rashida Tlaib of Detroit noted “bailouts” that were provided to restaurant owners throughout the pandemic, while similar measures weren’t taken on workers’ behalf.

The Restaurant Workers Bill of Rights calls for the federal government’s recognition of the right to a “thriving wage” for restaurant workers, paid time off to recover from illness and care for family members, a workplace environment free from discrimination and harassment, access to affordable and comprehensive health care, the right to participate in governance like voting and organizing and eliminating the tip credit. 

Crystal Coleman, a 52-year old restaurant employee in Detroit, also spoke at the virtual press conference in favor of the Restaurant Workers Bill of Rights.

“I have seen all of the challenges and systemic issues that restaurant workers face each and every day,” Coleman said, who started working in the restaurant industry at age 18. 

Other bill proponents say the tipped wage system has caused racial inequities.

“The sub-minimum wage has led to significant racial and gender-based pay disparities,” said Tanya Wallace-Gobern, executive director of the National Black Workers Centers. “This resolution continues the Civil Rights movement work of the 1960s. It’s way past time to make sure restaurant workers have the right to thriving wages.”

The Restaurant Opportunities Center of Michigan was among the organizations that brought the initial lawsuit against the adopt-and-amend tactic used by the Legislature in 2018. ROC is advocating for the original petition language of the Wage Act to go into effect. 

“We’re far behind, and the minimum wage should have increased years ago,” Chris White, director of ROC Michigan, told MiBiz. 

As well, eliminating the tipped wage will give a boost to restaurant workers along the lakeshore in Michigan who see a big slowdown in the winter months, White said. 

“It’s the treatment of workers that leads to turnover and if we as an industry start to treat our workers better and treat them as human beings, if we start to view and take a more pragmatic approach of doing business, we’ll get through this,” White added.

‘Monumental shift’

Chris Wessely, founder and executive chef at Noodlepig restaurant, uses a tip pool for his workers. Noodlepig opened in November at 601 Bond Ave. in Grand Rapids, and Wessely welcomes raising the minimum wage and doing away with the tipped minimum wage. 

“We’re all cross-trained in different departments and the idea behind that is we don’t have to cut people,” Wessely said. “The concern is if it’s slow and you get cut there is no consistency in your paycheck. If you know how to do dishes and the cash register and cook, we can all step in and handle it. If we’re slow you can start some prep work, there is always something to do in the kitchen so when we schedule we’re pretty on point with that.”

Employees at Noodlepig make a starting wage of $14 to $20 an hour, and tips are distributed equally to all of the staff. Wages are increased an average of $5 an hour from tips, Wessely said.

“That behooves everyone to work together as a team to get the best service possible and there is no animosity between the front and the back of the house,” he said. “With us being a Japanese restaurant, I brought a little Japanese flair in how we run things because I realize every job is important and without that, we won’t function. I look at every position equally.”

Wessely admits that the potentially increased minimum wage will be easier on restaurants like his that have limited table service, compared to fine dining establishments where changes will “rock the foundation,” he said.

“It could change pricing and the way they run their restaurants,” Wessely said. “But like anything, if we fundamentally believe it’s the best way, we’ll find a way to resettle.”

Eliminating the tipped wage system would indeed cause a “monumental shift” in how restaurants operate — but the change is inevitable, said Paul Lee, co-owner of All In Hospitality Group LLC, which owns Grand Rapids restaurants Donkey, Hancock and Winchester. 

“Michigan is a little behind compared to other markets,” Lee said. “If you look in bigger cities, servers are making an hourly rate of, let’s say $15 an hour. That’s well above the tipped credit now. The shift you’ll see is places are going move toward fast-casual concepts so you’ll see more counter service and you won’t see these restaurants offering a more full-service experience. If you do, they’ll be set up in a way with QR codes to cut down on servers. If you see the elimination of the tipped credit, that’s when you’ll see the elimination of the full-service restaurant.”

Lee is in support of raising the minimum wage, and welcomes a shift in thinking of restaurant and service jobs to being viewed as the high-skilled positions they are, he said. However, employees will start costing “three times as much” without the tipped wage, and restaurants will start cutting staff, he said.

“These things will all be phased in over time,” Lee said. “As an operator, it’s absolutely important to look at what’s happening in other markets. Michigan is generally behind the times. This stuff is happening in other markets and we can’t bury our heads in the sand and act like it’s not going to happen.”

All In Hospitality initially tried to eliminate table service at Hancock, but it was not well-received with patrons, Lee said. That suggests a learning curve ahead.

“It was more confusing to people and most were not accepting of it,” Lee said. “But now we’re getting to the point where this is happening, it’s just a matter of do we want to get ahead of it or wait until we’re forced to do it?”

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