Chain Restaurants Post Record Profits While Lobbying to Pay Workers Less

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Restaurants have shifted labor costs onto the backs of tipped workers and their customers—and some big chain restaurants are lobbying state lawmakers to keep it that way.

Tipped workers are hurting in America. In the restaurant industry, where the majority of the nation’s six million tipped employees work, over 20 percent of those workers live in poverty. According to an analysis by the Restaurant Opportunities Centers (ROC) United, of the tipped restaurant workers who are parents, 40 percent say they must rely on free public school lunches to feed their kids. This, and other types of public assistance tipped workers rely on, costs taxpayers $9.4 billion per year according to a report released today from ROC United.

Yet merely raising the minimum wage won’t help many of these workers. In the states where it is legal, their employers only pay them a sub-minimum hourly wage of $2.13 per hour. Their customers, through tips, pay the remainder of their salary. Restaurants have shifted nearly the entire cost of servers’ labor onto the backs of the workers and their customers—and the National Restaurant Association (NRA) is lobbying in some statehouses to keep it that way.

Employees at Darden-owned Red Lobster. Image via glassdoor

Employees at Red Lobster. Image via glassdoor

Large chain restaurant owners and their hired lobbyists have recently swarmed state legislatures such as Minnesota and Rhode Island. Why? They want to prevent any new laws that would require restaurants to pay their tipped workers a base hourly wage greater than the sub-minimum wage currently allowable.

The NRA (led by former Godfather’s Pizza CEO, past presidential hopeful, and Religious Right darling Herman Cain) negotiated the sub-minimum wage with Congress on behalf of the restaurant industry in the mid-1990s, and it has been stuck at $2.13 ever since. A handful of states, including Alaska, Montana, Nevada, Minnesota, California, Oregon, and Washington, have passed laws to bring the tipped wage up to match the minimum wage paid to other workers. Other states have raised the tipped minimum wage by tiny amounts—in Arkansas, for example, it’s $2.63. But now the NRA and its lobbyists are trying various legislative maneuvers to stop more states from doing the same.

Employers are required to pay the difference—but many don’t

Technically, if a worker didn’t make enough in tips to equal the federal minimum wage of $7.25 per hour, their employer is required under the Fair Labor Standards Act to pay the employee the difference. But evidence suggests this almost never happens.

ROC United published a report last year showing an 84 percent noncompliance rate among 9000 cases investigated by the Wage and Hour Division of the US Department of Labor. Again, 84 percent of the restaurants investigated did not pay what they were required to pay, so many of those workers likely made less than minimum wage.

What is more, anyone who has spent years waiting tables in diners and family-style restaurants, as I have, can corroborate that it is rare for an employer to pay them the difference–called the tip credit– if they failed to get enough tips to equal $7.25 per hour. Server Tiffany Kirk recently told CNN Money that she can barely make ends meet on her income–and she’s one of the lucky ones whose employer does pay the tip credit. “Kirk said she is fortunate that the owner of “Howl at the Moon” follows the law and pays her at least the Texas minimum wage of $7.25 if her tips don’t add up. Many businesses don’t.”

Ondre Anderson, a server at a “casual fine dining” establishment in New York City, spoke to the New York Times about this in February. “When you’re working for $5 an hour, that’s basically just food money for the month,” said Mr. Anderson, 33, who added that he hoped to earn enough to move from a homeless shelter in Queens into an apartment. “We never know where our tips are coming from. Some people tip and some people don’t.”

Business owners and lawyers defend the current system of tipped wages with either fairy tales about highly-paid servers, or with straight denial. NRA spokesman Scott DeFife recently told NPR that “Tipped employees at restaurants are among the highest-paid employees in the establishment, regularly earning $16 to $22 an hour…Nobody is making $2.13 an hour.” Other defenders of big business, such as employer-side labor law blogger John E. Thompson, maintain that “there is no such thing” as a tipped wage, because employers must make up the difference between the minimum wage and the $2.13 subminimum. As we’ve seen, in practice this rarely occurs.

Restaurants can afford to compensate workers fairly

Tipped employees such as servers do earn vast, ever-increasing profits, but those profits go almost exclusively to the restaurant owners—with little to none of the increase benefitting the workers and their families. The industry projects that it will make a record-high $709 billion in sales in 2015. This number has steadily increased for six years running. One can reasonably conclude that the restaurant industry overall has recovered from the 2008 recession.

The biggest of these employers, chain restaurant owners such as Darden (which owns Olive Garden and several other brands) and Disney, take the money their tipped (and other) workers have made for them and use it to lobby against better wages for those same workers. They donate to the political campaigns of lawmakers who will vote against a fair wage and other worker-friendly policies such as paid sick days. They pay into the National Restaurant Association’s coffers, and the NRA then pays millions to lobby Congress and in the states to do various things to block the rights of restaurant workers. For example, one NRA-funded GOP lawmaker proposed a bill a few weeks back in Minnesota, that would re-set the tipped minimum wage from $2.13 to $8 per hour and—but would cap it there. What sort of position is that to take on behalf of a wildly profitable industry?

The industry is flush with the cash its employees earn. Restaurant owners can certainly afford to pay a living wage. One might ask why they are using the money their workers have made for them to lobby so hard—and so publicly—against them.

Mariya Strauss is PRA's former economic justice researcher and a former guest editor for The Public Eye magazine. A Maryland-based freelance writer, her investigative journalism and commentary have been published in The Nation, at the GlobalComment blog, and The Public Eye magazine, among others. You can follow her on Twitter at @mariyastrauss.