Trump's Tip-Pooling Policy Is Shaking Up the Restaurant Industry. But Is That the Real Problem?

Trump's Tip-Pooling Policy Is Shaking Up the Restaurant Industry. But Is That the Real Problem?

There are just a few weeks left to comment on the Trump administration’s proposal that would provide restaurants and other food industry-adjacent businesses the ability to pool tips earned by servers and share them with untipped workers such as cooks, dishwashers and other back-of-house employees.

Based on the more than 270,000 viewable remarks online, the proposal is not sitting well with the general public. A cursory search of the word “oppose” brought up 78,363 results, and the word “object” rendered 37,908 results. Even a search for the word “appalled” yielded 61 impassioned responses.

One such response came from Carmen F. Bria Jr.: “Why in the world would anyone do this. This is absolutely ridiculous. Robin Hood would be appalled! Stop being assholes and start helping real people!”

What is tip pooling?
Despite the several thousand formal objections to the rule, the restaurant industry as a whole — from wait staff to the National Restaurant Association — seems to be severely divided.

“There's a lot of misconception about what tip pooling means,” says Andrew Rittler, executive director of the Greater Dallas Restaurant Association. “The folks in our industry are trying to dispel the misnomer.”

Under the Obama administration’s 2011 regulations, tips, according to the Fair Labor Standard Act, are considered the “property of the employee,” specifically service-facing employees such as waiters, bussers and bartenders. Tips can be shared in a valid tip pool only among those employees but not with dishwashers, cooks, chefs and janitors, who are paid at least the federal minimum wage ($7.25 an hour) and therefore aren’t customarily tipped.

As it stands in Texas and most states, employers may take a “tip credit,” allowing them to pay their tipped service-facing staff less than the minimum wage, at $2.13 an hour, as long as workers' tips will bring that hourly pay up to $7.25. For some servers, a busy night could yield well more than that. According to restaurateur Danny Meyer's book Setting the Table, as food prices have increased over the past three decades, servers’ hourly income has drastically outpaced that of untipped colleagues in the kitchen.

Those in favor of tip pooling, like Rittler, believe tips should be distributed fairly among the house to address that compensation gap. In December, the Department of Labor proposed just that: allowing employers to collect servers’ tips and use them as they see fit, as long as all of their workers are paid at least the minimum wage.

“You have less wage disparity when you make tip-pooling an option," Rittler says. "We’re all working toward the same goal. The dishes need to be washed, the food needs to be grilled or sautéed properly. There’s as much effort going on in the back of the house as the front, so those folks should have the opportunity to benefit as much.

"Tips can make a huge difference," he says. "[They] create a tremendous opportunity and competitive advantage to keep the dinner shift alive on a Friday and Saturday night.”

Why do some in the industry say it’s problematic?
Waitstaff across the country point out that the big problem isn’t whether they’d be willing to share their earnings; it’s that per the proposed regulations, tip pooling would become compulsory as long as employers are able to pay all its workers minimum wage (or more depending on the market). Saru Jayaraman is the co-founder and president of the Restaurant Opportunities Centers United and the director of the Food Labor Research Center at the University of California, Berkeley. In this scenario, she says, the tips would no longer be considered the property of the employee; rather, they're the property of the employer.

“It gives complete control of the tips to employers, so that they can take workers’ tips and go buy a Mercedes or expand the restaurant or do whatever they want. Even in Texas, when a customer leaves a tip, they don’t believe they’re leaving it to give the employer a bonus," Jayaraman says. "They think they’re giving the worker an extra amount. That’s what makes it so problematic: It’s basically theft from workers, and it constitutes consumer fraud because consumers believe they’re leaving the tip for workers.”

Ideally, Rittler says, an employer would divvy up tips fairly. But the employer could also pocket it all or funnel it toward capital improvements in the restaurant — or underwriting for happy hour specials. Even the National Restaurant Association, which came out in full support of the Trump administration’s proposed changes, has acknowledged this loophole.

“We aren’t supporting managers and non-part-time staff to take part in the tip sharing. As an industry, it’s a terrible practice to consider that. If they do, I guarantee there are people who aren’t going to want to work there,” Rittler says. “If you want to create an adversarial situation in your restaurant, that’s an issue. I would say [that] most of our restaurant operators that utilize tip pooling are doing it because they want to include those in the back of the house.”

When you leave a tip at a bar or restaurant, who are you really tipping? Discussions about potential changes to the legislation governing tips recently raised the question.
When you leave a tip at a bar or restaurant, who are you really tipping? Discussions about potential changes to the legislation governing tips recently raised the question.

There is a history of wage theft allegations across the U.S. — even in Dallas.
“Right now, the law says employers can’t take tips or wages, but the Department of Labor reports that we have the highest rates of violations on that of any industry,” Jayaraman says. “So you’ve got pervasive noncompliance of the law already.”

According to an investigation of the 10 most populous states by the Economic Policy Institute, 2.4 million workers lose $8 billion annually (approximately $3,300 per year for year-round workers) to minimum-wage violations. That’s nearly a quarter of their earned wages. These violations range from paying below the federal minimum wage and asking employees to work off the clock to denying meal breaks and confiscating tips.

The report found the severity of underpayment and wage violations is worst in Pennsylvania and Texas, “where the average victim of a minimum wage violation is cheated out of over 30 percent of earned pay.” In Texas, that's an average of $85 lost each week.

In October, two months after Deep Ellum’s Filament abruptly shuttered, restaurant employees began alleging that they had not been compensated fully for their work. Andrew Asaff, a former line cook at Filament, told Eater that he and others at the restaurant were only paid about 83 percent of their final paychecks. Shortly after, Jason Perkins, Filament’s chef de cuisine, said that he had not been paid in full after the restaurant closed.

In 2012, chef Mario Batali paid $5.25 million in a settlement with 117 waiters, captains, servers and busboys, who claimed Batali and his partner pocketed their tips to pad profits. Since then, Philadelphia’s Zahav restaurant has had to settle a class-action lawsuit for illegal tip pooling; so have Blue Hill at Stone Barns in upstate New York and Danny Meyer’s Gramercy Tavern in New York City.

The situation is even worse in the chain sphere, where, according to Department of Labor data, restaurant groups such as DineEquity, which owns IHOP and Applebee’s, have had to pay numerous fines for wage theft. So it’s not unfathomable that servers across the board are wary of mandatory tip pooling and how it could further impact their livelihood, worker advocates say.

Is tip pooling really the problem?
Tip pooling is just one component of a “clusterfuck of issues” says Louise Owens, former owner of the Windmill Lounge in Dallas and a restaurant veteran of 40 years. In Texas, she says, issues range from low, stagnant pay to lack of worker protections and the rising cost of business.

“It’s untenable how we’ve been doing it," Owens says.

When it comes to pooling tips, some worker advocates say when base wages are equal, sharing with the back of the house can be an effective way to close remaining wage gaps. But if the issue really is equity and competitive pay, why not just pay restaurant workers more across the board?

The restaurant industry is the fastest-growing sector of the economy, according to industry trade groups. The Dallas-Fort Worth area comprises a quarter of the industry in Texas — and even that’s a conservative estimate, according to the Greater Dallas Restaurant Association. Yet the industry as a whole is the lowest-paying employer in the country; seven out of the 10 lowest-paying jobs are in food service.

The problem, Owens says, is that the industry as a whole is undervalued. In order to pay workers more — both front and back of house — food needs to cost more.

“We’re so enthralled with cheap food,” Owens says. “Do you know why an entree might cost $30 to $40 instead of the $5 it cost [the restaurant]? Look how expensive it is to keep the place open. But people always want the cheapest deal. They want bang for their buck. We don’t charge enough for food, and until we start charging enough for food, we need to figure out where to get money to pay for those in the kitchen.”

Rittler says restaurants rely on tipping to keep costs low. Otherwise, “what does paying a living wage come with?" he asks. "What would a burger cost you?”

Some in the business have taken the radical approach of abandoning tipping altogether — bucking not only the generosity of customers but the entire wage system by setting menu prices higher, and in doing so, hopefully paying better wages and retaining a more satisfied workforce in an industry with rampant turnover.

New York restaurateur and Shake Shack owner Danny Meyer tried that in 2015. His workers have reported that the no-tipping policy ultimately led to lower pay and higher turnover — and he’s being sued for it. But Meyer stands firm in the idea that tipping is “one of the biggest hoaxes pulled on [American] culture” and an excuse to pay restaurant staff less. Eliminating tips and raising prices was an earnest attempt to give his employees more stable and equitable wages.

There’s at least one local example of success. In November 2016, Canary by Gorji went “boldly where no Dallas restaurant had gone before: It banned tips,” the Observer’s Brian Reinhart reported. Chef-owner Mansour Gorji raised prices by about 15 percent to 20 percent and began paying his five employees steady wages, and as of April, the restaurant is still thriving. Gorji wrote on his website that he believes eliminating tipping is the “wave of the future of fine dining,” pointing to Michelin research that found the international culinary scene, in which tips are small or not expected, is creating the most highly rated fine dining establishments in the world.

Gorji hasn’t disclosed how much more his employees make, but it’s “way above minimum wage” with incremental increases depending on experience and longevity, he says.

"Everyone consistently makes comparable or better wages than their respective positions' average in the hospitality industry here in Dallas,” he told the Observer.

And in a market like Dallas, where new restaurants are popping up constantly and there aren't enough employees to staff them, those in the biz are grappling with how to foster and retain qualified staff.

“Dallas is competitive because you also have restaurants that are popping up in droves in Collin and Denton counties," Rittler says. "We have an issue with a competitive workforce. There’s a ton of turnover, and if they want a new job, they can get a new job. You can’t afford to just skimp on your employees. The biggest issue is not how do I tip my waiters, but how do we keep them?”

The public comment period for the Trump administration's proposed tip changes ends Feb. 5. If the Department of Labor ultimately decides to go forward with the decision to reinstate tip pooling, a slew of lawsuits from workers’ rights groups will likely meet and possibly halt the changes. So when this debate is over, it’s important that the conversation around equity and worker protections in the restaurant and service industries doesn’t stop at tip pooling.

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