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Stop Killing Restaurants, California

How the minimum wage hike is going to kill restaurants and employees


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Every Californian should make at least $15 an hour. Period. In that sense, the minimum wage hike is a good thing.

But the minimum wage hike for tipped employees—namely, restaurant servers—is the most asinine and destructive thing to the California economy and its people. It’s going to kill restaurants and kill jobs. And there is a very simple fix to this problem that California seems to not have the time or sanity to put into place.

I moderated the Culinary Cinema portion of this week’s San Diego International Film Festival. After screening “Ants on a Shrimp”—a documentary about the world’s greatest restaurant, Noma, in Copenhagen—we had a Q&A with four San Diego chefs.

The scariest moment for all of them when it was brought up?

The upcoming minimum wage hike. 

No one, save for the ethically challenged, is arguing against the minimum wage hike for Californians who don’t currently make at least $15 an hour. If you own a business where employees don’t currently make $15 an hour? I’m sorry. I don’t sympathize with your argument that the minimum wage hike is going to kill your business. If your business doesn’t make enough to pay your employees $15 an hour, maybe you shouldn’t be in business.

What we should be arguing in favor of, however, is that employee tips be counted as earnings. Because they ARE earnings.

California is one of only seven states that requires restaurant owners to pay tipped employees full minimum wage. The 43 other U.S. states have the sanity to have a tip credit. That means their tips are counted as earnings. Because they ARE earnings.

Sanity.

Most tipped employees in restaurants are making at least $15 an hour already. At a particular high-profile restaurant in San Diego, the owner shared this stat with me. One of their servers made $70,000 last year working 30 hours a week. That employee is making $44.87 an hour.

Now California is going to make the restaurateur pay that person $5 an hour more? So that the employee will be making nearly $50 an hour?

How, in even the most deluded logic, is that fair? How does that do anyone any good? The only people who should be getting a wage increase are employees who don’t make $15 an hour. Namely, cooks, dishwashers, and non-tipped employees.

And by forcing restaurateurs to pay servers—already making well over minimum wage—another five bucks an hour? Guess what that does? Makes them unable to pay more to their cooks and dishwashers. Who deserve more.

But what about restaurant servers at less glamorous restaurants who don’t make $15 an hour?  

Glad you asked. There’s a very simple solution 43 states are currently using: a tip credit. If a restaurant employee isn’t making $15 an hour at, say, IHOP, then the restaurant owner is required to make up the difference until they are making $15 an hour.

This is not complex math. This is not hard. Raising minimum wage without a tip credit is just plain dumb and will kill restaurants and jobs. It will hurt the very people it’s trying to help.

Forcing restaurants—who already have created an environment where their servers are making twice, three times, four times minimum wage—to pay them $5 more an hour?

Dumb, dumb, dumb.  

True, it will help cooks and non-tipped employees. It should. But guess what? A tip credit solves that problem and makes sure every employee is making at least minimum wage.

Restaurants are already an industry with tiny profit margins. The last studies say the average profit margin for  restaurants with full service and checks averaging over $25 is 1.8 percent. Restaurants with checks averaging $15-$24.99 had a 3.5 percent profit margin. Finally, restaurants with checks averaging $15 or below had a 3 percent margin.

Tell an economist you want to sink your money into a restaurant, and the laughter will go on for days.

To avoid closing, restaurants are going to get rid of servers. Almost every restaurant owner I’ve talked to says they are looking at going toward counter-service. You order your food, pick it up yourself, and take it to your table. Counter service is cool. But it’s going to kill server jobs, and ruin the human-to-human experience of going to a restaurant.

Working as a restaurant server has helped millions of Americans earn a good living and get through college. It has helped build a solid middle class. And now the minimum wage hike, without a tip credit, is putting that all in danger. Restaurants will, without a doubt, decrease those jobs in one way or the other.

Christian Graves, who for a decade was one of San Diego’s best chefs, recently left for Colorado. The reason? The minimum wage hike. He had looked with investors into the possibility of opening a restaurant in San Diego. Because of the minimum wage hike, the numbers didn’t pan out.

So instead of creating jobs in San Diego with a new restaurant, he moved to another state that has a tip credit.

This is just the beginning. When the minimum wage hike goes through, more potential restaurateurs are going to leave. Congratulations, California, you just sent hundreds of thousands of restaurant employees to the unemployment line.

The other thing it’s going to do? Raise restaurant prices. Restaurant owners are going to have to pass that extra cost on to their customers, or go out of business. Thanks for the $20 burger, California!

Sure, some restaurants are going to be able to shoulder the cost. Know which restaurants? Chains. Giant restaurant groups who have significant cash flow.

Mom and pop restaurants are the ones who aren’t going to be able to afford it. So, congrats again, California. You just killed the small business owner and paved the way for the chainification of the restaurant landscape. Bread sticks for everyone!  

From my research, it seems the reason California doesn’t have a tip credit is because a few business owners have no scruples. They were using the tip credit to cheat employees.

Here’s a news flash: Most restaurant owners are good people. They want their employees to earn good money and be content with their job. They don’t cheat them. To not do a tip credit because less than one percent of business owners are cheating jerks? That’s some genius broad-stroking.  

How about punishing those bad people instead of punishing the 99 percent of small business owners who are fair and good? And by punishment, yes, I’m talking about the minimum wage hike for tipped employees.

Do the right thing, California. Stop the madness. Institute a tip credit. Make sure every Californian is making at least $15 an hour. But don’t make mom and pop restaurants pay $5 an hour more to a guy or gal who’s already making far, far above the minimum wage.

Don’t kill restaurants.

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