Detroit Regional Chamber > Advocacy > Ruling on Michigan tipped wages could be ‘massive, fundamental’ change to restaurant industry

Ruling on Michigan tipped wages could be ‘massive, fundamental’ change to restaurant industry

July 25, 2022

Detroit Free Press
Arpan Lobo
July 25, 2022

GRAND RAPIDS — Thousands of tipped workers in Michigan could see major changes to their paychecks after a recent court ruling threw into question the state’s minimum wage.

In 2018, a petition initiative organized by One Fair Wage sought to allow voters to decide on raising Michigan’s minimum wage to $12 an hour by 2022 and raise the minimum wage for tipped workers to 80% of the standard minimum wage in 2022, 90% in 2023 and ultimately matching it in 2024.

But the Legislature that year adopted the legislation and then amended it, putting in lower wage thresholds that increased the minimum wage to $12.05 by 2030 instead of 2022 and kept the tipped minimum wage at 38% of the standard one.  The state’s current hourly minimum wage is $9.87 and $3.75 for workers who are expected to make up the difference in tips.

But that may not be true for long after Court of Claims Judge Douglas Shapiro ruled last week that the Legislature’s adopt-and-amend strategy — used on the minimum wage initiative and another for paid sick time — is unconstitutional.

Shapiro’s ruling could have wide-reaching effects in the hospitality sector, stakeholders say — advocates see it as a path to more consistent and higher wages, while restaurant owners are worried it could lead to tighter operating margins at a time when establishments still haven’t fully recovered from COVID-19’s effect on the industry.

The ruling is under appeal by attorneys representing the state, who have asked for a stay on the new wage structure. But members of the state’s hospitality industry are waiting to see how their businesses could be affected while court procedures play out.

“I think the hospitality folks are probably the ones that are going to be hit the hardest and the quickest by this change,” said Robert Boonin, a labor and employment attorney with Dykema law firm.

Shapiro’s ruling covers thousands of workers in Michigan — around 685,000 people in the state make $12 or less per hour, according to the Detroit Regional Chamber.

Don Grimes, an economist at the University of Michigan, in an email said since many employers, particularly in more urban areas, offer more than $12 an hour, the ruling’s more far-reaching effects are the changes to the tipped minimum wage.

Seven states currently set minimum wage levels for tipped workers at the same level as non-tipped workers: California, Oregon, Washington, Nevada, Montana, Alaska, and Minnesota, according to the Economic Opportunity Funders Network.

Saru Jayaraman, president of One Fair Wage, said subminimum wages being padded with tips in the U.S. for servers and other hospitality workers is rooted in post-Civil War attitudes toward freed slaves and Black workers, keeping their wages low.

The court order to raise the tipped minimum wage in Michigan comes at a time when workers throughout the country are organizing for greater compensation, Jayaraman added.

“Wages are going up right now, regardless of policy, because workers are demanding it,” Jayaraman told the Free Press. “Policymakers are slow always to follow what’s happening in the industry, what’s happening in the economy, so workers decided we need to take it into our own hands.”

Troy Canty, a bartender in the metro Detroit area, believes eliminating the tipped minimum wage would not get rid of America’s tipping culture, saying “people appreciate their service, and they’ll pay for it.”

Earning more money through a paycheck rather than just relying on tips would also help service workers in times of economic strain, Canty added.

“We’re in something that feels like a recession to most people, especially people in the service industry,” Canty said. “If you talk to a few of us, it’s slow everywhere. A lot of us aren’t getting the business that we are accustomed to, so getting a paycheck would really help.”

There are nearly 50,000 restaurant servers in Michigan, a position that typically earns the bulk of wages through tips from customers, per the U.S. Bureau of Labor Statistics. 

Stakeholders in the hospitality sector in Michigan have raised concerns about the court’s ruling and its effect on businesses throughout the state, with groups such as the Michigan Chamber of Commerce, Michigan Restaurant and Lodging Association, and Detroit Regional Chamber all issuing statements expressing disappointment following Shapiro’s opinion.

On the local level, restaurateurs who are going on a third year of facing market uncertainty caused by the coronavirus pandemic say the court’s ruling adds to the challenges hospitality businesses are already facing.

Lucas Grill, the owner of multiple restaurants in Holland, said the short timeline for the new wage rules to come into effect will be difficult for restaurants to navigate. The appeal asked a court to rule by Aug. 2, and a stay on Shapiro’s order is in place until Aug. 9.

Grill said added labor costs will likely result in changes to how restaurants operate, with less emphasis placed on service to ensure margins can still be met.

“What you’re going to see is massive, fundamental change in the entire model of how a restaurant operates,” Grill said. “And it’s going to happen overnight.”

Mike Karas, owner of the Salt and Pepper Pub in Holland, echoed Grill, saying it would be untenable for some restaurants to even continue operating under the new wage structure.

“It’s not a sustainable business model for us. It just isn’t. There’s no way,” he said.

Karas said adding around $6 an hour per server in wages, on top of rising costs for food and other supplies would drive prices up for customers.

“The timing of this thing is disastrous,” Karas said. “… the timing will not be good, it will be extra disastrous if this doesn’t get squashed or at least stayed for a long time. It’s going to be the death of a lot of places.”

Both Grill and Karas believe a higher minimum tipped wage would likely result in restaurants keeping fewer servers, hosts and other tipped positions on staff.

Some tipped workers think changing the wage structure for many hospitality jobs could ultimately lead to less money in their pockets.

Erika Stob, a bartender at a restaurant in the Grand Rapids area, said she worries patrons will be less willing to tip and tip well if they know their servers and bartenders are making a greater hourly wage.

“If they still tipped I’d be 100% for it,” she said. “But I just don’t think there’s a guarantee that people will be that gracious, especially in the economy we’re living in right now.”

If higher courts do not overturn Shapiro’s ruling, Michigan would be on track to be the eighth state that doesn’t separate tipped and standard minimum wages. Jayaraman said the other seven states with higher minimum wages for tipped workers have robust restaurant industries.

Jayaraman added many restaurants are already offering better wages to attract more talent, noting many eateries have begun offering more perks to workers in hopes of recruiting and retaining them.

“Frankly, the restaurant industry is growing faster, doing better in even neighboring states like Minnesota where they pay a full minimum wage with tips on top,” Jayaraman said.

The One Fair Wage website houses studies that found states with no tipped minimum wage saw equal or higher restaurant establishment and employment rates than other states from 2011 to 2016.

One Fair Wage continues to organize in Michigan — the group plans on Tuesday to submit more than 600,000 signatures to the state Bureau of Elections for a ballot intiative to raise the minimum wage to $15 an hour in the 2024 election, Jayaraman said.

State attorneys have asked the Court of Appeals to rule on the minimum wage laws by Tuesday, Aug. 2, the same date as Michigan’s statewide primary election. The court’s ruling will shape the earnings of thousands of workers in Michigan.

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