Cook County Record

Wednesday, December 11, 2019

Happy returns? Restaurateurs, lawyers watch to see how no-tipping policies impact profits, labor litigation

By Stephanie N. Grimoldby | Dec 28, 2015


As the calendar moves into 2016 and beyond, the hospitality industry could see a growing shift among restaurants to no-tipping policies, should restaurateurs across the country see many happy returns for the handful of dining establishments that have already eliminated tipping – and see whether the change might help delete lawsuits over the treatment of tipped employees from the country’s litigation menu.

A number of observers in the legal profession and hospitality industry believe the so-called “no-tipping trend” won’t be much of a trend at all, and if it does catch on, it will stay primarily confined to large, national casual dining establishments or very high-end, small restaurants.

But some independent Chicago restaurant owners believe otherwise.

No-tipping policies recently were instated at The Radler and CH Distillery, bringing the two every-day dining and drinking establishments onto the same page on tipping as such high-end Chicago establishments as Alinea, Next, The Aviary, El Ediea and 42 Grams, which also have no-tipping policies.

For their part, Adam Hebert and Tremaine Atkinson, co-founders of The Radler and CH Distillery, respectively, said it simply made more sense financially - for the restaurants and for employees - to eliminate the tip system. It also boosted morale, they said.

The owners noted their decisions to end tipping were not based on litigation problems, as neither employer has been sued by disgruntled employees over wage and hour matters. But they did concede the removal of the threat of such lawsuits would be a bonus.

“Adam and I are both independent, single business operators,” Atkinson said. “Maybe the perspective is different if you’re a very large-scale restaurant group who has a huge amount of labor … But within the next five years, [I think we’ll see a] huge shift toward this.”

Larger restaurant chains already have shown interest in no-tipping policies. In November, Joe’s Crab Shack implemented a pilot program at 18 of its nationwide locations - including its Schaumburg restaurant - that introduced a no-tipping policy for guests.

The move followed an announcement earlier in the year by New York’s Union Square Hospitality Group that formal tipping would be eliminated from the group’s restaurants in 2016.

Because the program is still in testing, Joe’s leadership won’t comment on its broader strategy as it relates to this no-tipping test, said Jennifer Lerner of FleishmanHillard, speaking on behalf of the restaurant chain.

But the pilot program came two years after Joe’s initially faced a lawsuit in the U.S. District Court for the Western District of New York in Buffalo for allegedly violating minimum wage laws, particularly those dealing with tipped employees and the non-tipped work they performed but allegedly weren’t paid for.

Joe’s tried to dismiss the case, but was denied, and earlier this year, a Fair Labor Standards Act collective action was certified to include current and former Joe’s employees in five states, including Illinois. The case, which alleged Joe’s could owe more than $5 million in damages, is still pending.

Some legal observers believe the seemingly growing trend of no-tipping policies is more closely related to wage-and-hour litigation than some in the industry may be willing to admit.

Joanna Smith, an employment litigation associate of Seyfarth Shaw LLP’s New York office,

postulated in an article she co-authored that such policies could shield restaurant owners from a gamut of violations that come from taking tip credits.

The federal Fair Labor Standards Act and associated state wage-and-hour laws allow businesses to pay tipped employees less than the full required minimum wage with the understanding that those employees will make up those lost wages in tips. In Illinois, the tip credit is 40 percent, meaning employers only have to pay tipped employees 60 percent of the minimum wage.

However, problems arise when tipped employees perform non-tipped work.

“Using servers to come in an hour before the restaurant opens, or stay late to close; to sweep, mop, clean bathrooms, portion food - this not only denies tipped employees the right to earn tips, it also denies other employees the right to earn minimum wage,” said Douglas Werman, founder and principal of Werman Salas P.C. in Chicago.

Werman is lead counsel in a proposed nationwide FLSA collective action against Buffalo Wild Wings’ corporate owned stores for such violations. That case is currently pending in the U.S. District Court for the Western District of New York and, if successful, will encompass more than 460 corporate owned stores and potentially more than 50,000 tipped BWW employees.

His firm recently helped reach a $1.8 million FLSA settlement for 1,200 servers who worked for Diversified Restaurant Holdings, Inc., a publicly traded BWW franchise operating in Illinois, Michigan, Indiana and Florida.

“The hospitality industry has more wage-and-hour law violations than any other industry,” Werman said. “[Partly because of the] complexity of tip credit laws, but also because employers are gaming the system, because taking a tip credit against the minimum wage is so incredibly advantageous to their economic bottom line.”

It stands to reason that by implementing a no-tipping policy, much of the litigation regarding tipped workers would dry up, Smith said, which could be an underlying factor in why some restaurants are turning to such policies. Gone would be the days of employees and former employees filing subminimum wage suits, discrimination suits based on “unfair” tipping and more, she said.

However, Smith said it is difficult to see concrete evidence regarding litigation just yet because of FLSA statutes of limitations, which allow employees to reach into the past to collect lost wages. In New York, for instance, the statute of limitations is six years. In Illinois, it’s three. Federal statutes are 2-3 years, depending if the violation is willful.

“You’ll eventually see long-term changes,” Smith said. “[Everyone] is sort of waiting. I think that’s the thing - [restaurants] are going to see if it works well for their model. Some of the restaurants that have come out for the no-tipping policy have been very large, part of a big conglomerate. Small, start-up businesses might have a very different way of looking at it.”

The National Restaurant Association hasn’t taken a position on the issue, noting that the nation’s 1 million-plus restaurants have unique business models and deserve to have the freedom to choose what works best for their business and employees, said Christin Fernandez, director of media relations and public affairs for the NRA.

Fernandez, however, did note the National Restaurant Association’s data indicated tipping is still supported by the majority of diners, and by many working tableside throughout the U.S.

“We’ve found that the practice of tipping has traditionally attracted millions of employees to our industry,” Fernandez said. “The current tipped model still has strong support from American diners, and they are more than happy to promote a spirit of hospitality by rewarding good service. In a recent ORC poll, over 65 percent of consumers asked said they would keep with the current tipping system.”

Hebert and Atkinson feel differently.

“The last experience you give your customer when they’ve been dining with you is, you give them a bill and you make them make a decision on what to pay,” Atkinson said. “What a lousy way to end the evening … . Taking that out should make for a gentler dining experience.”

Hebert said his guests love the new no-tipping policy, as do his staff.

By eliminating tipping - which both The Radler and CH Distillery did by implementing an 18 percent service charge instead of increasing food prices - and paying employees a flat, hourly rate, earnings are more evenly distributed between front-of-house and back-of-house employees, and workers know what they’ll be taking home each night.

Both Hebert and Atkinson believe the trend will catch on.

“If we can do it, Denny’s can do it,” Hebert said. “I truly believe in the next 10 to 15 years, tipping will be completely gone, especially in major cities.”

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Organizations in this Story

Werman SalasSeyfarth Shaw, LLP