Traverse City restaurateurs are gearing up for a Michigan Court of Appeals hearing Tuesday that could determine whether a planned increase in the state’s minimum wage and elimination of the state’s tip credit in February will go forward — a a move the owners say will make the restaurants unsustainable and pose an “existential threat” to the industry.
Michigan’s minimum wage is set to jump from $9.87 to more than $13 in February after a Michigan Court of Claims judge cleared the way this summer for the proposal to proceed. The minimum wage for tipped employees — such as bartenders and servers — will also increase from $3.75 to approximately $11.75, according to the Michigan Restaurant & Lodging Association (MRLA). That increase would effectively eliminate the tip credit in Michigan, making it one of the few states in the country without one. Currently, employers can pay tipped employees $3.75 an hour – taking a tip credit of up to $6.12 an hour – as long as the employees earn at least $9.87 an hour with tips.
A petition on the 2018 ballot seeks to raise the minimum wage, including for tipped employees — forcing the legislature to either offer a state vote on the proposal or pass legislation to do so. Lawmakers passed the legislation, but subsequent bills effectively weakened it, keeping the tipped wage at 38 percent of the base and putting off minimum wage increases until 2030, among other changes.
This summer, Judge Douglas Shapiro of the Michigan Court of Claims ruled that the legislature cannot avoid a ballot petition vote by passing the law and then amending it in the same session. At least one election should take place in between, he said, allowing voters to act as they wish. Shaapiro gave a green light for the minimum wage proposal to continue, giving business owners and regulators 205 days – until February 19 – to prepare for the changes. On Tuesday, the Michigan Court of Appeals will hold a hearing to determine whether the legislature actually has the ability to amend its law and whether Shapiro’s decision should be overturned.
MRLA says if the proposed changes are allowed to go forward, they will have “detrimental effects on Michigan’s restaurant industry.” In a survey conducted by the MRLA this fall of 307 restaurant and hotel operators in Michigan — representing more than 75,000 employees, or nearly 24 percent of Michigan’s hospitality industry — 91 percent said the decision will force them to raise prices, while 58 percent said they would have to lay off employees. Thirty-six percent expect reduced hours, while 16 percent say they may be forced to close their businesses entirely. Referring to public comments made by Governor Gretchen Whitmer this fall acknowledging concerns and a willingness to work with lawmakers on potential solutions, MRLA President and CEO Justin Winslow expressed hope that a court or legislative remedy could prevent Shapiro’s decision.
“With the release of our operator survey, it’s clear that without relief in court or through the legislature, Michigan’s restaurant industry is looking at pandemic-level closures and job losses in February when the decision kicks in, ” Winslow said in a statement. .
Many local restaurant owners confirmed that view, citing the tight margins operating under the restaurants and the 200 percent wage increase they could soon be paying for those tip employee. “That big swing can take a restaurant that earns 10 percent net to one that loses,” said Pam Marsh, co-owner of Red Ginger. “This is not sustainable. It is important to understand that our servers are above minimum wage. They don’t want to work for minimum wage. They won’t give up their nights and weekends for a minimum wage job. They love the industry, and are rewarded for the work they do so well. Marsh believes the elimination of the tip credit will be particularly harmful to “mom-and-pop” businesses. “We thought COVID was scary,” he said. “It’s more than that.”
Workshop Brewing Company owner Pete Kirkwood agreed, calling the proposal an “existential threat” to the service industry. “It’s hard for me to think it’s effective,” he said. “This seems like an idea coming from someone who has no idea how restaurants work and has never worked in the restaurant industry.” He said the changes would make staffing kitchens — already a challenge for many restaurants — “almost impossible” because of the pay disparity that would arise between front-of-the-house and back-of-the-house employees. . “I want to make it clear: I am in favor of generous wages for workers,” he said. “But it’s a misunderstanding in the world if you don’t include the tip income in that.”
While proponents of the proposal say it offers workers better protections and helps ensure staff — including tipped employees — get a steady paycheck, the organization Save Michigan Restaurants began gathering testimony from servers across the state opposing the proposal. According to MRLA survey data, servers reported earning an average of more than $25 per hour under the current tipping system, with 83 percent of respondents choosing the “status quo system over one with a higher base pay and less specific tipping culture.”
“We’re definitely going to be impacted,” said Jeff Lobdell of Restaurant Partners Management LLC, which owns Apache Trout Grill, West End Tavern, Boone’s Prime Time Pub, and other local restaurants. “But (it’s) worse for most of our front-of-house staff, primary servers, most of whom are single parents who earn a lot of income with flexible schedules and enjoy jobs, pay , working environment, and method. in life.”
Restaurant owners say they anxiously await the outcome of Tuesday’s hearing. “Hopefully this will be overturned on December 13th by the Court of Appeals,” emailed Adrienne Brunette of Honest Hospitality TC, which owns Mama Lu’s, The Flying Noodle, and The Burrow TC. “Otherwise, it’s another hurdle for restaurants in a challenging climate. We have to take drastic action that takes a lot of time and planning, and because of that, I’ll just wait until the thirteenth before spinning. on my wheels. Fingers for the restaurateurs!”
