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The Tipping Point - A Test For No Tip Policies and What It Means For Restaurant Employees
Why some restaurants are bucking tradition and eliminating tipping altogether
Over the last few years, there has been a no tipping movement within the restaurant industry.
The premise behind it was to rectify basic pay unfairness and even out the pay between tipped and un-tipped employees. The idea is simple in its foundation – do away with tipping, raise menu prices a little bit and pay everyone a higher wage.
One of the biggest restaurateurs to eliminate tipping has been Union Square Hospitality Group’s CEO Danny Meyer. Union Square Hospitality Group is the organization behind some of New York’s hottest restaurants including Gramercy Tavern, Blue Smoke, Marta and The Modern. Meyer said he wanted to implement these new rules across all 13 of his New York restaurants to make it easier for consumers to pay their bill and allow employees to make more money.
“We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us,” Meyer said in a statement published on Union Square Hospitality Group’s website. “Unfortunately, many of our colleagues — our cooks, reservationists, and dishwashers to name a few — aren’t able to share in our guests’ generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants.”
As the no tipping movement gained steam last year, Joe’s Crab Shack made waves by becoming the first national chain to eliminate tipping. On the surface it was a bold move designed to deliver a better customer experience, but the shift was not well received. Joe’s Crab Shack is puling the plug on 14 of 18 restaurants that were testing the new policy.
In an earnings call earlier this month, Bob Merritt, CEO of Ignite Restaurant Group, the parent company that operates Joe’s Crab Shack, said, “The system has to change at some point, but our customers spoke very loudly. And a lot of them voted with their feet.”
In fact, in Ignite’s first quarter SEC filing, it revealed that the no-tipping policy was responsible for labor expenses increasing by 3.2 percent, year-over-year. Those higher expenses resulted in a 16.2 percent drop in income compared to the first quarter of 2015. It was also reported that customer counts dropped by 8 to 10 percent, on average as well.
While the results have been uneven for Joe’s Crab Shack, there are a number of other factors contributing to the no tipping discussion. California’s 9th Circuit Court of Appeals upheld a 2011 ruling that bans restaurants from making wait staff and bartenders share tips with back-of-the-house employees. The ruling may not have an impact right out of the gate, as most restaurants in California don’t allow tip sharing between front-of-the-house and back-of-house employees because it was a legal grey area. However, the court’s decision is fueling a discussion over how businesses can compensate employees and many restaurants are trying out an all-inclusive service charge to distribute pay equally among employees.
Furthermore, the battle over raising the minimum wage in cities and states such as Seattle, New York and California could also help even out the disparity between restaurant employees.
Meyer went on to say that at the end of the day restaurants and other businesses are trying to reach one goal – serving the customers. By eliminating tipping, brands may be able to bring teams closer together, act more cohesively and deliver a better customer experience while remaining profitable.
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