What a tip credit elimination means for the restaurant industry

What a tip credit elimination means for the restaurant industry
<strong> Courtesy Broad Leaf Brewery + Spirits </strong>

Michigan restaurants are facing a change in industry regulations that could dramatically alter how they operate.

Full-service restaurants in Michigan are nearing a Feb. 19, 2023, date that would eliminate the use of a tip credit, which allows workers to work below the minimum wage if they reach the threshold with tips. The Michigan Court of Claims provided a 205-day delay in August, but multiple restaurant owners told GRBJ it is a disastrous policy change.

Court of Claims Judge Douglas Shaprio wrote legislative change to voter-proposed ballot measures “thwarted the intent of the people.” While workers could benefit from the changes, restaurateurs argue they will be forced to make employment cuts because of economic pressures.

The Michigan Restaurant & Lodging Association is working to change the situation before restaurants — and their employees — across the state are left in a pickle. The MRLA believes there could be mass closures and job losses, as well as price increases for consumers.

The MRLA will discuss its plans with local stakeholders at a Dec. 6 luncheon at the Embassy Suites Grand Rapids Downtown, 710 Monroe Ave. NW. RSVPs are required by Tuesday.

There is a Michigan Court of Appeals Hearing set for Dec. 13. If a ruling from earlier this year is not overturned, Michigan minimum wage will jump to $12 and tipped minimum wage will rise to $11.75.

“The Michigan Court of Claims’ Adopt-and-Amend ruling earlier this year caught many by surprise and has had the unfortunate effect of placing Michigan’s still-recovering restaurant industry in the middle of an avoidable crisis,” MRLA President and CEO Justin Winslow said in a statement this month. “Through the release of our operator survey, it is empirically clear that without relief in court or through the legislature, Michigan’s restaurant industry is staring down pandemic-level closures and job loss in February when the ruling takes effect.

“As we look to the lame duck legislative session ahead, we are encouraged by the governor’s public acknowledgement that a reasonable legislative solution is the best option and are working with the legislature to ensure that such a solution reaches her desk before it is too late.”

The MLRA said if the Feb. 19 date remains, labor costs for Michigan restaurants would jump 156% overnight.

“Thousands of independent restaurants struggle to operate profitably right now, and many remain saddled with debt from the pandemic, so their ability to pivot to a new business model that would increase their cost of business 156% overnight simply does not exist. Tens of thousands of jobs would be lost and hundreds, perhaps more, restaurants would be forced to close their doors,” Winslow said.

The MRLA survey released this month found:

  • 91% of restaurants would increase prices
  • 58% would lay off employees
  • 36% would reduce hours
  • 18% would take other actions
  • 16% would close

Grand Rapids restaurant owners, while concerned about the minimum wage, told GRBJ a paid sick leave law is more threatening. Under the change, all employees are entitled to one hour of paid medical leave for 30 hours worked, up to 72 hours per year. Previously, only employers with more than 50 employees were required to award sick days.

“We are incredibly concerned about the crippling effect this ruling could have on Michigan employers and employees alike,” Michigan Chamber of Commerce Vice President of Business Advocacy and Member Engagement Wendy Block said in a statement. “While we are still sorting through the details, we are stunned by this determination and its many varied implications. The talent shortage has employers already paying historic wages and benefits —  all while facing rising inflation and supply chain chaos — just to keep the doors open.

“Employees should be equally concerned about the cost pressures this decision will place on businesses and the impact it could have on employee hours and benefits. We believe time and energy should focus on ways to help job providers fully rebound from COVID impacts and workers overcome barriers to employment like ensuring affordable child care, housing and transportation. We remain hopeful the Court of Claims decision ultimately will be overturned.”

This story can be found in the Dec. 12 issue of the Grand Rapids Business Journal. To get more stories like this delivered to your mailbox, subscribe here.