Business Columns & Blogs

There’s a simple way to solve federal crisis over restaurant tipping. Stop giving them

MCT file illustration

When it comes to restaurant tipping, the Trump administration apparently thinks socialism is best.

FBEE 2020 DAVID LAZARUS circle

The Labor Department has notified the Office of Management and Budget that it intends to rescind an Obama-era rule preventing restaurant owners from pooling servers’ tips with kitchen staff.

The rule specified that tips belong solely to the server. The Trump administration wants restaurant owners once again to be able to redistribute the wealth among non-tipped workers.

A Labor Department spokesman declined to elaborate on the agency’s OMB filing, which offers no explanation for the proposed change.

But it’s not hard to conclude the administration is responding to lobbying by the National Restaurant Association, which favors pooled tips as a way to boost compensation for kitchen staff rather than paying cooks and dishwashers higher wages.

“You’d love to be able to pay everyone $30 an hour,” said Angelo Amador, regulatory counsel for the association and executive director of its affiliated Restaurant Law Center.

“But you need to be able to make a profit,” he told me. “If you can’t make a profit, you’re out of business and nobody has a job.”

Congress amended the Fair Labor Standards Act in 1974 to allow employers to pay tipped workers less than federal minimum wage if the workers’ gratuities made up the difference.

In 2010, a federal court ruled that if an employer pays tipped workers at least the federal minimum wage of $7.25 an hour, it can require that gratuities be shared among the entire staff. In effect, this meant such tips belonged to restaurant owners, not servers.

In response, the Labor Department decided in 2011 that tips are the property of the employee, and that “the employer is prohibited from using an employee’s tips” to pool funds for kitchen staff.

“We think this is wrong,” Amador said. “The people in the back of the house are contributing to the meal just as much as the server.”

True. And that’s why I say – and have said before – that it’s time we joined most other developed nations in doing away with the archaic custom of tipping.

Instead, pay all workers a living wage.

Would restaurant prices rise by 20 percent or more to accommodate the lost gratuities? Probably. But prices would reflect the true cost of a meal, rather than masking costs with the pretense that customers are incentivizing and rewarding good service.

Some restaurants have attempted to eliminate tipping. I wrote last year about the experience of Joe’s Crab Shack, which got rid of tipping at 18 of its outlets nationwide. Within a year, almost every one of those restaurants had reintroduced the tip system – at customers’ request.

“What we know in practice is that tipping actually has little impact on service in most restaurants,” Lars Perner, an assistant professor of marketing at USC’s Marshall School of Business, said at the time. “But it gives consumers the feeling that they’re in control.”

The thing is, that sense of control is illusory. Researchers have found that most customers will tip regardless of service quality. Even crappy service will receive some reward.

As for tip pooling, such systems can be easily abused by unscrupulous restaurant owners who might cut themselves in for a piece of the action. The Obama administration sought to prevent this with its 2011 rule, which is now being litigated, possibly all the way to the U.S. Supreme Court.

The Trump administration would make that litigation moot by returning restaurant owners to the driver’s seat – as they’ve been seeking. (The National Restaurant Association spent $4.2 million on lobbying last year and $3.9 million so far this year, according to the Center for Responsive Politics.)

Better to place customers in charge by allowing them to favor businesses with their patronage, incentivizing restaurant owners to provide the best overall experience possible.

In most other parts of the world, good service is simply expected, not something that costs extra. It should be the same here.

David Lazarus is a Los Angeles Times columnist. He answers consumer questions. Contact him: david.lazarus@latimes.com or @Davidlaz. Read more by Lazarus at fblinks.com/laz.

  Comments