GRAND RAPIDS, Mich. (WOOD) — Michigan restaurants will get at least temporary reprieve from a court ruling that would more than double wages for tipped workers.
On Friday afternoon, Judge Douglas Shapiro granted a 205-day stay on the order, giving the state more time to appeal his decision and restaurant owners time to figure out how they could accommodate higher wages.
In his decision, Shapiro said the state failed to make a case for holding off on the wage hikes, but concluded there were “justified concerns regarding the ability of employers and the relevant state agencies” to immediately make the changes required.
The stay was sought after a July 19 ruling in which Shapiro concluded the Republican-led lame-duck Legislature in 2018 violated a section of the Michigan Constitution when it approved raising wages then weakened the laws by a simple majority-approved amendment within the same session. The move ultimately circumvented a public vote on a ballot measure.
“This was just a total outrageous denial of democracy,” said Saru Jayaraman, president of One Fair Wage, which led the ballot initiative for higher wages. “Minimum wage increases have never ever failed in any state on the ballot. People have always voted yes.”
The court battle is ongoing. If Shapiro’s decision is upheld, restaurants would be required to pay tipped workers like servers and bartenders who currently make $3.75 per hour the same as regular hourly workers. Tipped workers’ wages would rise about $6. They would still collect tips.
“It’s wonderful news. It’s so significant, it’s so historic. It will impact 1 million people in Michigan who will get a raise,” Jayaraman said.
Michigan Restaurant and Lodging Association President and CEO Justin Winslow says the minimum wage increase wouldn’t have much of an impact because many restaurants are already paying hourly staff that amount. But he says raising wages for tipped employees overnight could force restaurants to cut staff, raise prices or close.
Wage changes were top of mind for restaurant owners during an MRLA meeting this week.
“There was a lot of concern, a lot of anxiety frankly from members. I don’t think people understand that this industry is still reeling from the pandemic,” Winslow said, pointing to the rising costs of commodities and labor. “It’s been very hard for restaurants to keep up. They can’t raise menu prices fast enough. A lot of people are still hanging on the edge in this industry and this would be the type of thing that would send them over for good.”
Winslow said one member who owns multiple restaurants told him it would be an immediate $10 million hit to the business, forcing it to close locations.
“I don’t know if any industry is as adaptive and resilient as this one… but this industry exists only on 5% profit margins in good times,” Winslow said.
Grand Rapids restauranteur Jeff Lobdell of Restaurant Partners Management says like many other business owners, the July 19 ruling came caught him offguard. Lobdell says the wage change could affect nearly half of his 850-person workforce, but he will wait and see how the case unfolds.
“We’re battle-tested. We’ve had shocks sent through the system. We’re resilient. We’ll do everything we can to serve our communities. We love our staff, we love our communities. That’s just the name of the game — you get served curveballs,” Lobdell said.
HOW TO MAKE IT WORK
Seven other states previously adopted higher minimum wages for service workers. Michigan is the first to join their ranks in about 30 years.
At least two Grand Rapids businesses are already paying their workers above the $9.60 and $12 rates. Tami VandenBerg, co-owner of The Meanwhile Bar and The Pyramid Scheme bar and venue, says most staff makes $12 to $15 an hour plus tips. She says she started raising wages during the pandemic as a form of hazard pay and to help cover tip losses when capacity restrictions were in place.
When labor shortages and inflation took hold, The Meanwhile and Pyramid Scheme decided to keep the higher wages in place. VandenBerg says it’s paying off in other ways.
“We’ve had every position filled for like a year and people are performing well,” she said.
VandenBerg doesn’t have a magic recipe for covering higher labor costs.
“Business 101 is you’ve got to get the money from somewhere, so you need to either increase prices or have fewer staff or find the money from another pot,” she said.
She knows her perspective isn’t popular.
“A lot of my friends don’t agree with me at all in the industry, and I feel for them. But at the end of the day, this can be life-changing for people in the industry… and I think that’s something worth trying,” she said.
THE FUTURE OF DINING
Both sides agree full-service restaurants would feel the biggest impact from higher wages, since fast food and fast casual restaurants typically rely on hourly workers instead of tipped servers.
Winslow said the number of full-service experiential restaurants would likely shrink so fine dining would be “a rare treat” while fast-casual dining would grow.
“Picture a Panera-style approach to concepts or restaurants you would never expect to fit that kind of model, he said. “You see that more on the West Coast, so I think you would see that more over here as well… the Panerafication.”
VanderBerg said she has seen alternative models in Europe and California where more restaurants rely on self-serve kiosks, ordering at a counter or other automated options.
But Jayaraman said states that have already eliminated subminimum wage have seen their full-service restaurants boom with higher growth rates and fewer closures during the COVID-19 pandemic, even when some of those states were under stricter COVID-19 lockdown rules than Michigan.
“Restaurants are managing really well… across the country that pay the full minimum wage,” she said.
Jayaraman said the higher wages have also had a ripple effect: Workers paid more stay longer in their current restaurant jobs and spend more, growing the economy and eventually driving up wages for other workers. Jayaraman says that was the case for Denny’s, which reported it had grown faster in California than in any other state because of higher worker wages.
PANDEMIC PUSHED WAGES
Staffing shortages that started near the beginning of the COVID-19 pandemic are already pushing Michigan restaurants toward higher wages. Jayaraman said job postings show more than 200 Michigan restaurants hungry for hires are already offering pay rates at or above $9.60 per hour to tipped employees.
“Restaurants are already doing this because they’re find this is the only way to stay open,” she said. “This is the way for the industry to survive, to add staff.”
“There were points at which you couldn’t even get people to apply unless you were paying $15 an hour plus tips,” VandenBerg said.
Winslow said restaurant servers are already doing well without wage changes. He said a 2022 report from the National Restaurant Association shows Michigan servers are averaging $24 per hour with tips right now.
VandenBerg said bartenders and servers make good money in fine dining places but the pay varies from restaurant to restaurant. And even with higher wages at her businesses, VandenBerg said staff are still having issues finding affordable places to live.
“From a moral, ethical perspective, we’ve got to get hospitality workers more money. With housing and inflation, it’s just too hard out there without more cash,” she said. “I know it’s going to be a challenge and it’s going to be a change but it’s critical for people to make a living wage and we just haven’t been doing that in hospitality.”
The stay granted Friday runs through Feb. 19, 2023, allowing time for an appeal. Any further stays will have to be filed through the Michigan Court of Appeals or Michigan Supreme Court.
“I think the operators and the staff like the current system and we hope it’s not changed. But if it is, we will cooperate,” Lobdell said.
Jayaraman thinks the issue could go all the way to the Michigan Supreme Court next year, but One Fair Wage isn’t waiting for a ruling. Earlier this week, the organization submitted petition signatures to bring a $15 minimum wage plus tips proposal to the ballot in 2024.
“People are saying we need a minimum of $15 to survive and that’s how we got the 600,000 signatures,” Jayaraman said.
“It’s going to come one way or another, so it’s better to figure it out now than wait,” VandenBerg said.