The Tipping Point

By Bianca Petcu

Increasing the minimum wage and refining the tipping process in the service industry continues to permeate through society.[1]  There are currently 18 states that have increased the minimum wage for service workers and other minimum wage employees in their states.[2]  Raising the minimum wage is only one idea for how companies can offer employees a better quality of life in a time when the average minimum wage is almost impossible to live on in most states.[3]  Some companies, like restaurants, whose employees have another means of income through tips, are looking into the tipping process to increase its efficiency or eliminate it all together.[4]

While the process to increase minimum wage is one that state governments must vote and agree on, whether to implement a “minimum tip percentage” or to increase restaurant prices and therefore eliminate tipping is one that a private company makes.[5] However, their efforts to  change the tipping system have been widely litigated.[6]  For example, Danny Meyer, head of Union Square Hospitality and most famously known for creating Shake Shack, decided in 2015 to eliminate tipping from all restaurants in his hospitality group.[7] He justified this move by noting that tips can be manipulative and actually harmful to his employees.[8]  Instead, Meyer decided to increase food prices at his restaurant to embed “tip prices” into his menu and therefore pay his employees a higher salary per this increase in revenue from higher food prices.[9]

Meyer was almost immediately sued because of this decision.[10]  The Northern District of California is in the process of hearing a class action lawsuit against Meyer’s hospitality group and others on an anti-competitive claim.[11]   This lawsuit is attempting to thwart Meyer’s desire to change a system in the restaurant industry that he sees as keeping employee wages as stagnant and far too dependent on uncontrollable factors.[12]  Meyer’s argument is similar to that of the states that are implementing higher minimum wages for their service industry and minimum wage employees: without a change in the industry, people will have to get another job.[13]  But the Northern District of California found that this has been a large conspiracy by big restaurants to keep more profits for themselves, become anti-competitive to the industry, and actually hurt employees by removing the extra independence they have from their employers via their tips.[14]

Similarly, the Southern District of New York is currently in the process of hearing a case on the “minimum tip requirement.”[15]  Applebee’s implemented this on their menu through their new high-tech tablets where customers can re-order drinks, food, dessert, and pay their checks without needing a hostess.[16]  The plaintiffs in this case were eating at an Applebee’s in Times Square.[17]  The tip page on the self-service tablet required a 15% tip minimum, thus leaving the customers (here, plaintiffs) no option to leave less than 15% tip, or even no tip at all.[18]  They sued Applebee’s and are now alleging that the 15% minimum tip requirement was forced upon them and not disclosed until after they received the check.[19]

The Southern District of New York has already denied the defendants’ motion to dismiss because they found that to be premature and decided that this case needs to move through discovery.[20]  Though it is unclear how the court will decide; the Southern District will probably use the Northern District of California’s ruling in Danny Meyer’s case as precedent, considering any change to the status quo of tipping will affect the entire restaurant market.  Additionally, since the Southern District of New York denied defendants’ motion to dismiss, the court is already leaning towards taking the plaintiffs’ argument of “forceful tipping” seriously; as if the restaurants are directly lying to their consumers and forcing them to overpay for their meals and unjustly enriching themselves.[21]

Both the Southern District of New York’s and the Northern District of California’s ultimate decisions here could inevitably deter more restaurateurs and restaurants from finding more creative ways to protect their employees from manipulation and unlivable wages. The decision will also affect restaurants in states that aren’t implementing higher minimum wages. Businesses often have their employees in mind when employing new business models for their companies, but the court has clearly disagreed with most of these plans when it comes to wages.  It will be interesting to see if the government or judiciary continue to thwart private businesses decisions and override their visions of a new future for this industry.

[1] Brenna Houck, How Restaurants Are Surviving Higher Minimum Wages, Eater (Jan. 23, 2018) https://www.eater.com/2018/1/23/16917388/minimum-wage-restaurant-challenges; Jennifer Medina, California Today: Raises Come With Increase in Minimum Wage, N.Y. Times (Jan. 5, 2018) https://www.nytimes.com/2018/01/05/us/california-today-raises-come-with-increase-in-minimum-wage.html.

[2] Janelle Jones, 18 States Will Increase Their Minimum Wages on January 1, Benefiting 4.5 Million Workers, Econ. Policy Inst. (Dec. 21, 2017) https://www.epi.org/publication/18-states-will-increase-their-minimum-wages-on-january-1-benefitting-4-5-million-workers/.

[3] Jillian Berman, This is Why You Can’t Survive on the Minimum Wage, MarketWatch (Oct. 25, 2016) https://www.marketwatch.com/story/this-is-why-you-cant-survive-on-the-minimum-wage-2016-10-25; Alastair Gee, Earn Minimum Wage in the US? You Can Afford to Live in Exactly 12 Counties, Guardian (Jun. 8, 2017)

https://www.theguardian.com/us-news/2017/jun/08/minimum-wage-affordable-housing-rentals-study.

[4] Ryan Sutton, Danny Meyer Is Eliminating All Tipping at His Restaurants, Eater (Oct. 14, 2015) https://ny.eater.com/2015/10/14/9517747/danny-meyer-no-tipping-restaurants.

[5] Id.

[6] Whitney Filloon, Danny Meyer, David Chang, Others Sued Over No-Tipping ‘Conspiracy’, Eater (Oct. 11, 2017) https://www.eater.com/2017/10/11/16458026/no-tipping-conspiracy-lawsuit-ushg-momofuku.

[7] Sutton, supra note 4.

[8] Id.

[9] Id.

[10] Brown v. 140 NM LLC, 4:17-cv-05782 (N.D. Ca. 2018); Sophia Morris, Restaurants Sued Over No-Tipping Policy ‘Conspiracy’, Law360 (Oct. 10, 2017) https://www-law360-com.proxy.wcl.american.edu/articles/972533/restaurants-sued-over-no-tipping-policy-conspiracy-.

[11] Brown, 4:17-cv-05782.

[12] Sutton, supra note 4.

[13] Jillian Berman, supra note 3.

[14] Brown, 4:17-cv-05782.

[15] Ghee v. Apple-Metro, Inc. 17-CV-5723 (S.D.N.Y. 2018); Angela Underwood, If You Don’t Want To Tip 15%, An NYC Lawyer Will Help You Sue Applebee’s, Forbes (Jan. 23, 2018) https://www.forbes.com/sites/legalnewsline/2018/01/23/if-you-dont-want-to-tip-15-an-nyc-lawyer-will-help-you-sue-applebees/#2f6df87f1788.

[16] Whitney Filloon, Why Tablets on Restaurant Tables Are Here to Stay, Eater (Oct. 5, 2017) https://www.eater.com/2017/10/5/16428750/tablet-technology-restaurants-applebees-outback-steakhouse.

[17] Ghee, 17-CV-5723; Joyce Hanson, NYC Applebee’s Eateries Can’t Escape Forced-Tipping Suit, Law360 (Jan. 26, 2018) https://www-law360-com.proxy.wcl.american.edu/articles/1006246/nyc-applebee-s-eateries-can-t-escape-forced-tipping-suit.

[18] Ghee, 17-CV-5723; Underwood, supra note 15.

[19] Ghee, 17-CV-5723.

[20] Id.

[21] Id.

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