Operations

D.C. gives its troubled restaurants a sweet and sour aid package

The Restaurant Revitalization Act aims to bring down liability insurance rates, but it stops short of ripping off a Band-Aid.
D.C. tried to give its restaurants a break on insurance. | Photo: Shutterstock

The beleaguered restaurant industry of Washington, D.C., won a batch of concessions from local lawmakers this week, including legislation aimed at lowering the cost of liquor-liability insurance.

But the City Council refused to grant what’s been a core request of the business for much of last year, an acceleration of the timetable for killing the local tip credit, or what restaurateurs characterize as ripping off the Band-Aid.

Full-service eating places in the District have been pushing for the sped-up adoption cycle since the rollback of the credit began on May 1, a mere six months after residents voted in a November 2022 referendum to end the break for employers of tipped personnel. The ballot measure called for phasing out the credit over a five-year stretch.

But the initial cut in the credit was so disruptive that many in the industry concluded that bringing it down to zero right away would prove less chaotic in the long term. Industry groups like the Restaurant Association of Metropolitan Washington began to lobby for wiping out the employer concession much faster than the ballot initiative mandated.

A provision to grant that preference was aired within the City Council on Tuesday as an amendment to what was dubbed the Restaurant Revitalization Act, a grab bag of measures intended to help the local full-service restaurant market.

Operators there say they’ve been struggling because of a triple whammy. The employees of many government agencies and the private-sector concerns that collaborate with them have yet to resume working in their downtown offices five days a week, severely crimping restaurants’ lunch and after-work traffic. Meanwhile, locals say, downtown crime has soared, scaring away tourists and keeping even residents safely hunkered down at home. And then there’s the reduction of the tip credit, which further stoked the inflation that was already driving away diners.

The Restaurant Revitalization Act was drafted to offset some of those negatives. A key component was a narrowing of the circumstances in which a liquor-serving establishment might be liable for a car crash or other accident involving someone who’d been drinking there.  

Under the bill, which is a signature away from becoming law, a restaurant can only be held liable for personal injuries or damages in instances where it knowingly served someone under age 21 or ignored obvious visible signs the guest was intoxicated. In addition, that customer’s actions had to be the clear reason for injuries to themselves or another party.

The intention was to update so-called dram-shop laws so that litigation declined and lowered restaurants’ liability-insurance rates accordingly.  

The bill also addressed the thorny issue of service fees, the surcharges that were widely adopted after the first drop in the tip credit to help restaurants offset the increase in their labor costs.

The Restaurant Revitalization Act caps that fee at 20%, and lays out how a dining establishment must forewarn customers about the surcharge. Operators would be shielded from lawsuits if they meet both stipulations.

The Act also requires that patrons be told precisely how the proceeds will be used. It essentially codifies requirements that had been previously stated in a memo from the District’s attorney general.

In addition, the Act addresses operators’ complaints that the tip credit was rolled back in May and then again in July with virtually no explanation from the District about what was happening, and why. The bill requires Mayor Muriel Bowser to conduct an extensive education campaign no later than April 1, 2025.

Also granted was the local industry’s request that proceeds from service fees be expressly excluded by law from the computation of percentage-based rents, or fees that rise and fall in accordance with a tenant’s revenues. Money from the surcharges currently count toward a place’s topline sales.  

Operators are also hopeful the proceeds will be factored out of the sales taxes they pay. That issue wasn’t addressed in Tuesday’s bill.

The amendment immediately rolling back the tip credit to zero was taken up. But a majority of Council members agreed with one representative’s contention that voters had approved the current schedule when a majority voted “Yes” on the Nov. 2022 referendum. The plan was shot down.

“There is much more work to do in our industry, but the passage of this act promises substantial benefits for our neighborhood restaurants, including operators, workers, and diners alike,” RAMW CEO  Shawn Townsend said in a statement.

Delivery provisions

Much of the Restaurant Revitalization Act deals with third-party delivery, which boomed in the District during the pandemic as it did in most U.S. jurisdictions.

The bill requires that third-party delivery drivers be granted access to the bathrooms of the restaurants whose meals they cart.

It also prohibits the services from narrowing the delivery radius of restaurants paying a low commission rate to less than 4 miles. However, the bill expressly states the services can charge extra for rush orders.

More changes on the delivery front may be coming. The Act requires the mayor’s office to conduct a study of delivery drivers’ pay, working conditions and attitudes toward their jobs, including why they opted for gig work. The mayor is obligated to present the City Council with the full report no later than July 1, 2025.

Mayor Bowser has yet to say whether she'll sign the Act.

Update: A comment from the RAMW was added to the post-published version of the story. 

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