With Chicago set to kill the tip credit, labor advocates are focusing on the next domino

After local industry advocates dropped their opposition, a bill to phase out the employer payroll concession is being described as a done deal.
With the Illinois Restaurant Association dropping its resistance, a phase-out of the credit is expected. | Photo: Shutterstock

A bill phasing out Chicago’s tip credit cleared its first legislative hurdle Wednesday after the Illinois Restaurant Association (IRA) dropped its opposition in exchange for a longer adoption process.

Under a compromise struck by the association and proponents of the bill, the minimum wage employers are required to pay their tipped workers directly would increase by 8% in each of the next five years. Under that schedule, all restaurant workers would be entitled to a minimum wage of $15.48 per hour.

Tipped workers would keep any gratuities left by customers as additional income.

Currently, restaurants are obliged to pay tipped employees just $9.48 an hour if gratuities bring their income up to $15.80 an hour, the minimum wage across the city as of July 1. (Businesses with 20 or fewer employees have a lower threshold of $15 an hour.)

The phase-in would increase the wages restaurants pay their servers and bartenders by 66%.

For that reason, the measure was vehemently opposed by the IRA and the National Restaurant Association. But state association CEO Sam Toia told local media that he had dropped that resistance after proponents of the bill agreed to stretch the tip credit phase-out to five years. The advocates had originally proposed killing the concession to employers in two years.

In addition, the compromise calls for creating a kitty of $500,000 in funds from nongovernment sources to help smaller restaurants in the Windy City adopt to the new pay structure.

Another provision would allow unionized restaurants paying less than the adjusted direct wages to servers to maintain those lower rates if those levels are set in collective-bargaining contracts.

The National Restaurant Association maintained its resistance to the bill. It submitted written testimony to the Chicago City Council's Committee on Business Development, which held the first round of hearings on the legislative proposal on Wednesday.  In those comments, the association held to its position that dissolving the tip credit would be bad for all stakeholders.

“Any legislation that eliminates the tip credit—regardless of the timeline for phasing it out—will harm tipped employees, customers, restaurant operators, and the city as a whole," the NRA's statement read. "The rude truth is that tip credit elimination is not a raise for servers.”

At the time the deal was announced, Toia publicly commented that math left him no choice. Twenty-six of Chicago’s 50 City Council members have signed on as co-sponsors, meaning passage is near-certain. And Mayor Brandon Johnson has set passage of the bill as one of the key priorities of his new administration. Approval by the Council seemed inevitable.

The NRA did not share that resignation, a rare instance of the national group and a state affiliate not agreeing in their political stances. 

"“If the Committee believes there are aspects of the current tip credit system that need changing, the National Restaurant Association and our members encourage the Committee to slow this legislation down so that we can have a thoughtful discussion about how we can work together," it asserted in its written comments. "We are committed to working with the Committee and the entire Council on ways that we can continue to strengthen Chicago’s restaurant industry for our employees, customers, neighborhoods, and operators.”

The measure had drawn opposition from outside the city because the industry feared the bill would trigger a domino effect. Already, the adjacent municipality of Evanston, Ill., has announced its leaders will consider a law similar to Chicago’s on Oct. 5, one day after the Windy City’s lawmakers are expected to vote.

The main proponent of Chicago’s proposal is One Fair Wage, a labor advocacy group backed by the Service Employees International Union (SEIU). Before Evanston set a date for considering a copycat bill, One Fair Wage President Saru Jayaraman had addressed lawmakers there. According to local coverage, she told Evanston’s aldermen that passage of Chicago’s bill was a certainty. Unless they protect their city, she reportedly advised, servers and other restaurant employees would likely bolt for higher-paying jobs in the adjoining larger metropolis.

She subsequently told Eater Chicago that One Fair Wage would focus next on Boston and New York City.

Meanwhile, two local lawmakers in Montgomery County, Md., a heavily populated suburb of Washington, D.C., have said they plan to propose a phase-out of the jurisdiction’s tip credit there.

On Tuesday, U.S. Congresswoman Rashida Tlaib, a Michigan Democrat, re-introduced a showcase piece of federal legislation called the Restaurant Worker Bill of Rights. Among the standards it proposes for foodservice employees is a dissolution of the tip credit on a national level.

She readily acknowledged that she’s working with Restaurant Opportunity Centers, the union-supported advocacy group that Jayaraman previously led, to push the bill.

The NRA says it intends to be involved in every one of those fights. 

"Restaurant operators, tipped servers, and the local dining scenes will suffer anywhere that the tip credit is eliminated," Sean Kennedy, EVP of public affairs for the national association, said in a comment submitted to Restaurant Business. "We are already seeing this play out in Washington, D.C., and want to ensure that no other communities suffer in the way everyone in D.C. are struggling with the change.”  The nation's capital began the phase-out of its tip credit in May. Operators say the local market has been in chaos since Day One, with restaurateurs scrambling to offset their higher labor costs and consumers voicing shellshock over the service fees that many establishments have added to temper the impact. Patrons reportedly don't understand what a service fee is, why some are 3% and others 18%, and whether they should tip on top of the surcharge. 

With the IRA withdrawing its opposition in Chicago, the proposal to kill the tip credit sailed through the Business Development Committe by a vote of 9-3, with two members abstaining. The full City Council is expected to begin hearings on Oct. 4, or two weeks from today, on whether to keep the break for restaurant employers. 

In addition to the District of Columbia, seven states—California, Minnesota, Nevada, Washington, Oregon, Montana and Alaska—have banned the tip credit.

Updated: More information about the industry's reaction to the situation in Chicago has been added. 

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