Pundits and polls say neither presidential candidate is likely to run away with the November election, but restaurants can already exchange high-fives over a big political win: An unprecedented drive to kill the tip credit via state ballots has been thwarted in all but one location.
There will be one other credit-related initiative on a ballot, this one in Arizona, but it will be there at the industry’s instigation. It calls for preserving the employer break in perpetuity via an amendment to the state’s constitution.
Meanwhile, legislative efforts to end the concession for restaurant employers came up short in 13 states this year, with proposals to reduce the credit beaten back in three others.
In the bare-knuckled brawl between the industry and organized labor over how servers and other tipped restaurant workers should be compensated, the business can claim win after win this election cycle.
Still, lobbyists for the trade stress the war is far from over. Democratic presidential candidate Kamala Harris has pledged to end the credit nationwide if she wins on Nov. 5. Several pieces of federal legislation have already been proposed to outlaw the convention of counting tips toward an employee’s wages, with celebrity senator Bernie Sanders pushing one of the bills.
And labor advocates aren’t backing off at the state, county and municipal level. In Ohio, one of the states where organized labor’s shot at a 2024 voter initiative was unsuccessful, advocates are talking about getting the exact same credit-killing proposal on next year’s November ballot. Because the 2024 measure calls for raising tipped workers’ direct pay as of Jan. 1, 2025, restaurants would technically have to come up with the additional wages servers and bartenders would have earned directly if the 2024 initiative had passed. That’s 11 months of back pay, plus penalties mandated by state law, or what one authority computed to be about $100,000 per employee.
A phase-out of the credit will begin in Michigan on Feb. 1 unless the employer break is preserved through legislation, and the lobbying to influence the outcome of the Massachusetts ballot initiative is expected to be fierce. If advocates prevail, the Bay State would become the eighth to disallow counting tips as part of servers’ pay.
Yet any scorecard for 2024 would not read as the union-backed group One Fair Wage (OFW) had expected and hoped. After winning a surprise legislative battle in Chicago last fall to phase out that city’s tip credit, OFW and parent union Service Employees International Union (SEIU) packed their war chest and set out to realize similar victories elsewhere.
It is believed they spent $8 million to $10 million—figures not confirmed by the parties—in attempts that proved largely futile. The labor forces failed to get an initiative to kill the credit on the ballots of Michigan, Arizona and Ohio, succeeding only in Massachusetts.
“They burned through $10 million with nothing to show for it,” says Sean Kennedy, EVP of public affairs for the National Restaurant Association. He adds that the industry has never seen so much effort to put restaurant-related ballot initiatives of any sort on a general election ballot, never mind ones focused on the tip credit.
“If these ballot moves were based on dollars, we would have lost,” he continues. “You can’t win these battles on cash alone.”
He says the industry was successful because of the four-word mantra it followed: “Strong lobbying, stronger grassroots.”
Kennedy’s team and their counterparts at state restaurant associations hammered home the message to lawmakers that ending the tip credit would likely diminish the earnings of servers and bartenders, contrary to the assertions of OFW.
Both sides mustered research to support their positions, and each party enlisted workers currently earning tips to show support for its respective cause. But “if they brought 10, we brought 100,” all of them attesting that they’re OK with earning a lower wage from employers as long as they can continue earning gratuities at the current level.
OFW routinely offered evidence that tips would not diminish if servers received the same hourly wage from their employers as other workers did, while employer representatives countered with examples of tips declining and servers themselves bemoaning the change in their compensation model. At least two advocacy groups have been formed by tipped restaurant workers to combat efforts to end the credit.
Kennedy acknowledges that the industry was helped by flubs on the part of OFW and its affiliates. In Ohio, a union proxy failed to gather signatures from a sufficient number of counties to get a credit-killing initiative on the ballot. That sealed defeat, but OFA compounded matters by blaming the shortfall on residents of rural areas within the states. It asserted that people of color, or the residents with the most to gain, were intimidated from signing a petition by racist neighbors.
It also contended that the signatures initially missing could not be submitted on time because state offices had closed early right before the July 4 holiday so government employees could enjoy a fireworks display.
The matter was handled so sloppily that state Secretary of State Frank LaRose described it as “a duplicitous, disorganized goat rodeo of a campaign.”
More to come
At the end of the day, said Kennedy, “there are restaurants that won’t be able to keep the doors open without the tip credit.” OFW usually counters that core argument with assertions the industry’s ranks have grown in jurisdictions like California, which does not have a tip credit, or Washington, D.C., where a phase-out began in May 2023.
The back-and-forth underscores that the tip credit will continue to be a point of contention going forward—but far from the only government issue for restaurants, notes Michelle Korsmo, CEO of the National Restaurant Association.
“There are many policy issues facing the restaurant industry now that can fundamentally damage the underlying economics of running a restaurant,” says the former deputy chief of staff at the U.S. Department of Labor. “More than ever, our work engaging our members—activating the grassroots—is critical to ensuring elected officials can see the real impact of these policies.”