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Shareholders push Denny's and Dine to look at ending tip credit

The pension funds for New York state and New York City have joined calls for the companies to study the impact of higher wages. The moves are being backed by advocacy group One Fair Wage.
Denny's exterior
Photograph: Shutterstock

A group of shareholders is calling on Denny’s and Dine Brands to study the impact of raising hourly wages.

Specifically, the shareholders want the two companies to look at paying restaurant staff the full minimum wage, plus tips, in essence skirting the tip credit rule that allows employers to factor gratuities into employees’ hourly wages. 

The push began last month when the Benedictine Sisters of Mount St. Scholastica and the Sisters of Charity of the Blessed Virgin Mary submitted proposals highlighting the benefits of the minimum wage. They argue that the federally mandated $2.13 hourly wage for tipped workers has led to poverty, sexual harassment and racial inequality. They want companies to study and report back on what would happen if they increased base pay to the federal minimum with tips on top.

The faith organizations own more than $2,000 of stock in Denny’s and Dine, respectively. Their actions are backed by One Fair Wage, a national group supported by the Service Employees International Union that has pushed aggressively for an end to the tip credit.

Their efforts were endorsed Thursday by a pair of considerably larger shareholders: the pension funds of New York state and New York City. The state fund owns $1 million in Dine shares and $800,000 in Denny’s, while the city fund holds $100,000 Dine shares and $180,000 worth of Denny’s.

“As inflation continues to reach historic levels not seen in decades, wages are not keeping pace,” said New York City Comptroller Brad Lander in a statement. “The boards of Dine Brands and Denny’s have a responsibility to make certain that the company’s human capital management strategy is meeting the moment. These proposals will provide shareholders with decision-useful information to determine whether their compensation practices are consistent with their mission and goals.”

Federal law requires businesses to pay unsalaried workers at least $7.25 an hour. But the employer is only obligated to pay tipped workers $2.13 of that total, as long as the worker earns the rest in tips. If that doesn’t happen, the operator has to make up the difference.

The boards of both Denny’s and Dine, the owner of Applebee’s and IHOP, have urged shareholders to vote against the proposals.

In an SEC filing, Dine’s board argued that the tip credit allows servers to earn significantly more than if they were making just the minimum wage. It also noted that it already reviews its compensation practices on a regular basis to make sure they’re competitive and within the law.

The vast majority of Dine’s and Denny’s restaurants are owned and operated by franchisees who are allowed to set their own wages. If shareholders vote in favor of the proposals, they would only apply to about 130 restaurants combined.

One Fair Wage has been behind many recent efforts to get rid of the tip credit rule. Last year, it challenged the tip credit in a lawsuit against Olive Garden parent Darden Restaurants that was ultimately struck down in federal court. More recently, the group launched a $25 million campaign to kill the law in 25 states by 2026.

Restaurants generally oppose ending the tip credit because it would shift a massive cost burden onto them. Some have also echoed Dine’s argument that tipped workers make more money, and that repealing the credit could result in the end of tipping altogether. 

Seven states—Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington—have disallowed the tip credit.

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