Minimum wages are rising across the country, with well over a dozen states, plus many cities increasing minimum wages over the past few years. As those changes are implemented, restaurant owners are finding that they must make significant adjustments to how they run their businesses in order to stay in business.
The Bay Area of California was one of the first regions to begin increasing minimum wages, and as of January 1, 2018, the minimum wage increased by 37 cents to $13.23 in Oakland, and in San Francisco it rose from $13.00 to $15.00 effective July 1, 2018.
One impact on the restaurant industry is the change from full service restaurants – with hosts and full waiter service – to counter service. Some restaurants have actually seen such changes result in significant sales increases – by as much as 20% – after the change from full service to counter service. And at the same time, being able to reduce menu prices due to the ability to cut staff due to the change to a counter service format. The downside here is that there are fewer jobs available to restaurant workers with owners focused on a lean labor paradigm. At some restaurants, cooks serve dual roles – both preparing food and delivering it to customers. Customers are also finding themselves taking on new ‘responsibilities’ such as being able to text additional orders rather than going back in line it they want more food than they originally ordered at the counter.
Thus, the increase in minimum wage has resulted in more satisfied employees (albeit fewer) earning a better living, increased restaurant industry innovation, and restaurants becoming more accessible to the population as whole as a result of lower menu prices.
Seattle became the first major city in the country to pass a $15.00 minimum wage law in 2014. Large restaurant groups and franchises were particularly concerned about the increase because employers with more than 501 workers were required to increase wages on a set schedule reaching $15.00 per hour this year. As a result, large Seattle restaurant groups and chains were forced to look for ways to adjust and innovate. Many felt that increasing menu prices was not an option because of concerns that such increases would result in lower revenue. So these restaurants did away with discretionary tipping and, instead, implemented set service charges of fifteen or twenty percent.
To offset rising labor costs, some restaurants add a surcharge of three to five percent to customers’ checks. In March of last year, the Wall Street Journal even ran an article entitled “New on Your Dinner Tab: A Labor Surcharge.” Restaurant owners found that raising menu prices lead customers to choose less expensive items than they normally would, and that the surcharge helped mitigate the increased costs of doing business.
In addition to raising prices, in order to deal with increased wages in the restaurant industry, some businesses often cope with minimum wage increases by firing staff. Earlier this year, Red Robin Gourmet Burgers announced it would eliminate busboy positions at 570 restaurant locations. Many single location restaurants have also had to eliminate busboys and other staff positions. Others have not been able to adapt and have had to close their doors. Some have turned to technology to compensate for the loss of labor and to reduce expenses. Large chains such as Chili’s, Applebee’s, and Olive Garden have replaced some servers with table-side tablets for placing orders and paying bills.
Technology has also helped other businesses expand. For example, popular online service, GrubHub, has reduced the number of customers dining out, as consumers can enjoy a restaurant style meal without getting up off their couch.
The takeaway for restaurants facing increasing minimum wages and labor costs? Scrutinize your budget and personnel and determine how to satisfy ever-changing employee and customer demands, and be willing to change.
For further information regarding this topic, please contact:
Jonathan M. Weis at email@example.com or 312-368-0100.
In approximately a dozen states and a number of smaller municipalities across the U.S., initiatives have been introduced that would allow state and local governments to dictate how restaurants (and retailers) schedule their employees. Some view this approach as interfering with employers’ rights to control the workplace, while others view it as a necessary tool to protect the rights of food industry and other retail workers. The impetus for the new rules – often referred to as predictive scheduling laws – emanates from the fact that workers often have very little ability to make adjustments to their work schedules in order to meet their responsibilities outside of work. Unpredictable and unstable work schedules have been fairly well documented in the food service and preparation industries, as well as in retail and custodial occupations.
Predictive scheduling laws and proposals generally include certain common provisions: (i) advance posting of schedules, (ii) employer penalties for unexpected schedule changes, (iii) record-keeping requirements, and (iv) prohibitions on requiring employees to find replacements for scheduled shifts if they are unable to work. In Congress, the pending Schedules That Work Act would require that schedules be provided in writing two weeks in advance with penalties for changes made with less than 24 hours’ notice. As those changes are implemented, restaurant owners are finding that they must make significant adjustments to how they run their businesses in order to stay in business.
“On-call” or “predictive scheduling” activists argue that retail employers too often use scheduling practices that directly interfere with employees’ personal lives and ability to plan around their work hours, while others believe government intervention in the scheduling of employees through a one-size-fits-all approach intrudes on the employer-employee relationship and creates unnecessary mandates on how a business should operate. Many in the food service industry are concerned that predictive scheduling legislation will impede employers’ need to adapt to changing conditions in a store, particularly small, independently owned businesses that have limited staff and resources and may not be able to afford the penalties related to violations. Some employees have also voiced concern that they could lose some of the flexibility that attracted them to the food service industry in the first place.
There are a variety of common components of predictive scheduling legislation.
In order to handle predictive scheduling mandates, business owners should explore software options and even retaining outside vendors that provide scheduling and labor management solutions. A lack of training or understanding of predictive scheduling can be detrimental to a business’ bottom line, and scheduling practices can have a dramatic impact on labor costs. As with most new legal developments in the food service industry (or any industry for that matter), training and education is key.
For more information on this and other issues, contact our office at 312-368-0100 or Jon Weis at firstname.lastname@example.org
In 2018, Governor Bruce Rauner signed into law a number of changes that are already in effect or will go into effect starting January 1, 2019. As with each New Year, it is important to reflect on those changes and how they impact your business.
As of January 1, 2019, all employers will be required to reimburse its employees “for all necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer.” 820 ILCS 115/9.5. The act defines “necessary expenditures” as “all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.”
To be reimbursed the employee shall submit a request for reimbursement, along with all appropriate supporting documentation within 30 days. This deadline can be extended pursuant to a written expense reimbursement policy. If the employee does not have supporting documentation, a signed statement regarding the expense will be sufficient.
Employees, however, will not be entitled to such reimbursements if: (1) the employer has an established written expense reimbursement policy and (2) the employee failed to comply. In addition, an expense need not be reimbursed unless it was authorized by the employer or was authorized pursuant to a written expense reimbursement policy. The employer may also put limits or caps on its reimbursement policy provided it is not de minimis or eliminates any reimbursements.
What Should Employers Be Doing? Work with your Illinois Employment Labor attorneys to do an annual review and check of your policies regarding expense reimbursements. It will be critical for all employers to have a policy so that there is adequate cost containment. Many employers will need to evaluate reimbursing its employees for cell phones, gas, and other expenditures they are required to incur for purposes of performing their job.
As of August 21, 2018, nursing mothers in Illinois within one year after the child’s birth must be given “reasonable break time” to express milk and an employer “may not reduce an employee’s compensation for time used for the purpose of expressing milk or nursing a baby.” 820 ILCS 260/10.
What Should Employers Be Doing? Review your handbooks and policies to ensure new mothers understand that they are entitled to express milk as needed and that they are not being docked any pay for doing so.
On August 24, 2018, the Illinois Human Rights Act (“IHRA”) was amended in three meaningful ways. Some of the changes went into effective immediately, while others go into effect on January 1, 2019.
1. The amendments extended the deadline to file a charge of civil rights violations from 180 days to 300 days from the date of the alleged violation of the IHRA. The EEOC and IHRA deadline requirements are now the same in Illinois.
2. As of January 1, 2019, the Illinois Human Rights Commission composition will change from 13 part-time members to 7 full time members. This is expected to expedite matters before the Commission and reduce the number of cases pending before the Commission.
3. The Illinois Department of Human Rights (“IDHR”) is required within 10 days of a new charge, to notify the complainant that they have the right to opt-out of the investigation process and immediately receive the right to file a suit in circuit court. Once granted by the IDHR, the complaint must file suit within 90 days in circuit court.
What Should Employers Be Doing? Employers should expect a steady increase in claims filed before the IDHR. Previously, if an employee filed at the EEOC after 180 days it was not concurrently filed at the IDHR. So long as it is timely filed before the EEOC it will also be timely filed before the IDHR. Additionally, charges that are dismissed quickly at the EEOC may still be pursued at the IDHR that would have otherwise never been refiled.
The opt-out procedures will lead to aggressive plaintiff attorneys avoiding the investigation process entirely and filing suit as quickly as possible, increasing costs and the burden to defend these claims. Employers should continue to work closely with counsel to evaluate all terminations and be prepared to defend any claims that may get filed quickly in state court.
Levin Ginsburg has been working with employers for approximately 40 years to help them protect their businesses. If you have any employment or other business related issues, please contact us at 312-368-0100 or email Walker Lawrence at email@example.com
John, Alexandria, Mary, Martin, and Yvette, formed the Jammy Sleepwear Company over thirty-five (35) years ago. They were equal partners and formed a corporation. On the advice of their attorneys, the entered into a shareholders’ agreement that contained buy-sell provisions. This type of agreement is sometimes referred to as a “buy-sell agreement”.
Their buy-sell agreement contained various provisions, including under what circumstances a departing shareholder’s shares would be purchased, what the purchase price of those shares would be, and the terms of payment. Since the business was in its infancy, they agreed it would be valued at its “book value”, meaning that the value of the assets on its financial statements, less all obligations, would be the business’s value. There was no adjustment for good will or other intangible assets. Also, the increase in value of any assets would not be taken into consideration. The purchase price to a departing shareholder was to be paid in twelve (12) months, in equal monthly payments. The business was required to purchase a departing shareholders shares.
Since they formed the business in 1980, they acquired other businesses and purchased real estate through a separate LLC. They did not think to have a buy-sell for the LLC.
John has announced he would like to retire, but he has objected to the purchase price as being “unfairly” low. He has advised the other owners that he will keep his interest in the real estate, since it will provide him with a “good stipend” during his retirement. Shortly thereafter, Mary announced her retirement.
The remaining owners are concerned that the business will not be able to support payments to John and to Mary. Also, the remaining owners would prefer that John and Mary also sell their interests in the LLC.
Unfortunately, the shareholders (and LLC members) did not regularly review their buy-sell agreement. As the value of the business grew, the amount of the payments increased and would put a strain on the cash flow of the business. If more than one owner were to retire, it would cause a bigger strain. Either the business would have to borrow money, the owners would have to make capital infusions, new investors would be needed, or the business would need to be sold.
Some buy-sell agreements address these types of situations, by limiting the amounts that must be paid out to departing owners on an annual basis. For example, the payments cannot exceed a specific dollar amount or a percentage of gross profits. Also, when the owners buy real estate to be used by the business, they might consider including the real estate as a part of the buy-sell process.
Buy-sell agreements should be reviewed periodically to ensure they continue to meet the needs of the business and its owners. Levin Ginsburg has been advising business owners regarding legal aspects of their businesses, including buy-sell agreements for almost forty years.
Please contact us with any questions you have regarding your business (including any buy-sell issues) at 312-368-0100 or Morris Saunders at firstname.lastname@example.org.