Some Restaurants Doing Away with Tipping

By By Allen Smith Nov 4, 2015

Tips have been the lifeblood of waitstaff for years, but some restauranteurs are changing that.

Danny Meyer, chief executive officer of Union Square Hospitality Group in New York City, has announced that the company will no longer give customers the option to tip servers. The group runs Union Square Cafe, Gramercy Tavern, Blue Smoke, Jazz Standard, The Modern, Maialino, Untitled, North End Grill and Marta, among other enterprises.

“High-end restaurants have wanted to get rid of tipping for years, but there was a sense that customers wouldn’t accept it,” noted Paul Sonn, general counsel and program director of the National Employment Law Project (NELP), in an interview. Headquartered in the Big Apple, NELP is a national advocacy organization for the employment rights of lower-wage workers.

“That’s now changing and we’re seeing more and more restaurants get rid of tipping,” Sonn said. “The key question is whether restaurant owners will use the new revenue to give front- and back-of-the-house workers a living wage, or instead pocket much of it.” This new revenue is likely to come in the form of higher food and beverage prices.

‘Hospitality Is a Team Sport’

A “major obstacle” in the advancement for Union Square Hospitality Group’s 1,800 employees has been the practice of tipping, Meyer wrote in a letter on the group’s website.

“We believe hospitality is a team sport,” he added. “Unfortunately, many of our colleagues—our cooks, reservationists and dishwashers, to name a few—aren’t able to share in our guests’ generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants.”

The group will eliminate tipping at all of its restaurants, starting at The Modern in late November. “You will no longer find a tip line on your check, and there will be no need to leave additional cash at the table, the coat check or the bar. Our other New York restaurants will make this change over the course of the next year,” Meyer said.

The total cost to diners won’t differ much, he promised. “But for our teams, the change will be significant,” he added. “We will now have the ability to compensate all of our employees equitably, competitively and professionally.”

Before Danny Meyer’s announcement in October, Bar Marco in Pittsburgh grabbed headlines earlier in the year when it announced its no-tipping policy. Every Bar Marco employee now receives a base salary of at least $35,000 plus bonuses based on profits, health care from date of hire, 500 shares in the business and paid vacation, according to Entrepreneur. Bobby Fry, Bar Marco’s founder, instituted the no-tipping policy as well at The Livermore—also in Pittsburgh.

But Meyer’s move will affect more restaurants and more employees.

“Danny Meyer deserves credit for his plan to eliminate tipping and establish in its place a transparent, generous compensation system,” Sonn said. “But getting rid of tipping by itself doesn’t guarantee that, and other, less generous employers could simply pocket the revenue” earned by raising food and beverage prices.

Sonn said that the “right solution is to combine eliminating tipping and eliminating the outrageous lower minimum wage for tipped workers, with raising the minimum wage to $15, as Los Angeles, San Francisco and Seattle have done. That combination is the way to ensure that the increased restaurant revenue from raising prices and getting rid of tipping is shared fairly with hard-working restaurant workers.”

In Sonn’s view, “Eliminating tipping, if it’s not combined with significant wage increases for front- and back-of-the-house workers, isn’t progressive at all. It’s simply a massive pay cut for waitstaff. That’s why it’s crucial that it be combined with a very significant minimum-wage boost.”

Sonn also noted, “If employers attempt to substitute a service charge for tipping, then they are required in many states to give that money to the workers, but are generally allowed to distribute it to both front- and back-of-the-house workers.”

Staying Competitive

The elimination of tipping may be a direct result of certain localities’ increased minimum wage, according to Michael Schmidt, an attorney with Cozen O’Connor in New York City. The elimination of tipping and raising of food and beverage prices to pay for higher salaries provides “a means for restaurants to stay competitive in geographic locations like New York, where other related industries such as fast food are set to increase the legal minimum wage and potentially compete even harder for restaurant personnel as a result,” he stated.

“On the other hand, the elimination of tips and the resulting flattening of wages between historically tipped and nontipped employees may have negative consequences,” Schmidt added.

For example, restaurants may have a harder time retaining good servers who think they still can make more money with a lower base hourly rate together with customer tips. Servers also may believe that the nature of the direct customer service they provide distinguishes them from back-of-the-house workers, which could result in decreased morale and productivity among waitstaff, he said.

The law doesn’t require that waitstaff receive tips. “However, many jurisdictions, including New York, have specific requirements for restaurant employers who choose to take a tip credit when determining the hourly wage paid to restaurant employees, as well as for tip-pooling and tip-sharing programs existing in a restaurant,” Schmidt noted. “These requirements typically include an identification of those positions that can and cannot participate in tip-pooling and tip-sharing, as well as the types of notice and record-keeping obligations imposed on the restaurant employer.”

Another question that remains is whether customers will buy into the no-tipping policy or continue to tip regardless of the restaurants’ policy of not accepting gratuities. The habit of leaving tips at tables may be too deeply ingrained among some to turn off.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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