Palo Alto calls for exempting tipped workers from minimum wage

City Council agrees to lobby against state law that bars cities from distinguishing between tipped and non-tipped employees

When Palo Alto officials voted last September to gradually raise the minimum wage to $15 by 2019, they found plenty of allies across the Peninsula, where numerous other cities are pursuing similar efforts.

But on Monday night, the City Council agreed to advocate for a policy that could pit them against the very labor groups who cheered the wage increases: a state law that would allow cities to exempt tipped workers from the wage requirement.

The council's decision to support such a law was driven by concerns from the local restaurateurs, who had argued over a series of meetings last year that raising the minimum wage uniformly would force them to pay the higher wage to waiters and other tipped workers, most of whom already make more than $20 per hour if their tips are taken into consideration. More importantly, it would make it harder for restaurants to give raises to the back-of-the-house workers such as cooks and dishwashers.

California law, however, prohibits cities from distinguishing between tipped and untipped employees. For owners of several local establishments -- including Fleming's, the Counter and Dan Gordon's -- this creates a major problem. They and others argued at recent meetings that raising the wage without exempting tipped employees would hurt the restaurant business and force many establishments to shutter. Peter Katz, owner of The Counter, told the council at a hearing last September that most of the servers are "unconcerned with daily paychecks" because they're getting $30 to $40 in tips.

"The losers in all of this will probably be the folks who most need it and, frankly, the restaurant owners," Katz said.

Three other restaurateurs -- Michael Ekwall of La Bodeguita del Medio, Jesse Ziff Cool of the Flea St. Cafe in Menlo Park, and Galen Fletcher of Sundance The Steakhouse -- made a similar argument in a Weekly opinion piece last October.

"In restaurants, cafes and other businesses where employees earn tips, the increased minimum wage will go directly to the highest earners in those businesses," the three wrote. "In most restaurants, the staff who receive the raise already earn, on average, at least $30 per hour and often much more. At the same time, the restaurant employees who would benefit most from an increase won't see their pay go up much, if at all."

On Monday, the council signaled that it has taken the industry's concerns to heart when it agreed to advocate for a state law that would allow cities to differentiate between tipped and non-tipped workers when it comes to wage. By a 5-4 vote, with Mayor Gregory Scharff and Councilmen Cory Wolbach, Eric Filseth and Adrian Fine dissenting, the council voted to lobby for the state to "allow cities to deviate from the minimum wage requirement when income including tips exceeds minimum wage."

Even those who voted against the proposal were somewhat sympathetic, though they had some quibbles with the exact wording. Wolbach, the most fervent dissident, proposed that the Policy and Services Committee hold a broader discussion about the best way to ensure fair pay, whether it means opposing exempting California's existing prohibition on tip sharing or supporting the inclusion of tips in calculating "total compensation."

"Moving forward now is premature," he said.

Fine also argued that the topic is complex and requires more discussion.

"This seems like we're trying to influence state policy for a single local decision," Fine said. "I think it needs to be rethought on a Policy and Services level."

But supporters of the policy change cited the hearings that the council already had on this topic last year and pointed to the fact that its Policy and Services Committee had already voted unanimously in November to include the minimum-wage exemption for tipped workers on the city's list of lobbying priorities. Councilwoman Liz Kniss, who sits on the committee, was the most vocal champion of pursuing the topic. She said at the Nov. 29 meeting that she was influenced by her conversations with Cool and by the comments from the other restaurateurs.

"To be paying that wage for those who make tips, according to every restaurateur I spoke to is very difficult," Kniss said. "Someone will have to take up that cause."

At the same time, no one expects the change to come quickly, if at all. Several cities, including Sacramento and Los Angeles, had flirted with exemptions for tipped employees but ultimately saw their plans dissolve because of existing laws and pressure from labor groups.

The Palo Alto council similarly balked in September at exempting tipped workers, citing state law. While the restaurant owners advocated for the exemption, not everyone shared their point of view. Local resident VJ Mohan noted at the September meeting that tips and wages should not be conflated.

"A wage is between an employer and an employee. A tip is between a customer and somebody who served them," Mohan said. "What I give to the employee has nothing to do with you, nothing to do with the owner. You pay for their work, and I pay for their service."

Among council members, Wolbach also spoke out in September against taking on the state law. He suggested at that time that exempting tipped workers would amount to "opening a loophole you can fly a jumbo jet through."

"Any business can then put out tip jar and that say people who are interacting with customers are tipped employees and exempt from minimum wage, no matter whether people are putting anything in that jar or not," Wolbach said.

The council's decision to include the item on its list empowers the city's lobbyist in Sacramento to hold discussions with legislators and restaurant associations about potential bills. Yet even Kniss acknowledged at the Nov. 29 meeting of the Policy and Services Committee that changing the law would likely be an uphill battle.

"I know there will be a big pushback from unions," Kniss said. "That's really tough."


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45 people like this
Posted by resident
a resident of Midtown
on Jan 10, 2017 at 8:03 am

really palo alto?? $15.00 an hour isn't enough to live in palo alto or neighboring communities...heck $25.00 an hour isn't enough...nor is $35.00 an hour!! tipped workers should not be exempted from the pitiful miminum wage law that won't event be fully implemented for another 2 years...all while rents rise at astronomical amounts. a friend's rent was just raised nearly 50%!!

39 people like this
Posted by Jared Bernstein
a resident of Professorville
on Jan 10, 2017 at 10:16 am

Jared Bernstein is a registered user.

Tipped workers should not be exempt. It has nothing to do with unions.

Regular work can be paid fairly and predictably. The restaurant can declare a "no tipping" policy and just pay the wait staff and others that 30 to 45 $/hour that they say these folks are getting now.

My friend (the #2 cook at a fancy local restaurant) does not make even $20 per hour. And he had to sue for back overtime pay (at a previous Palo Alto restaurant). He won, but it took some effort.

If this exemption was an issue for the workers themselves, they might show up at these meetings. It seems to be an owner's issue, not an employee's issue.


9 people like this
Posted by Tessa
a resident of Crescent Park
on Jan 10, 2017 at 10:16 am

I'm in agreement with not increasing the minimum wage for wait-staff who make a nice living off the tips in restaurants, many of whom do not declare their full tips in their tax statement. And now almost all non-full service restaurants have include a tip function in their new point of sale technology. Seriously? I need to include a tip when ordering a hamburger or coffee at the take-out counter? How much has this new tipping feature increased the workers salary? I only make $20/an hour and have never received a tip or bonus at the high-tech company where I work.

I'm eating out less and less because I can't afford the ridiculous tipping. Don't get me started on expensive hair salons where I'm expected to tip on a $100 haircut. Why should I leave a tip for workers who make more than I make? If employers are required to pay a higher minimum wage the cost will be passed to the customer, who will also be expected to leave a tip on top of higher food prices. Crazy.

57 people like this
Posted by Gary
a resident of Menlo Park
on Jan 10, 2017 at 10:27 am

Restaurants should implement a no-tipping policy, increase menu prices by 15-20% and use that extra money to pay ALL staff an appropriate living wage. There would be no issue with unreported income and staff will get a steady income that they can depend on. Will service suffer? Doubtful. There aren't service problems in many industries that don't involve customer tipping.

4 people like this
Posted by Maria
a resident of East Palo Alto
on Jan 10, 2017 at 10:27 am

YAY! Probably one of the best things I've read all day. $15/hour for people to STILL get my order wrong?! But, exempting them would make me feel a teeny bit better. I tip ONLY when appropriate and only what's appropriate. I'm so tired of having to pay the price of higher everything. Finally, Council being pro-active and not copying what everyone else is doing.

16 people like this
Posted by Carol Gilbert
a resident of University South
on Jan 10, 2017 at 10:44 am

Gary of Menlo Park just said what I would have said. I ate the tipping policy. Just pay your workers a decent wage and charge me as appropriate.

7 people like this
Posted by John Monk
a resident of another community
on Jan 10, 2017 at 11:02 am

T.I.P.S. Meaning: to insure promp service. It is an incentive and should no be eliminated.

17 people like this
Posted by Anon
a resident of Barron Park
on Jan 10, 2017 at 11:15 am

How about sharing the tips with the entire staff. The restaurant I worked in did that and it made it a congenial cooperative place to work. Everyone works hard in a restaurant ... let them share it.

20 people like this
Posted by Robert
a resident of Midtown
on Jan 10, 2017 at 11:42 am

All, Its amazing to me that all these people commenting on what restaurants should do regarding how they should run their business is comical and you have no standing! Until you have to meet a payroll deal with the unending regulation and visit the labor board 2-3 times a year because you terminated an employee who now wants revenge by filing a claim at no cost to the employee and although I have 5 wins and no losses I have to pay the employee a release so they don't keep filing frivolous claims "its called extortion" as a 40+ year restaurant owner I'm done! after providing a job loaning my people money and paying them much higher then the minimum this is what we get? bring on automation and the machines its much cheaper and its the way of the future and in the end the policies only hurt the ones you want to help.

18 people like this
Posted by Elizabeth
a resident of Midtown
on Jan 10, 2017 at 12:07 pm

Seriously? Restaurants across the bay area are finding it difficult to find wait staff because no one can make it on the pay and tips they make.

They can hardly commute from the central valley for a pitiful pay check and tips!

I'm guessing the council believes in trickle down economics too.

18 people like this
Posted by Don't Be Cruel
a resident of Midtown
on Jan 10, 2017 at 1:28 pm

Don't Be Cruel is a registered user.

When my daughter waitressed during college for extra money, she ended up spending a large portion of that tip money on her commute! Most of her minimum wage went to her portion of rent and groceries. Not much left for the savings account. Of course, we paid the school expenses, or she would have been running in the red!

10 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Jan 10, 2017 at 1:30 pm

I too would like to see the elimination of tips for services whether it be wait staff, or any other type of service staff.

If we could include service in all our charges whether they be in restaurants, salons or anywhere else that tips are expected then it would make life a lot easier for all of us. I think the staff would enjoy the fact that on slow days they earn the same as busy days would be something they would appreciate also.

5 people like this
Posted by Tipping
a resident of Leland Manor/Garland Drive
on Jan 10, 2017 at 1:31 pm

Tipping is a registered user.

I believe "sharing tips" with the kitchen staff is against state laws (BTW, that should be changed). Restaurants already have a hard time keeping staff, eliminating tipping in a particular restaurant would probably cause the staff to leave for jobs where they receive tips.

@Tessa - depending on the Salon you frequent, that $100 haircut may or may not be going into the pocket of the hairdresser. Some hairdressers rent their stations from the owner and some are employed by the salon directly.

3 people like this
Posted by Reader
a resident of another community
on Jan 10, 2017 at 4:17 pm

Not exactly. California does not permit a restaurant to force tip-pooling between servers and kitchen staff. Servers can tip the kitchen staff at their own discretion.

A big part of the current problem between server and kitchen staff pay disparity is California's refusal to recognize tip credits.

14 people like this
Posted by Restaurant Owner
a resident of Another Palo Alto neighborhood
on Jan 10, 2017 at 5:36 pm

This is a really difficult issue. Most of the restaurant owners I know understand the realities of living and owrking in this area, and really do want to pay a living wage and do their best to provide the best wages and work environment they can. Frankly, being in business in this area absolutely requires it in order to keep good people in a very tight labor market.

But the issue is complex because of the unique laws in California, some of them mentioned above, e.g. No consideration of total compensation in calculating minium wage requirements like in most other states, forbidden sharing of tips with non service employees (Federal), and frankly also a very deep resentment to the elimination of the tip for service model.

We tried it in another close by city and combined it with a MINIMUM starting wage for our servers of $18/hour with most able to make much more. Surpisingly, our employees were ok with this, but a small very vocal minority of both guests and even folks that had never been to our restaurant almost ran us out of town with their social media postings against our no tipping policy.

We tried to do what we felt was the right thing in order to help raise the standard of living for the most of our employees but the public wasn't ready for it. I still think this is the model we are headed towards, but it will be a difficult transition for some people. And it's very hard going first!

Please be understanding and support/frequent your local restaurants and other small businesses because honestly this is a very, very difficult time financially for almost all of them. These small business owners are typically reinvesting at least 95% of the check back into the restaurant and staff. And that was before the large increase in labor costs. Some will not be around in another year. We are all in this together and it will require give and take to improve the lives of all stakeholders (employees, owners, guests, community).

Thank you.

6 people like this
Posted by Salary, not tips
a resident of Midtown
on Jan 10, 2017 at 6:50 pm

Salary, not tips is a registered user.

Thanks for your perspectives, Restaurant Owner. The transition to equitable salaries rather than tipping can be aided by a city policy that applies to all restaurants at the same time. I really hope Palo Alto chooses to go there, rather than to adopt a policy that bakes tipping further into the system.

7 people like this
Posted by Eric Filseth
a resident of Downtown North
on Jan 10, 2017 at 7:26 pm

This is a bit of a technical point, but I believe the Council was generally aligned on the principle: supporting possible State legislative efforts to give restaurant and possibly other service operators more latitude relative to minimum wage and tipped vs non-tipped employees. The 5-4 Council split was between two alternate versions of the language in the motion, not the general direction.

9 people like this
Posted by Plane Speaker
a resident of Crescent Park
on Jan 10, 2017 at 10:13 pm

-- I'm in agreement with not increasing the minimum wage
-- for wait-staff who make a nice living off the tips in restaurants,
-- many of whom do not declare their full tips in their tax statement.

Me too, for all those making a "nice living" already, I don't think we should raise the minimum wage.

Now, can you show me someone who is making a nice living in Palo Alto on minimum wage, even with tips? Would this "nice living" included health care, a retirement plan, education, owning a car, paying insurance ... eating?

3 people like this
Posted by Me 2
a resident of Old Palo Alto
on Jan 12, 2017 at 11:21 am

If you are ok with funding the increased wages for workers out of your own pockets as restaurant customers, then go for it.

But I don't want to hear any complaining about how expensive restaurants are. Wages (like business taxes) are costs passed along to customers. And if the price increases required to cover these increases in costs put meal prices out of reach for the target market, the restaurant will close.

In any case, what we will be seeing is the hollowing out of the mid-range restaurant in the Bay Area (and California). Only small shops staffed by family members or high end restaurants like Baume, only to be filled by big chains like Cheesecake Factory.

Fun. More complaining from the old residentialists about things that are changing.

Like this comment
Posted by Andy
a resident of another community
on Jan 12, 2017 at 6:22 pm

The reality is that restaurants are undercutting each other on price, to attract customers. Any restaurant in the middle or low price range of the market can forget about raising prices to meet the increase in wages mandated by law. No tipping or surcharges on the bill are desperate efforts to move the needle.

4 people like this
Posted by Deerod
a resident of Downtown North
on Jan 12, 2017 at 8:11 pm

It's a matter of simple math. raise the costs and the businesses raise pricing. Servers make on average 25-35 per hour while and work 4-5 hour shifts. meanwhile the cooks work 6-8 hours a day and make 12-15 per hour. The managers who get blamed for all of this make 15-18 per hour and give up most nights and weekends. Tip credit is long overdue in California and would save all of the small and big restaurants. it would create more jobs and give the raises to the ones that rely on paychecks the most.

2 people like this
Posted by John
a resident of Another Palo Alto neighborhood
on Jan 14, 2017 at 10:43 am

I'm a waiter. I average about $25 an hour, including the base wage. My Obamacare costs me about $4/hour. In Massachusetts, where tip income is counted against the minimum wage, the minimum wage is $3.75/hour for employees who earn more than $20 in tips per month (reemphasize, $20 per month!) compared to $11/hour for other employees.

For what it's worth, the average wage for kitchen workers in Mass. is about $13 vs. $12 in California. Conclusion: any change in waiter's wages goes into the owner's pocket, not the other employees.

Last point: there are waiters who make more per night. They work in high end restaurants with high end prices where the owners can afford it. Stop kidding yourselves about the good life waiters have and recognize that this is all about restaurant owners using the town's influence to line their own pockets.

1 person likes this
Posted by Not a waiter anymore
a resident of Midtown
on Jan 14, 2017 at 3:57 pm

In my opinion $25 and hour sounds pretty good especially when you think about the fact that they work part time. Allowing for school or other pursuits.
Health care @ $4 an hour.... going, going and soon gone thanks to our friends in congress.

How raising minimum wage lines owners pockets makes no sense. Removing tipping and adding service charges is what would allow for wage increases across the restaurant staff. It is accurate some owners would not pass those dollars to staff but customers by enlarge revolt to any removal of tipping.
Raising minimum wage is the only way to help lower wage jobs but the only way to pay for it is to raise prices.

Morally if all think a living wage is the right thing to do then understand the cost will be passed on to the customers.
I think we all need to realize if we want to support a living wage then go out to eat and support the industry and its employees and accept the reality of increased pricing.

6 people like this
Posted by Mike
a resident of University South
on Jan 15, 2017 at 9:44 am

Shake Shack founder: Tipping is 'one of the biggest hoaxes pulled on an entire culture'

Web Link

Danny Meyer, the founder of burger chain Shake Shack and an outspoken critic of tipping, recently called the practice “one of the biggest hoaxes pulled on an entire culture.”

Meyer appeared on The Sporkful podcast and explained that tipping emerged as a way to skirt the abolition of slavery after the Civil War.

“Tipping is actually one of the biggest hoaxes pulled on an entire culture, the American culture,” Meyer said. “The restaurant industry, as well as the Pullman train car industry, successfully petitioned the United States government to make a dispensation for our industries that we would not pay our servers. But it wasn’t considered slavery because we would ask our customers to pay tips.


2 people like this
Posted by musical
a resident of Palo Verde
on Jan 15, 2017 at 10:32 am

@Mike -- It's also not considered slavery if you are free to walk away.
That may not be the best choice but still it is a choice not available to the truly indentured.

106 people like this
Posted by Marrol
a resident of Embarcadero Oaks/Leland
on Jan 15, 2017 at 11:40 am

I support a moderate, reasonable minimum wage increase, but not to the degree that those working these jobs should expect a salary and benefits package equal to skilled labor positions. This especially applies to people working in the fast food industry and lower cost dining establishments. If a person limits themselves in the employment field for whatever reason, be it lack of education, personal skill level, or poor life choices, they should not expect their employer or consumers to support them in a manner that will allow them to afford to live wherever they wish or in the lifestyle of their choosing.

If one limits themselves to these positions what exactly did they expect? With the exception of higher end dining establishments, these fast food and affordable industry jobs were really meant for the high school kid making some extra money over the summer or on weekends and establishing some employment history. Or the college student just seeking a part-time position to help ends meet a bit. Employers weren't necessarily concerned with the pressure of having to support grown adults with competitive living wages and benefits, especially in our region where the cost of living is high. That expectation is unfair to the corporation and/or business owner who undoubtedly have worked hard, made huge sacrifices, and put up the capital investment. Nor should this burden be passed on to the consumer who will certainly have to pay higher prices.

Yes, to keep up with the increased cost of living we should definitely implement a reasonable minimum wage hike. But to what scale and comparison? I believe it should reflect what that teenager and college student should expect to be compensated, not what it takes to live in Palo Alto with salary, benefits, etc. No one in these essentially unskilled positions that require little or no education, job preparation, or vetting should expect anything more.

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