ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, December 29, 2014

No-tipping policies and increased minimum salaries

CNN reports that more and more restaurants are implementing no-tipping policies as, perhaps, a way of differentiating themselves from competitors.  For example, one restaurant builds both tax and gratuity into menu prices, allegedly resulting in its servers averaging about $16.50 an hour.  I have argued here before that it seems fair to me that the burden of compensating one’s employees should fall on the employer and not on, as here, restaurant patrons feverishly having to do math calculations at the end of a meal.

The law does not yet support employment contracts ensuring fair compensation of restaurant and hotel employees.  For example, federal law requires employers to pay tipped workers only $2.13 an hour as long as the workers earn at least the federal minimum wage of $7.25 an hour.  Talk about burden shifting…

But change seems to be on the way with private initiatives such as the restaurant no-tipping policy.  In Los Angeles, the City Council has approved an ordinance that raises the minimum wage for workers in hotels of more than 300 rooms to $15.37 an hour.  Of course, this will mainly affect large hotel chains, which predictably resisted the ordinance citing to issues such as the need to stay competitive price-wise and threatened circumventing the effect of the new law by laying off or not hiring workers to save money.  Funny since many of these hotels have been making vast amounts of money for a long time on, arguably, overpriced hotel rooms attracting a clientele that does not seem overly concerned about paying extra for things that are free in most lower-priced hotels (think wifi) and thus probably could somehow internalize the cost of fairly compensating its blue-collar workers. 

Much has been said about the “1%” problem and a fair living wage.  No reason to repeat that here.  However, it is thought-provoking that whereas the U.S. recession officially ended in June 2009 – five years ago - 57% of the U.S. population still believed that the nation was in a recession in March 2014.

Contracting and the economy is, of course, to a large extent a matter of seeking the best bargain one can obtain for oneself.  But even in industrialized nations such as ours, there is something to be said for also ensuring that not only the strongest, most sophisticated and wealthiest reap the benefits of the improved economy.  So here’s to hoping that more initiatives such as the ones mentioned above are taken in 2015.  At the end of 2014, it’s still “the economy, s$%^*&.”

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