Danny Meyer's New Tipping Policy: What Does It Mean?

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By Tom Philip

Last week, Danny Meyer, the restaurateur behind Union Square Cafe and Gramercy Tavern,  announced that by the end of 2016, tipping would be phased out in all of his sit-down restaurants, and prices would increase to support a higher hourly wage for staff.

Wages for service workers has been an increasingly prominent subject lately, especially in New York. In September, the final touches were put on a bill that would introduce a $15-an-hour wage for those working in the fast food industry, and it seems like the changes are beginning to impact the New York restaurant industry as a whole.

What accounts for the major changes in the past months? Is this coincidence? Is the increasing power of an organised, media-savvy workforce responsible? Or is it something else entirely?

We spoke with Priori lawyer Eli Freedberg, who has extensive experience in the restaurant and service industry, and who said these changes have been a long time coming. Across the board, companies have been slow to react to the rapid rise in the cost of living in America’s biggest cities. Rent prices in the five boroughs are rising fast, and wage increases simply haven’t kept up. Freedberg says that disparity is a significant factor in driving the change, but “the straw that broke the camel’s back” and pushed this decision was “the higher number of lawsuits against restaurants and hospitality operators in the city.”

He said “more and more disputes over tipping and wage violations has led to a rise in litigation and wins for employees”and that “The plaintiffs bar is on the lookout for these kinds of violations. The damages available are extraordinary. It’s a very lucrative field to pursue at the moment.”

In addition, Freedberg pointed out that Danny Meyer himself was embroiled in a wage dispute several years ago that resulted in a seven figure settlement, possibly contributing further to the recent announcement.

It will be interesting to see how Meyer’s decision plays out, and what impact it will have on the broader hospitality landscape. Meyer has the finances and reputation to experiment with a new system, and Freedberg points out that “these restaurants cater to a clientele who can bear an increase in what they pay for meals, while ordinary mom and pop restaurants might not be able to get away with it.” It’s too early to tell if this is going to be possible for him to implement in the long term, let alone inspire others to do the same.

 “What’s funny is that no-one knows how it’s going to play out.” Freedberg said. “Despite the  decision to pay a higher hourly rate, it’s very possible a lot of the service staff are going to end up losing money, even though it’s more steady.”

It’s impossible to tell what or even how big the impact will be from this move, but as Meyer implements his plan and the results start coming in, we’ll be able to have an informed conversation about a consistent, steady income versus a less-regulated but potentially more lucrative system.



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