Restaurant industry scrambles as new minimum wage approaches

When Seattle’s bigwigs in business and labor were negotiating the city’s $15 minimum wage more than a decade ago, one major question threatened to derail the entire agreement: Whether small businesses should be treated differently from large ones.

Facing an angry mayor and the threat of one or more ballot initiatives, the parties involved at the time opted to give small businesses ten years before fully phasing in to the city’s precedent-setting new wage law.

Now that time is up and, next year, businesses with fewer than 500 employees may no longer deduct any tips or benefits from their hourly wages. As a result, wages could go up by $3 or more per hour, by far the largest increase since the law took effect in 2015.

The long-planned end to a tiered wage system could mean significant raises for thousands of low-wage workers. It’s also sending panic through the restaurant industry and brings yet another hefty political question before a city council that’s only just moved into the second floor of City Hall. Many of its members won their seats on the promise of friendlier relations with the city’s business world. Now parts of that world are asking the Council to slow the final rollout of what may be Seattle’s defining political movement of the last decade.

Time is tight.New legislation is rarely introduced after Labor Day so members and staff can focus on the budget in the fall. Meanwhile, some of the oxygen in City Hall has been taken in recent months up by the protracted fight over the pay standard for app-based delivery drivers – to the frustration of some in the restaurant industry who view that issue as secondary to the larger minimum wage question.

Restaurant industry lobbyists have pushed council members to extend the deadline and allow small businesses to continue crediting tips and wages toward the minimum wage. But they are working against massive turnover at City Hall and shifting priorities toward public safety and homelessness. Several members of the council with connections to the restaurant industry may also face conflicts of interest.

“No restaurant has this margin, so they’ll be asked to seriously change what they’re doing or they’re going to close their doors,” said Amy Fair Gunnar, co-owner of Portage Bay Café.

Nothing has been formalized so far, but Councilmember Joy Hollingsworth said she feels a “sense of urgency” to do something this year, though she’s only having “conversations” at this point.

“We’re cutting it down to the edge,” said Hollingsworth. “I don’t have an answer. It would definitely be something that I’d love to see addressed.”

Compromise for groundbreaking lawSeattle was the first major city in the country to adopt a $15 minimum wage, the early part of a wave that began in SeaTac and crested with the presidential campaign of Bernie Sanders.

To get there, then-Mayor Ed Murray locked the doors on a group of business and labor leaders until they emerged with a compromise proposal.

“Because Ed Murray’s goal was to get a super coalition to endorse an agreement, he wanted small and big businesses to buy into the solution,” said Bob Donegan, president of Ivar’s, a member of the negotiating committee.

The question of small businesses proved the trickiest.

“The core issues that again and again threatened to break down the negotiations and that ultimately were the subject of the grand compromise was specifically the size of businesses, the length of phase in, and how to deal with health care and tips,” said David Rolf, former president of SEIU 775 and co-chair of the committee.

What finally paved the way for an agreement was a ten-year phase-in period. During that time, small businesses could credit a portion of employee tips and wages toward the minimum wage. So where large businesses were beholden to one minimum wage, smaller ones answered to another. It’s a practice generally loathed by labor, but one that allowed the proposal to finally move forward.

In the years since the law took effect, the annual increase in wages has been dictated by inflation. This year, businesses with more than 500 employees must pay $19.97 an hour, while those smaller than that can pay $17.25, so long as their workers make up the difference with tips or benefits.

The city’s Office of Labor Standards will announce the increase for next year this fall. But what’s clear is for small businesses the credit for tips and benefits will go away, meaning wages will likely go up by more than $3 an hour. That’s double the previous high of $1.50 in 2020 and 2021 and more than triple the average yearly increase.

Restaurants face upheaval

Restaurateur Ethan Stowell’s businesses offer a preview of what the switch will mean. He exceeded 500 employees for the first time last year, meaning he could no longer count tips. The financial hit was significant, he said, and he followed it by switching everyone to an hourly rate and adding a service charge to his checks.

The reaction among staff was mixed. For some, it was a positive, because it, meant they earned more on sick days or when taking leave. Others quit.

He doesn’t have a strong position on what the council should do, but said the reality is it will force change.

“You either have to change the model next year or prices are going to go astronomically high or places are going to have to close down,” Stowell said.

Fair Gunnar said she estimates a $3 increase would increase their expenses by about $45,000 a month.

“For us, it’s a make or break situation, at least as far as operating our restaurants the way that we do,” she said.

For Fair Gunnar, the big difference in the upcoming jump is the lack of awareness. The original minimum wage negotiations were so publicized that customers drew a connection between the price of food and wages. That’s not likely to be the case this time around and, in fact, she believes many businesses aren’t even aware of the upcoming increase. She’s yet to see any concerted effort from the city to educate the public and small businesses about how much larger this next jump will be.

Labor’s Rolf, however, is unsympathetic.

“They can’t claim ignorance,” he said. “They can only claim that they weren’t prepared.”

At the time of the negotiations, there was never any talk about revisiting the schedule in ten years or conducting more studies or delaying implementation. That they got a decade at all was special treatment and something labor opposed.

“These guys got 10 years to get their act together, and if they haven’t figured out how to run a successful business without screwing workers, shame on them,” he said. “They don’t deserve to be in business.”

City Hall quiet on issue

As the restaurant world panics, labor has been mostly quiet. The King County Labor Council is “engaged on the issue” but had no comment, said spokesperson Charlie Lapham. A spokesperson for the labor-backed Working Washington also said they’re tracking the conversations, but also had no comment.

Rolf, however, was blunt.

“Gutting Seattle’s minimum wage law is political suicide for anyone who tries,” said Rolf.

Wading into the minimum wage has the potential to be politically risky in Seattle. For the better part of the last decade, the city’s politics have been defined, locally and nationally, by its aggressive minimum wage. Seattle’s minimum wage is the highest of any major American city, and, nationwide, trails only Tukwila.

City leaders and politicians have fought over credit for the $15 minimum wage in every election cycle since 2015, claiming the thinnest connection to the process for political gain. It arguably kicked off a string of first-in-the-nation laws passed by the council, all uniformly labor-friendly.

For Councilmember Hollingsworth, though, it’s a different time now then it was in 2015. Restaurants have been badly bruised by the pandemic and the cost of living has taken out any slack restaurants may have once had.

“When I talk to either side, everyone admits they did not see a pandemic coming 10 years ago,” she said.

Among council members, Hollingsworth has emerged as the most likely to introduce legislation.

“I do know that that is a big financial cliff for restaurants and small businesses that directly impacts them significantly,” she said.

Restaurant industry lobbyists began meeting with council members in March – visiting Rob Saka, Sara Nelson, Tanya Woo, Bob Kettle, Dan Strauss and Hollingsworth. Their ask has been straightforward: kill the sunset clause for tips and benefits.

Donegan of Ivar’s thought Nelson would be the most likely to introduce an ordinance. But her ties to Fremont Brewing likely complicate her involvement in the eyes of the city ethics commission.

In an interview, Nelson said Mayor Bruce Harrell is better positioned to take on the issue, particularly because he voted for the policy as a member of the council.

“It doesn’t all have to be the council,” she said.

Callie Craighead, spokesperson for Harrell’s office, said they are aware of the upcoming deadline and evaluating its implications.

“The mayor’s approach – as when he was on the City Council – is to support an economic environment where workers receive a fair wage and small businesses are supported and can thrive,” she said.