Michigan Tipped Wage Laws Changes May Lead to Higher Prices and Job Cuts in Restaurant Industry

Changes in Michigan’s Tipped Wage Laws Might Increase Prices for Customers

In a recent move, Michigan restaurant owners are speaking out about the potential impacts of changes to the state’s tipped wage laws. They warn that the aftermath will likely result in higher prices for consumers and risk jobs for many in the workforce.

Impact of the Supreme Court Ruling

The Supreme Court of Michigan passed a ruling this week that is predicted to have wide-ranging effects on the payment system for restaurant staff such as servers who primarily depend on tips as a major part of their income. The court decision involves the gradual phase-out of the tipped minimum wage and its replacement with a regular minimum wage. The laws are expected to come into effect on Feb. 21, 2025, increasing the lower wage for tipped workers from $3.93 to approximately $6 next year, with an eventual elimination of this wage by 2029.

Restaurant Owners Express Concern

Restaurant owners in the state have expressed their worries about this decision, indicating that higher wages may force them to adjust their pricing models, which could include raising menu prices, reducing hours for workers, or potential layoffs. Jon O’Connor, co-owner of Long Road Distillers, is particularly concerned about the effects of this ruling on his establishment’s pricing model. He worries that hiking prices will place an undue financial burden on the already unstable restaurant industry due to inflation and the ongoing pandemic.

Move Towards Automation

The higher labor costs may also usher in a trend of automation in the restaurant industry. Jeff Lobdell, founder and president of Restaurant Partners Management, which runs 22 restaurants across Michigan, believes that restaurants could increasingly turn to technology such as QR codes and ordering kiosks to mitigate these costs. This could result in a more automated dining experience for customers.

Harmful Effects on Workers

However, the brunt of this development will be borne by the restaurant workers. Lobdell asserts that smaller, local restaurants might not be able to spike their prices significantly enough to cover the raised labor costs. This could lead to unavoidable reductions in staff numbers. A recent survey from the Michigan Restaurant and Lodging Association found that 94% of the operators would raise menu prices by an average of 25%, while 20% of full-service restaurants would close permanently because of these changes, leading to an estimated job loss of 40,000 to 60,000 in the restaurant industry.

Calls for Legislative Intervention

In reaction to this economic projection, Justin Winslow, the President of the Michigan Restaurant and Lodging Association, calls on the Michigan Legislature to intervene quickly to avert this impending crisis in the restaurant industry. The call for legislative intervention follows the Michigan Supreme Court’s decision to also reintroduce new paid sick leave laws, which have also raised alarm among business owners.