Michigan minimum wage increase is ‘nightmare’ for restaurants, industry says

• Wednesday’s Michigan Supreme Court ruling raises the state’s minimum wage, eliminates the tipped minimum wage and increases worker paid time off 
• State restaurant surveys had warned that 1,000 establishments could close if tipped workers had to be paid the regular minimum wage
• The industry already has been struggling with inflation and fewer people dining out, compounding effects of state-ordered closures during COVID

Michigan restaurant owners are “nervous about their own future,” after a state Supreme Court ruling this week  to raise the minimum wage and eliminate the tipped minimum wage, a top industry advocate says.

Wednesday’s decision from the high court found the state Legislature erred by adopting 2018 ballot proposals and then amending them.

The hospitality industry had feared such a decision because it mandates wages for an estimated 58,000 servers and bartenders eligible for the state’s tipped minimum wage of $3.93 an hour, said Justin Winslow, CEO of the Michigan Restaurant and Lodging Association.

Now those wages are scheduled to start a four-year climb to the statewide minimum wage of over $10 per hour when the ruling takes effect in February. 

Related:

• Michigan’s higher minimum wage a boon to workers, here to stay, advocate says
• What to know about Michigan’s pending minimum wage changes
• Michigan minimum wage to rise, tipped wage to disappear, under blockbuster ruling

The ruling also will expand paid time off to part-time and seasonal workers, as well as establishments with fewer than 50 employees.

Bridge spoke to Winslow on Wednesday afternoon. 

What was your first thought when you heard this news?

This is a nightmare. This is a scenario that's been slow-playing out for a long period of time. We were hopeful it could be avoided. 

Your association conducted a survey in the spring, asking operators about profitability. Among the results were that 40% of restaurants were not profitable and just 25% show year-over-year sales growth. Given that and more recent information, how would you characterize Michigan's restaurant industry so far this year?

Vulnerable. It's in a tenuous position. It's much worse off than I thought it was. 

I had heard anecdotally before that survey that inflation had a longer tail and was causing more pain than you would see on the surface, because you're still seeing people in restaurants.

With 40% of all those surveyed responding that they're not profitable at all, that’s a recipe for going out of business. … This industry is big enough that such an outcome would have an impact on the economy overall.

I’ve seen reports about people eating out less and that even McDonald’s is trying to use value meal pricing to lure people back. 

The economy may be not in a recession, but the restaurant industry is in a recession. We see it most acutely with the independent owners.  They’re the ones least capable of increasing their own prices fast enough to offset what's going on.

Do you see any possible policy solution?

The justices made clear that there is nothing that precludes the Legislature from …  providing a legislative solution that changes the parameters of this ruling. 

This ruling found “adopt and amend” unconstitutional. The Legislature could make changes to the minimum wage law or the paid sick leave law at any time. 

What is your message to the Legislature?

There's a pathway here to responsibly increase the minimum wage. Keep a tip credit like 42 other states. And move forward together.

The change takes effect on Feb. 21. What does a restaurant operator do between now and then?

There are indications that 1 in 5 full-service restaurants will shut down. Everyone else will do a combination of shrinking their total employment and trying to find a way to change their business model.

My quick math indicates that a restaurant with 10 servers working 30 hours per week could see labor costs increase by about $8,000 per month. What will customers see as a result of that?

Fewer restaurant servers, which probably means worse service, and then an increase in menu prices of (up to) 25%.

How would the economic impact resonate beyond an individual restaurant? 

In any one of those restaurants that closes for good, that job is going to be lost. This industry is responsible for hiring about 1 in 10 people total in the state of Michigan. That's why I say this has societal level impacts….  It could be a loss of 40,000 to 60,000 jobs.

What's your message to owners today?

This ruling obviously didn't go the way we wanted, but this is not the end game, and this is where we begin to fight to help save this industry. We did it once with COVID. We're ready to do it again.