Scamming Investors on the Tipped Minimum Wage

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Earlier this month, social justice investing firm Adasina Social Capital released a letter pressuring companies to end their use of the tip credit, citing flawed claims from the Restaurant Opportunities Center’s non-profit One Fair Wage (OFW) and co-founder Saru Jayaraman. They also teamed up with One Fair Wage earlier this year to name and shame companies that pay their workers using a tip credit.

The link between Adasina and ROC’s opposition to tipping makes more sense once you realize that the investing firm’s co-founder, Maya Philipson, is listed as an advisor by the Horizons Foundation, which is one of ROC’s donors. Horizons also lists Philipson’s own social justice investment firm as one of its partners.

Both projects espouse both misleading and outwardly false statements about the restaurant industry and its workers, and seek to disparage the livelihoods of tipped workers:

  • MISLEADING: The use of the term “sub-minimum wage.” Jayaraman and anti-tipping advocates have used this term as a tool to downplay the role of tipping as a substantial form of income, saying that allowing employers to use a tip credit in their calculation of employee wages allows those workers to earn less than the minimum wage. They fail to mention that the only legal way to implement a tip credit, according to the federally-binding Fair Labor Standards Act, requires employers to demonstrate that tipped employees paid at this rate make at least the minimum wage with tips factored in. In fact, the average U.S. tipped employee makes more than minimum wage due to tipping. According to analysis of Census Bureau data, the average tipped employee makes $14 per hour when tip income is factored into total earnings, and some workers may reach $24 per hour or higher under the tipping system. Many states with higher minimum wages also have their own language requiring tipped employees to earn at least those higher rates. Adasina’s “sub-minimum wage” database does not contain any information on workers’ average total earnings, which would include tip income.
  • FALSE: The use of the tip credit is directly responsible for sexual harassment of restaurant workers. The letter cites a flawed 2014 report released by One Fair Wage on this topic, which was debunked by EPI. The report includes sexual harassment behaviors reported between coworkers, which are unrelated to the customer or tipping, in attempt to claim that sexual harassment in restaurants is higher in states that allow employers to use a tip credit. According to the Equal Employment Opportunity Commission (EEOC), in the years 2007-2017, California (which does not allow a tip credit) had 2.5 times more sexual harassment claims in restaurants than New York (which does allow a tip credit). The study also failed to collect any direct survey data in non-tip credit states. OFW’s more recent study on sexual harassment during the COVID era also fails to compare the experiences of workers in tip credit states with any evidence in non-tip credit states: which would reveal that sexual harassment of restaurant workers has no correlation to the existence of a tip credit.
  • FALSE: The history of the tip credit is rooted in racism. According to Gerald Friedman, professor at UMass Amherst, tipping began as a cultural practice imported from Europe that had more to do with showing off wealth and generosity toward servants. While many servants were in fact non-white, Friedman argues that since many states banned tipping for a period in the early 20th century, there is little evidence that tipping was a socially-ingrained scheme to pay non-white workers less. Tipping was largely reinstated as many continued to engage in the practice despite anti-tipping laws.
  • MISLEADING: Adasina’s database of publicly traded companies that utilize a tip credit contains very little concrete information. The firm, partnering with One Fair Wage, admittedly set up their list of companies to include information about whether or not they use a tip credit to pay their tip-eligible employees, labeling them as “paying a sub-minimum wage”. Although they claim to have corresponded with companies and their employees, the majority of companies are listed as “likely pays a subminimum wage.” Their methodology indicates that this designation means that the list compilers received no response to their initial inquiry, and therefore have no indication of the hourly wage each company may pay to their workers.

Despite their mission toward social justice for workers, Adasina and its letter signers seem to be more focused on advancing the Restaurant Opportunities Center’s inaccurate and misleading claims about the restaurant industry instead of focusing on tipped employees’ wishes for their pay.

Historically, tipped employees don’t support the ROC’s anti-tipping agenda and the movement to eliminate the tip credit. ROC has partnered with various high profile organizations and even celebrities to end the tipping system, but restaurant workers see this movement as a threat to their income and job security.

  • After the ROC launched a ballot initiative to eliminate the tip credit in Maine in 2016, the state’s service employees, namely restaurant workers, rallied against the referendum once it passed. Members of the Restaurant Workers of Maine participated in a 12-hour public hearing to voice their concerns over how the enacted ballot measure would affect their jobs and earnings, with one bartender stating: “I didn’t ask for this, my workers didn’t ask for this.” In 2017, the Maine legislature and governor repealed the measure, and the tip credit was restored.
  • New Mexico food service workers also took issue with the way ROC and other anti-tipping activists frame tipping as a negative way to earn income: “A minimum wage without a tip credit would effectively turn career servers — the most experienced of whom can earn up to $24 an hour or more — into entry-level employees.” In 2019, the state legislature and governor amended the minimum wage law to raise the tipped minimum to $3.00 by 2023, and voted against eliminating the tip credit.
  • In areas with already high regular minimum wages, workers still resist eliminating the tip credit. More than 20,000 New Yorkers joined a Facebook group entitled “Supporters of the Tip Credit in New York”, and over 12,000 workers signed a petition against eliminating tipping in the state. District of Columbia workers also rallied against Initiative 77, a movement backed by ROC to eliminate the tip credit in Washington. Both New York state and DC still currently allow a tip credit.