Article contributed by Joseph Tangredi, Ellenoff Grossman & Schole LLP
New York City Mayor-Elect Zohran Mamdani ran on a platform to make the city affordable again for its citizens and, specifically, the working class. This platform includes substantial promises such as free buses, reduced residential rent, and lower grocery prices. The most popular – and controversial – proposal is his goal of raising the minimum wage to $30 per hour by 2030. While this may be music to the ears of the working class, it may sound like bells tolling for the hospitality operators.
Such a goal is unique and untested in practice. Presently, only California and several cities in Washington have minimum wages at or above $20 per hour. However, these wage rates are only for certain sectors of those areas’ respective economies and none of the wage rates reach above $22 per hour. The true consequences of these wage rates, implemented only one to two years ago, have yet to be fully realized. This uncertainty makes it difficult for hospitality operators to understand and prepare for the long-term impacts of such ambitious minimum wage increases. Still, several short-term developments are predictable with wage increases of this magnitude.
Increase in Labor Costs
Labor costs for those operators whose current wages are far below the $30 threshold will inevitably increase. Even those operators whose average base wages are at or above that mark will feel upward pressure as the $30 per hour wage rate becomes the new “floor.” This will reset the definition of “minimum wage jobs” and the expectations of wage rates for jobs considered to be above minimum wage. This means higher base wages for front and back-of-house positions alike in hospitality establishments.
A major issue that has not received much discussion is the interaction of increased wages with the tip credit. This interplay will undoubtedly reignite thoughts about eliminating the tip credit for the hospitality industry, that tempered in recent years. Famously, in November 2015 the prominent restaurateur Danny Meyer moved his restaurants to a “Hospitality Included” model, which gave a picture of a post-tip credit world with no tips and higher wages. Meyer ended this experiment, likely in part due to the COVID-19 pandemic, and reverted to a tipped pay structure in July 2020. Employers should expect there to be a call for more such experiments and debate about the elimination of the tip credit if the $30 minimum wage trends towards becoming reality.
Menu Adjustments
Inflationary pressures in recent years have caused consistent and significant increases in menu prices. While the consumer has historically been willing to accept these increases, there are signs the consumer, particularly younger spenders, are less likely to spend on goods that continue to increase in price. While inflation has declined from the highs of the COVID era, it remains persistent. Now add to the equation calls for higher minimum wages operators will face further costs and the inevitable dilemma of deciding whether or not to push that cost back onto the consumer yet again. While operators may be able to utilize further price adjustments to offset costs, operators must do so with other cards in their hand that they can play if they feel negative impacts from new “sticker shock” of their customers, such as, for example, a move to smaller streamlined menus that cut back on waste, labor, and time.
Operational Changes
Post-2020 operators have become apt at adjusting operations on the fly and reducing overhead. This was reflected in the implementation of self-order kiosks and QR codes that replaced physical menus. Operators that have avoided using such technology will feel pressure to finally follow this trend. Aside from the technology revolution of the hospitality industry, operators will look at other operational changes to offset labor costs, such as employing staff that are capable of being trained at multiple positions / stations and eliminating inefficiencies or redundancies in services.
Potential for Long-Term Benefits
Ideally, these short-term impacts are offset by long-term benefits of increased minimum wage and other policies of Mayor-Elect Mamdani. If Mayor-Elect Mamdani’s platform achieves its intended outcomes, New Yorkers may see higher spending power and financial stability. This should foster more robust spending and demand for goods and services in the hospitality industry. Further, workers that have greater financial stability may more likely hold their positions longer and reduce their need to hold second jobs. This will allow operators to reliably schedule their staff more consistently without the disruption of frequent turnover or scheduling conflicts.
While we wait to see how Mayor-Elect Mamdani’s policies take shape, the only certainty appears to be that we will continue to hear in New York City the need for increased wages. Restaurant and food-establishment operators should be mindful of this and be flexible enough to accommodate what comes from the state and city governments. As shown by the COVID pandemic, operators that have the foresight to be able to adjust to what may or will occur whether it be via new law or simply the advocated for needs of their workers will be the most successful.
Joseph Tangredi is a Partner at Ellenoff Grossman & Schole LLP in the firm’s Labor & Employment practice group. Joseph’s practice focuses on representing management in traditional labor relations, employment counseling, and employment litigation defense. He has successfully represented management in the hospitality, healthcare, and non-profit industries in labor relations, including in numerous arbitration hearings, mediation, and collective bargaining. Joseph Tangredi can be reached at JTangredi@egsllp.com or via phone at 212-370-1300.