S1E57: Disrupting Restaurants Part II / Amanda Cohen, Saru Jayarmanan, Pete Ternes

“It’s my responsibility as an owner to figure out how to afford to pay everyone an ethical, fair, livable wage but we have to start from the premise of paying them an ethical, livable wage” -Pete Ternes

We’re revisiting restaurants as part of our series on industries disrupted by the pandemic. In this episode we speak with restaurateurs and a labor activist about how the pandemic is reshaping how some think about tips and the minimum wage. We’ll see why tipping so is problematic, why it’s so hard to quit, and what a living wage might look like for restaurant workers after the pandemic.

This podcast was created by Just Human Productions. We’re powered and distributed by Simplecast. We’re supported, in part, by listeners like you.

Saru Jayaraman: There are structures and systems that frankly never worked, and the pandemic just laid them so clear and bare, and now that we know them, and now that we see them, it is all of our responsibility to change them.

Pete Turnes: It’s my responsibility, as an owner, to figure out how to afford to pay everyone an ethical, fair, livable wage.

Céline Gounder: You’re listening to EPIDEMIC, the podcast about the science, public health and social impacts of the coronavirus pandemic. I’m your host Dr. Céline Gounder.

Céline Gounder: Amanda Cohen is the James Beard-nominated chef and owner of Dirt Candy. It’s a vegetarian restaurant in Manhattan’s Lower East Side.

Amanda Cohen: Before Dirt Candy, when people thought about vegetarian restaurants, they really thought about, uh, sort of more like hippie natural health food restaurants, which actually can be totally, absolutely delicious, but they’re not usually sort of that cool, like nighttime romantic restaurant. At Dirt Candy we really wanted to change people’s idea of what vegetables and vegetarian food could be.

We have these white walls with graffiti plants drawn all over them. Red banquettes, a big, huge open kitchen. You can see everything that’s happening. There’s no private kitchen. I like my kitchen to be fun. So it’s already pretty, always pretty like a boisterous. Now there’s a lot of talking. It’s certainly not a quiet dining room. Every dish is based around a different vegetable, even desserts, and even our cocktails. You definitely get your… all servings of vegetables that you’re supposed to have in one day in one meal at Dirt Candy.

Céline Gounder: One of Dirt Candy’s iconic dishes is a portobello mushroom mousse.

Amanda Cohen: And this is the dish that put us on the map. So we took the portobello mushroom, which, you know, for years had sort of been either grilled on a plate with some side vegetables, as your entree, as a vegetarian or stuffed into a bun as your burger. Instead we turned it into this really, really luscious sensuous pate. Super creamy, super decadent has a little bit of truffle oil in it and it. I think the closest thing to foie gras that you can eat as a vegetarian.

Céline Gounder: Amanda has been rethinking what vegetarian cooking could be since she opened Dirt Candy back in 2008. But she’s also been a leader in rethinking how restaurants work. And one of her biggest innovations was getting rid of tipping.

Amanda Cohen: Six years ago, I had a much smaller restaurant. It was 18 seats, and it was tiny. And I only had one server. But I knew, but then the next year or so that I was moving to a bigger space and I was starting to look for staff and I was sort of ramping up and I had to hire somebody right away.

Céline Gounder: Amanda placed an ad looking for a cook. She got zero responses.

Amanda Cohen: And so, in the years before that, I would put out an ad and I would get like, 30, 40 applicants at a time. So to put out an ad and not get a response was really, really shocking.

Céline Gounder: It’s no surprise that New York City is expensive. And before the pandemic, other cities were building up their reputations as food destinations. Chefs and line cooks were leaving.

Amanda Cohen: Well, we’re losing them because it’s so expensive to live here. Okay. I’m going to have to pay them more money. That seems fine. But I’m looking at my bottom line. I’m like, but there’s not a lot of money here.

Céline Gounder: Amanda started looking at the numbers. Her line cook was making $150 a night. But the server in her restaurant was pulling in $600 a night. And — because of some very specific laws in New York City — the server was not allowed to share tips with the back of the house.

Amanda Cohen: There’s something wrong with this system. This doesn’t make any sense. So then I started doing a lot of research with tipping and I was like, okay. This actual entire system is broken and I can’t believe I’ve participated in it for so long. You know, you start going to the research and you’re like, wow, this is pretty sexist. And it’s pretty racist. And I now understand that I’ve just been sort of hiding the true cost of my food and what it is to dine in the restaurant. And I’ve been outsourcing it to my customers. And I don’t want to participate in this anymore. Like this feels really uncomfortable to me. So when I moved to the big restaurant I opened without tipping.

Céline Gounder: Several big-name restaurateurs around the country, including Danny Meyer — the guy behind restaurants like Shake Shack and the Union Square Cafe — announced in 2015 that they would end tipping in their restaurants for many of the same reasons as Amanda. But since then, most have gone back to the old model.

And then the pandemic hit. Estimates say as many as 40% of U.S. restaurants may have closed in 2020. When Danny Meyer’s restaurants reopened this summer, he announced he was ending his no-tipping policy. The reason? Workers need every possible revenue stream right now.

Amanda Cohen: The COVID-19 pandemic is the absolute worst time to get rid of hospitality included. 

Céline Gounder: Amanda has continued her no-tipping policy, despite the pandemic.

Amanda Cohen: To me, this seems like a moment when a lot of restaurateurs are looking at their front of house and thinking, well, I need a front of house, but I also need to be able to guarantee them a living wage while they’re coming to work. And the only way I can guarantee them that living wage is if we change how we pay them.

Céline Gounder: Today on EPIDEMIC, another episode on industries disrupted by the COVID pandemic. We’re revisiting restaurants and specifically how the pandemic is reshaping how some think about tips and the minimum wage.

We’ll learn why tipping is so problematic…

Saru Jayaraman: It was based on this notion of, of not wanting to pay workers after emancipation at all, because they were Black.

Céline Gounder: Why we can’t seem to quit it…

Pete Turnes: The scary thing is the quiet backlash where people look at your menu online and then don’t even show up, and you got no customers.

Céline Gounder: And what a fair wage might look like in the post-pandemic world.

Pete Turnes: I don’t think any restaurant should reopen or bring any employees back unless they’re contributing to that employee’s healthcare.

Céline Gounder: On today’s episode of EPIDEMIC, disrupting tips.

Saru Jayaraman is the director of the Food Labor Research Center at the University of California, Berkeley. She’s also the founder and president of One Fair Wage.

Saru Jayaraman: A national organization, working to raise wages and working conditions for restaurant and service sector workers nationwide.

Céline Gounder: Saru says restaurants occupy a special place in American life.

Saru Jayaraman: We just made world history a few years ago, becoming the first nation on earth in which we now spend more money on food eaten outside of the home than we do on food eaten inside of the home. Now obviously that’s changed with the pandemic, but it’s important to understand that prior to the pandemic, we ate out more than any other nation on earth.

Céline Gounder: Proposals, weddings, birthdays, graduation celebrations — they all take place in restaurants. They’ve become important spaces in our lives.

Saru Jayaraman: And it’s just unfortunate that with it being such an important space, there is so much veneration of the chefs and the restaurant owners who create that space. And so little acknowledgement, or even visibility of the workers who are doing the work of creating the food and bringing it to our tables.

Céline Gounder: Restaurants are also major employers. More than 13 million Americans worked in restaurants prior to the pandemic.

Saru Jayaraman: One in two Americans had worked in the industry at some point in their lifetime and one in 10 Americans close to one in 10 worked in the industry prior to the pandemic, it was the nation’s second largest private sector employer just after retail and the number one fastest growing private sector employer in the United States.

Céline Gounder: But restaurants are also some of the lowest paid work in the United States.

Saru Jayaraman: Prior to the pandemic, one in three working Americans worked full-time and lived in poverty. The growth of these very low wage, in fact, lowest wage jobs meant that we were heading closer and closer to one in two working Americans, living in poverty. We were already really on the precipice of disaster, with the largest and fastest growing industry proliferating the lowest paying jobs, um, the pandemic just kind of just gently nudged us into disaster.

Céline Gounder: That disaster has disproportionately hit women and people of color. And Saru says that’s no accident. The practice of tipping in the United States didn’t become common until the end of slavery.

Saru Jayaraman: Tipping had originated in feudal Europe. It was an extra or a bonus on top of a wage, never instead of a wage, always an extra, the idea of tips as wage replacement or a non wage essentially. And having to live off of tips was really a direct legacy of slavery and Jim Crow America, in which employers just didn’t want to pay Black workers.

And that became law in 1938 as part of the New Deal, when everybody got the right to the minimum wage for the first time, except for tipped workers who are mostly Black women even then, and were given a $0 wage, as long as tips brought them to the full minimum wage.

Céline Gounder: Saru is talking about the Fair Labor Standards Act. This is not the first time we’ve talked about this law on this podcast. This is the same legislation that exempted farmworkers and domestic care workers from minimum wages and benefits protections — two other groups disproportionately impacted by the pandemic.

Saru Jayaraman: and we went from zero in 1938 to the whopping and incredible $2 and 13 cents an hour in 2020, which is the federal minimum wage for tipped workers in the United States.

Céline Gounder: Let’s take a moment for that to sink in. If you’ve never worked in a restaurant, you might be shocked, but she’s right. The federal minimum wage for tipped workers in the United States is just $2.13 an hour. This is what’s called a sub-minimum wage.

Saru says that even cities or states that have raised their minimum wages to $15 an hour still have exemptions for tipped work.

Saru Jayaraman: All of the States in the Midwest and East coast that had a fight for 15 and moved to a $15 minimum wage, including New York, Massachusetts, Connecticut, Maryland, Illinois. I mean, I can name state after state —New Jersey— that went to $15. All of those States left tipped workers out. Thew them under the bus. In most cases, left them below $5 an hour while everybody else went to $15.

Céline Gounder: And tipping creates a work environment that brings more than just financial instability.

Saru Jayaraman: They struggle with the highest rates of poverty and economic instability of any workforce. And worst of all the highest rates of sexual harassment of any industry, because they’re having to tolerate all kinds of inappropriate customer behavior to feed their families.

Céline Gounder: When One Fair Wage surveyed restaurant workers if they had ever experienced sexual behavior in the workplace that was unwanted or scary, 90% said yes. That includes men and women.

Saru Jayaraman: The women in the 43 States with the sub-minimum wage were three times as likely to be told by a manager: dress, more sexy show, more cleavage, wear tighter clothing, in order to make more money in tips.

Céline Gounder: And when many of these workers lost their jobs because of the pandemic, they couldn’t even get unemployment benefits.

Saru Jayaraman: 10 million of these 13 million workers, at least who lost their jobs. 60% of them unable to access any kind of unemployment insurance because their state unemployment insurance offices are telling them with your $2 wage plus tips. You didn’t meet the minimum threshold to qualify to get benefits.

Céline Gounder: But there are some states that have implemented a full minimum wage for tipped workers. States like California, Oregon, Washington, Nevada, and Minnesota. Saru says states that have a full minimum wage with tips on top have higher restaurant sales per capita, higher job growth in the industry, and even tipping averages are higher.

Saru Jayaraman: But I think the most important data point to look at is not only do poverty rates go way down among tipped workers in those States, but those seven States have one half the rate of sexual harassment as the 43 States with a sub minimum wage for tipped workers.

Céline Gounder: Saru says moving away from a sub-minimum wage has benefits for employers too, not just workers.

Saru Jayaraman: And what they have found is that investing in their workforce results in reduced turnover, which we’ve quantified costs, restaurants, thousands and thousands and thousands of dollars annually. We actually have the highest rates of turnover of any industry in the United States because wages are so low so workers keep moving to find higher wages. And so when you reduce turnover, that actually eliminates all kinds of costs in terms of rehiring, retraining, advertising, also staff morale and it reduces employee theft and it actually increases customer service quality, and that in turn increases sales.

Céline Gounder: Many restaurants have had to lay off their entire staff. If they rehire, it’s usually a much smaller staff — and fewer tips. It’s pushed the system to a point where many workers have decided restaurants aren’t worth the low pay and high exposure risk for coronavirus.

Saru Jayaraman: And so a lot of employers have come to us saying we’re ready to rethink everything about the way we pay and treat people. And other employers are just feeling like they’re forced to pay a full minimum wage. Otherwise they can’t get people to come back to work. So in terms of re-imagining the industry that the moment has just created this… some people are calling it, the great awakening in our industry. It’s just created this huge revolution in restaurants.

Céline Gounder: We’ll hear from Amanda Cohen at Dirt Candy, and another restaurateur about how they implemented no-tipping policies at their businesses… and why some servers were not happy with the arrangement. That’s after the break.

***

Céline Gounder: One of the restaurateurs who used the pandemic to reimagine their business is Pete Turnes.

Pete Turnes: My name is Pete Turnes and I’m one of the co-founders of Middle Brow Beer Company in Chicago.

Céline Gounder: Middle Brow is a lot more than beer these days. In 2019, they opened a pizza restaurant called Bungalow. Originally, Pete and his partners wanted to open Bungalow without tipping.

Pete Turnes: I think sheer cowardice led us to the tip model. Just because it was what we understood, it was what we were comfortable with. We didn’t know if anyone would show up. We didn’t know if we’d have any customers, if we’d make it through a year. And so we, we,chickened out.

Céline Gounder: But the restaurant was a hit. Things like their mushroom pizza quickly became customer favorites.

Pete Turnes: I’m not a mushroom kind of guy — and this pizza knocks me out every time I eat it.

Céline Gounder: The success of their pizza and beer and bakery had Pete and his partners rethinking their goal of eliminating tips. They started a tip pool to spread tips more equitably among the front of the house staff. They added a service charge that went to the cooks and other staff. But then the pandemic hit. They had to lay off their entire staff. Tipping was the least of their worries.

Pete Turnes: We just focused on surviving for a little bit. And then when we started thinking about redesigning our place for this new era, talking about what we’d serve and what kind of staffing we’d need, it seemed like the right opportunity to revisit the tipping problem.

Céline Gounder: Pete says the pandemic has made customers open to new ways of doing business. He also felt his customers would be willing to pay a little more if they knew they were contributing to healthcare and benefits.

Pete Turnes: We investigated whether if they had worked eight hour shifts on the days that they worked and made $20 an hour, would they make them more than they made last year or less than they may last year.

Céline Gounder: After they crunched the numbers, they found that a server working for a lower hourly wage, but working more hours, made more than the server working fewer hours at a higher rate. The back of the house staff was on board. But Pete was worried how waiters would respond. After all, in some cases, they would be making less by the hour.

Pete Turnes: Some of our servers who made the most money last year, we expected them to be the most sort of recalcitrant. They said that after they got my email explaining this new system, they like breathed this enormous sigh of relief. The reason they gave for that was it felt like they could finally just relax and plan their lives. They work a little bit harder for it, or a little bit more for it, but they can really plan their lives. And there was this sort of sense of serenity that overcame them. We were told that story about a few of our front of house servers.

Céline Gounder: Today, Pete’s employees make $20 an hour with an additional 75 cents an hour to cover healthcare. Sounds great, right? But how do they pay for it? Fine dining may be able to get away with a 20% increase in prices. But for a pizza and beer spot like Bungalow, that could be a hard sell.

Pete Turnes: Everyone knows that a beer should cost X and a loaf of bread should cost. Y you know, and a pizza should cost Z. And so increasing prices on all those things is risky. And so instead we decided to institute a service charge to help fund our increase in wages and our banning of tipping.

Céline Gounder: The service charge ranges between 10 and 30 percent, depending on if it’s dine-in, take out, or even groceries.  Pete is also proud to offer health insurance to his full-time employees.

Pete Turnes: I don’t think any restaurant should reopen or bring any employees back unless they’re contributing to that employee’s healthcare. Hazard pay feels a little strange to me. It’s like buying, it’s like paying some, a little extra for the risks that they could contract this terrible disease and they could die, or they could be left with some permanent affliction or they could infect their family member and something terrible could happen to their family member. And you’re paying them an extra few bucks an hour. It doesn’t, it doesn’t seem, seem right. It seems totally, you know, unethical.

Céline Gounder: But there are costs beyond service charges. When Amanda Cohen at Dirt Candy moved her staff from tips to full wages, it rippled through her business in all sorts of ways.

Amanda Cohen: Probably your biggest two expenses are your payroll and your rent, and then sort of matching your payroll are your payroll taxes and they are so unbelievably high, I think,  right now, my payroll, just to give an example and in my payroll is very, very low right now because I’ve only hired back a fraction of my staff, but it’s somewhere around like $7,000, but my payroll taxes are $4,000. So, I mean, that’s a huge amount.

Céline Gounder: And then there’s insurance — not health insurance — all the other kinds of insurance businesses need to operate.

Amanda Cohen: Your limited liability insurance, your workman’s comp insurance, your general insurance. And that really starts to add up. And in particular for me, I don’t have tipping, right? So my payroll is already incredibly high, but then my insurance is based off of all that money that I’ve now pulled in as revenue before. Some of it would have not actually counted as revenue because it would have actually been tips. I didn’t have tipping, my revenue would probably be somewhere around one and a half million dollars a year. But because I don’t have tipping, it goes up to somewhere around 2.5 million because that’s actually what my staff would have made in tips basically. And it comes back to me that way.

And that’s why it’s very problematic. It’s sort of this game where you try to figure out how you compensate for these extra costs

Céline Gounder: These aren’t small challenges. And the burden falls unevenly because the vast majority of restaurants don’t provide these benefits. But for owners like Pete and Amanda… it’s worth it.

Céline Gounder: How, how have you done this? I mean, you’re in New York City. The rents are, um, damn high in New York City and you have found a way to get rid of tipping. How would you do it?

Amanda Cohen: Oh, I’m a masochist. Um, the, you know, I wouldn’t say I’m the most successful, uh, business person I don’t have when COVID hit. And I didn’t have a huge bank account to fall back on. But I gave up, I gave up profits so I could pay my staff more. That’s the reality. And we worked really hard to find staff that wants to work for us. And my front of house,  we spend a lot of time talking to them about why we paid people the way we pay them. My front of house is willing to give up some in their tips so that the back of house actually can have a fair wage and I’m willing to give up some of my profits, both my front of house and back of house, make a decent living.

Go support your local restaurant. They need it more than they have ever needed it beforehand.

CREDITS

EPIDEMIC is brought to you by Just Human Productions. We’re funded in part by listeners like you. We’re powered and distributed by Simplecast.

Today’s episode was produced by Zach Dyer and me. Our music is by the Blue Dot Sessions. Our interns are Annabel Chen, Bryan Chen, and Julie Levey. Special thanks this week to Eli Wilson.

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I’m Dr. Celine Gounder. Thanks for listening to EPIDEMIC.

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