In a letter sent to Emeryville California Restaurant Association (CRA) members, CRA President & CEO Jot Condie noted they will soon be filing a lawsuit on behalf of them against the City of Emeryville. “As you know, last year, the city enacted Ordinance 15-004, which raised the minimum wage of workers to $15 per hour. But, that ordinance also prevents hospitality businesses – restaurants included – from charging and retaining service charges to offset that increase.” The CRA is not pursuing damages, but seeks declaratory and injunctive relief, as well as payment of attorneys fees.
City of Emeryville Attorney Michael Guina was not initially aware of the suit when contacted but has since been alerted. “The lawsuit centers around the Minimum Wage Ordinance, and specifically 5-37.04 related to payment of hospitality Service Charges” noted Guina through email. “The complaint alleges this provision is preempted by federal and state law and is in violation of the federal and state constitution.”
The legal challenge is to Emeryville’s language on how service charges can be applied. Emeryville’s MWO FAQs states “An Employer may not take a credit towards its obligations to pay Emeryville’s applicable minimum wage rate.” Food-service establishments in some cities have offset higher minimum wage increases by tacking on a service charge to make customers aware of the correlation between rising menu prices and spikes in the cost of labor (the same way many were adding fuel surcharges when gas prices were surging).
“The ordinance requires that in addition to the new $15 minimum wage, any service charge be paid directly to hospitality workers, leaving restaurant owners and operators with very few ways to adjust to the increased wage. This means that in Emeryville, the only practical responses to the new wage are for restaurants to either absorb the dramatically increased cost or to raise prices. Improperly, the City of Emeryville has acted to tie the hands of restaurants who are simply trying to adjust to the new wage.” It should be noted that Emeryville did not roll out any awareness campaign to patrons explaining the wage increase to consumers and why their costs may be higher than in other cities.
The CRA has retained the services of Weintraub Tobin Attorney Lukas Clary to litigate the case. “My client views this as an unlawful statute” noted Clary when contacted. “Other cities have adopted similar ordinances, but we feel the City of Emeryville has been particularly aggressive and, in doing so, has included portions that we believe are unlawful. We’ve decided to address this and we’ve asked the courts to review our case.”
If the CRA wins this lawsuit, a precedent could be set with other municipalities to allow establishments to retain service charges to offset labor costs. A lawsuit of this type could take months or even years according to Clary. The suit has already been filed with the county, but Clary expects the City of Emeryville to receive it before the end of the year.
Feature Image of CRA CEO Jot Condie: Tia Gemmell
As long as the restaurants are following the $15 requirement, I see no problem with them opting for a service charge over increased prices. Mandating that restaurants cannot have a service charge sounds like over-regulation and micromanagement of a private business’ pricing. If the employees are getting at least $15/hr, why would the MWO stipulate that service charges aren’t allowed? If the city were proud of the MWO, you would think they would welcome a restaurant service charge to call attention to their brilliant policy.
The point of this clause is to hide the cost of the tax and who is paying it. The MWO was sold in the idea that ‘wealthy’ small business owners would pay from their vast riches. The reality is the middle class pays higher prices to subsidize unskilled workers.
The irony is that these workers were previously subsidized via the Earned Income Tax Credit which is subsidized primarily by the wealthy through income tax.
The end result is that the $15 minimum wage has virtually no impact on worker income while transferring the cost from the wealthy to the poor and middle class.
The Emeryville MWO is a monument to superficial thinking.