On March 19, Union Square Hospitality Group (USHG) CEO Danny Meyer announced that the New York–based company was laying off 2,000 employees—more than 80 percent of its staff—due to the forced shutdown of indoor dining at restaurants as a result of the COVID-19 pandemic. This week, USHG resumed hiring. But simultaneously Meyer has announced the end of the company's "Hospitality Included" policy, which had prohibited guest tipping. It's the conclusion of a five-year experiment the restaurateur hoped would lead to a more equitable restaurant industry.
USHG's "Hospitality Included" policy was introduced in 2015 as a way to eliminate a growing inequity between what employees in the dining room make versus employees in the kitchen. "We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us," Meyer told diners at the time. "Unfortunately, many of our colleagues—our cooks, reservationists and dishwashers, to name a few—aren't able to share in our guests' generosity, even though their contributions are just as vital."
New York state law made the problem worse. In some states, restaurant workers share the tips among the whole staff. In New York, pooled tips are limited to employees who spend at least 80 percent of their time interacting with customers.
To make Meyer's policy possible, menu prices were increased by 15 to 20 percent to cover costs ranging from operating expenses to extended employee benefits, including family leave and 401k contributions. The goal was to make the total price of a meal similar to what a customer would have paid after they added a tip.
A sign of the times
The underlying problems in the restaurant industry that inspired Meyer's policy haven't changed. But the pandemic has altered the calculus. "Over the course of nearly five years, Hospitality Included was able to make some strides in narrowing the wage gap, but it was never easy to make the math add up for all stakeholders, even in far more robust economic times," Meyer explained in an online statement. With the industry struggling, he believes he must give employees the chance to earn additional money.
The forced pivot to only takeout and delivery has drastically reduced revenues for restaurants, and the future of the industry is packed with uncertainty. "It's against that precarious and unpredictable backdrop that we are concluding the chapter on Hospitality Included, and reopening with tips, all the while advocating for policy changes that will introduce much-needed equity into the compensation system," said Meyer. "We've come to believe that it's the inability to share tips that is the problem, not the tips themselves. Our ultimate goal is for your tips to be shared among our entire team, so both kitchen and dining room teams can benefit when a guest has a great experience. That will take a shift in public policy and we are actively doing all we can to persuade state and federal lawmakers to make that change."
The economic reality of the COVID-19 pandemic is coming just as more Americans are questioning the practice of tipping. Tipping can be traced back to feudal Europe—it was an extra given from a noble person to someone of lesser status. It spread to the U.S. in the latter half of the 19th century as wealthy Americans traveled in Europe and brought the custom back with them. European labor unions ended the policy there, but the act of voluntarily gifting a sum of money for a service rendered remained in the U.S. The timing is key to understanding why: Tipping arrived right around the time of emancipation. Some industries, including restaurants, lobbied for the right to hire newly freed slaves for $0 an hour, making them live solely on tips.
Today, federal law dictates that restaurants pay servers no less than the "tipped minimum wage" of $2.13 an hour, though some states have set a higher minimum. The idea is that tips can make up the difference from the standard minimum wage for other types of work. But critics say that can lead to discrimination—many studies have shown that people of color are systematically tipped less than white coworkers, and the need to make good tips can pressure female servers to tolerate inappropriate behavior.
New York's state government passed a new law that takes effect Jan. 1 that will end the tipped minimum wage for many service workers—but not restaurant employees, the largest segment in the state.
While the fight for change takes place and as tipping for front-of-house staff resumes, USHG will be instituting revenue-sharing for all kitchen employees and increasing total compensation by an average of 25 percent across its full-service restaurants.
In the interim, USHG will focus on maximizing revenue for its restaurants and slowly rebuild its team where possible. Outdoor dining at the flagship restaurant, Union Square Café, is set to launch July 23. "We are actively hiring for a few positions to support the launch of outdoor dining service at Union Square Café on Thursday evening, followed by the launch of outdoor dining at Gramercy Tavern soon after," Jetty-Jane Connor, director of communications for USHG, told Wine Spectator. "We also have plans to introduce outdoor dining at our D.C. restaurants Anchovy Social and Maialino Mare in the weeks to come."