It's official: California goes for $15 minimum wage

This story first appeared in Restaurant Hospitality’s sister publication Nation’s Restaurant News.

Restaurant operators across California said Monday that a proposed deal to raise the minimum wage to $15 per hour would result in higher menu prices and fewer jobs for entry-level workers across the state.

Gov. Jerry Brown on Monday announced a landmark deal between lawmakers and union leaders that would increase the state’s minimum wage to $15 an hour by 2022 for employers. The deal follows reports last week that labor leaders had successfully qualified a Nov. 8 ballot initiative in support of the $15 wage hike.

Under the deal, California would become the first state to institute a $15 minimum wage, climbing from the current $10 per hour to $10.50 per hour on Jan. 1, 2017, with another 50-cent increase in 2018 and $1-per-year increases through 2022.

Written into the agreement is a “pause” option for the governor, who by Sept. 1 each year has the option to put a hold on the increase planned for the following January due to negative budgetary or economic conditions.

Once the wage reaches $15 per hour for all businesses, wages will then increase up to 3.5 percent each year for inflation as measured by the national Consumer Price Index.

The deal is expected to be written into existing legislation that could be acted on by the legislature as soon as this week. Though debate is expected, Brown expressed confidence that the deal has the support of the state’s political leadership and will move forward.

Brown estimated that the wage hike will impact about 7 million hourly workers across California, about 2.2 million of which are currently paid the minimum wage.

“California is proving once again that it can get things done and help people get ahead,” Brown said. “This plan raises the minimum wage in a careful and responsible way and provides some flexibility if economic and budgetary conditions change.”

At a press conference on the plan, seven-year Burger King employee Holly Diaz expressed her thanks to the governor and labor leaders, saying the struggles among restaurant workers to make a living wage are real.

“I have to choose between feeding my child, buying bus passes and paying rent,” she said. “It’s not fair. I love my job, yes, I do. But I love my family more and I should not have to struggle daily to support them.”

Restaurant operators, however, predicted that the move will have negative consequences.

Russ Bendel, president and CEO of The Habit Restaurants LLC, Irvine, Calif.-based parent to the growing Habit Burger Grill chain, said his company has always paid above minimum wage.

However, he said, “$15 an hour is almost a 50-percent increase from today and seems aggressive. Restaurants/retailers that employ a large amount of employees in relation to revenue will have to price for it. Traditional fast food will most likely look to eliminate jobs, as they have in the past.”

Greg Dollarhyde, chief energizing officer for Santa Monica, Calif.-based Veggie Grill, said, “I really feel for the young person seeking an entry-level job. Employers have very high expectations for a $15 wage earner, and will be looking for deeper experience in those jobs — or they will just try to eliminate the jobs using outsourcing and technology platforms.”

Dollarhyde noted that the “ancillary, regulation-driven costs add another $2.50 to $3 to that wage, leaving the employer looking at real costs of $18 per hour — or about $40,000 per year.”

Patrick Lenow, vice president, communications and public affairs, for Glendale, Calif.-based DineEquity Inc., parent to the nearly fully franchised IHOP and Applebee’s chains, said the increase would hurt an industry that provides opportunities to millions.

“In addition to career opportunities, the industry teaches job skills that last a lifetime for millions of entry level workers at starter wages,” he said. “Arbitrary increases in these starter wages will put additional pressure on an already low-margin industry — including independent business men and women that operate our restaurants.”

Other restaurant operators, however, said it may be time to rethink the business model to accommodate higher wages.

“Let’s face it. It is not easy to live in California on $15 per hour,” said J. Dean Loring, president and CEO of the Burger Lounge chain, based in San Diego. “Minimum wage increases are inevitable. When it happens, it is a level playing field and all hospitality brands are effected evenly.”

Loring said when restaurant workers don’t make enough money to live in the communities they serve, turnover is more frequent and more costly.

“As an industry, perhaps it is time we realize that if we offer a living wage our industry will be healthier, not the opposite,” he said. “The bad news is the California restaurant guests will have to foot the bill. Hasn’t it always worked this way?”

Surveys, however, indicate that public support for a higher minimum wage is gaining steam.

A recent report by consulting group AlixPartners indicated that more than 50 percent of consumers polled said restaurant workers should receive higher wages, while 24 percent said they were “indifferent” on the topic. 

Of those supporting a wage increase, 48 percent said the national minimum wage should be raised to between $10 to $12.99 per hour from the current. $7.25 per hour. About 70 percent of respondents also said they were willing to pay more for restaurant meals to help workers receive higher wages, the AlixPartners report said.

With that in mind, AlixPartners said restaurant operators consider proactively raising wages, but at the same time must figure out how to offset the increase in costs with menu price increases, technology or scheduling tweaks.

“Between the growing push for higher wages, continuing high employee turnover rates and diner demanding ever-more complex menus delivered by a relatively unskilled workforce, the industry is facing perhaps its severest labor crisis ever,” said Kurt Schnaubelt, AlixPartners managing director and co-head of the firm’s restaurant practice. “To win in this environment will take bold actions, but ones support by thorough analysis and relentless execution.”

To business operators, Brown said they will have to adapt. 

“This bill has a time horizon of many years and people can prepare to adjust,” he said. “That’s just the way it is.”

Laphonza Butler, SEIU United Long Term Care Workers’ union president, said the group has pledged to drop the ballot initiative once the legislation is passed.

If the legislature does not adopt the plan as negotiated, however, the group may go forward with bringing the minimum wage hike directly to voters.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout