A D.C. bill that aims to provide relief to local restaurants in light of the city increasing the minimum wage for tipped workers is turning out to be almost as contentious as the ballot initiative that dictated that increase, as was evident in a two-day hearing at the D.C. Council that wrapped up this week.

The bill introduced in May by Councilmember Kenyan McDuffie (I-At Large) would require bars, restaurants, and other employers of tipped workers to pay their entire staff the city’s full prevailing minimum wage by 2025, two years earlier than called for by Initiative 82, the ballot measure approved by D.C. voters in November. (Currently tipped workers need to make the minimum wage through a combination of base wage and tips.) Among other things, the bill would also define service charges and mandate an education campaign for restaurant workers and customers.

Critics and supporters of McDuffie’s bill, called the Workers and Restaurants Are Priorities (WRAP) Act, are breaking down along the same lines as they did on Initiative 82.

One Fair Wage, a national group that supported the ballot initiative, sees the bill as dangerous. Ryan O’Leary, a former restaurant worker and former One Fair Wage organizer who filed to get Initiative 82 on the ballot, says the bill is a step backwards from the tipped minimum wage system. He outlined that critique at a hearing on the bill earlier this month.

“This bill threatens to undermine the progress made by Initiative 82, just like the repeal of Initiative 77,” O’Leary said during the June 8 hearing, likening it to the first time D.C. voted to eliminate the tipped minimum wage in 2018 — when it was then overturned by councilmembers, including McDuffie.

McDuffie disavows that characterization, however: “Let me be very clear: This bill is about ending a broken system faster and getting more money into the pockets of workers sooner. This is not a trojan horse,” he said.

Another key critic: D.C.’s Office of the Attorney General, whose consumer protection director criticized the bill for creating a special carve-out of the city’s consumer protection law for the restaurant industry.

But many restaurant operators and their lobbying group have voiced support for McDuffie’s legislation. McDuffie, who chairs the Council’s business committee, maintains his bill is a compromise between the two sides. Restaurant Association Metropolitan Washington President Shawn Townsend echoed McDuffie’s characterization, calling the bill a “compromise” during his own testimony. “We are ready to put the past behind us and focus on building a better future together,” said Townsend. “The WRAP Act does just that.”

Faster wage increase draws ire from unlikely source

McDuffie describes the provision to fast-track I-82 implementation as a win for tipped workers. But Initiative 82 supporters disagree with his description because the bill eliminates the initiative’s step increase from $8 per hour to $10 in 2024. Plus, some think the speedy timeline would be harder for smaller restaurants to cope with, leading to further pushback.

“We believe — we are insistent, in fact — that the voters have now twice decided that 82 needs to be implemented as voted upon, which is that workers should get increases this year, next year, every year, and not have to wait for an increase,” One Fair Wage President Saru Jayaraman said during a press conference on the legislation in late May.

McDuffie addressed Jayaraman’s criticism in his opening testimony at the June 8 hearing.

“Is this asking a big sacrifice to workers? Yes it is. It would mean around $4,000 less in their pockets for one year, from 2024 to 2025,” he said, basing the math on if that individual worked 40 hours each week for 52 weeks a year. “But the trade-off is they will receive around $12,500 over and above what the minimum wage would be in 2025 and around $10,000 over and above the minimum wage in 2026.”

Some restaurant owners, including Diane Gross of Cork Wine Bar & Market and Jamie Leeds of Hank’s Oyster Bar, told the council committee they support the bill’s faster implementation of Initiative 82 in part because the annual step increases outlined in the ballot measure have become administratively complicated. “Rip off the band-aid” was a common refrain. They also said that skipping the 2024 increase gives restaurants more time to prepare for the substantial increase, from $8 to more than $17, in 2025.

Bevy of complaints about bill’s service charge language

Initiative 82 supporters are even more concerned about McDuffie’s treatment of service charge.

The legislation aims to offer more relief to restaurant owners by creating a set definition of service charge: namely, a percentage of food and beverage sales that cannot exceed 22% and pays the base wages of employees. If an establishment adds a service charge as outlined, then an owner can exempt the fee from sales tax (reducing costs to their patrons) and excludes the fee from calculation of rent if it’s based on sales (saving the owners money). This is supposed to make it more appealing for restaurants to add service charges to patrons’ tabs and use those fees to pay their tipped workers’ base wages.

But critics argue the bill creates a new type of tip credit through its definition of service charge. While some restaurant owners have already charged these fees in order to pay their tipped workers’ base wages, Initiative 82 supporters argue that the incentives in the bill will make service charge standard practice, thus reducing tipped workers’ overall earnings. Because despite pleas for customers to tip on top of a service charge, some people appear to tip less or not at all when there’s a 22% fee.

“Restaurants should not be relying on service charges to pay their employees a base wage,” bartender Maxwell Hawla testified at the hearing on the bill on June 8. “I am a skilled professional. I deserve to be paid the regular minimum wage by my employer and still retain the ability to earn tips on top.”

Some restaurant owners, meanwhile, argue that the proliferation of service charges was the guaranteed outcome of Initiative 82. After already contending with increased food costs due to inflation, they are hesitant to further raise menu prices — especially given the tight margins at most small, independent restaurants — which dominate the city’s dining scene.

Owners already use the fees for a myriad of reasons, to raise wages among front or back of house staff to pay for health insurance to cover the cost of COVID-19 supplies. Right now, the only legal requirement is that they explain why they are charging an extra fee to patrons, but that doesn’t alway happen, as the D.C. Attorney General pointed out in March.

“Let’s be clear, service charges are currently permissible and will be used by operators with or without the WRAP Act,” testified Gavin Coleman, and RAMW chair and a partner at Long Shot Hospitality, which includes Dauphine’s and The Salt Line. “This bill would give further clarification to customers and protections to workers.”

More critics voice concerns

OAG Consumer Protection Director Adam Teitelbaum cautioned the Council against coupling sales tax relief to service charge, because it incentivizes a fee that is irritating to customers. The OAG has received over 100 complaints regarding service charges, according to Teitelbaum.

He also expressed concerns about how the bill defines service charge, because it would exempt the restaurant industry’s service charges from the city’s Consumer Protection Procedures Act, allowing establishments to bury customer notices of a fee and relieving owners from having to explain the charge.

“So, not only does the Bill eliminate the CPPA’s requirement that restaurants inform their diners about what service charges are used for, it affirmatively allows them to use these fees in a way many reasonable consumers would not expect,” Teitelbaum testified on Wednesday.  He recommends a more direct tax relief for the restaurant industry instead.

A few people who testified also criticized the bill for its provisions related to food delivery, which they say aren’t likely to solve the problems of high cost of delivery for restaurants and poor working conditions for delivery drivers. McDuffie’s bill bars companies from excluding a restaurant from customer searches on their platforms, requires restaurants to let delivery workers to use their bathrooms, and mandates a study of working conditions for drivers.

The bill’s path forward is unclear

McDuffie said that his bill is simply a proposal, and he’s open to changes before passage. He may need them: Already, Ward 4 Councilmember Janesse Lewis George has come out against the bill as drafted, saying she shares the concerns of Initiative 82 supporters. She also shared concerns about how exempting service charges from sales tax would impact the city’s finances.

“The bottom line, restaurant and bar industry needs to be paying workers fairly and above board just like every other business sector requires,” George said at the first hearing.

It also remains unclear how Ward 6 Councilmember Charles Allen would vote on the bill, given that he has his own restaurant relief bill. That bill, introduced the same time as McDuffie’s, hasn’t yet come up for a hearing but tackles service charges and offers other support to restaurants, such as enhancing a small business tax credit and streamlining some bureaucratic processes that affect the industry.

One provision that most seem to agree on? A bill that would reform liquor liability insurance, which McDuffie introduced in tandem with his restaurant relief bill. The insurance bill, which would limit establishments’ liability to third-party civil lawsuits, thus reducing their insurance costs, got a hearing just before WRAP Act. Townsend, who testified at that hearing as well, said the cost of liquor liability insurance is one of the biggest issues facing the industry.