Update: The D.C. Council unanimously voted in favor of a bill Tuesday that aims to provide relief to local restaurants that have been struggling since the start of the COVID-19 pandemic. Lawmakers are expected to introduce amendments to controversial provisions of the legislation before the second vote, which is required before the bill is sent to the mayor for her signature.

The omnibus bill introduced by At-Large Councilmember Kenyan McDuffie contains various provisions that aren’t contentious, including reducing liquor liability insurance rates, regulating food delivery service, and streamlining bar manager licensing, among other things. But the bill also marks the first time the council has weighed in on the highly debated topic of service charges or menu fees, which have become more ubiquitous since the passage of Initiative 82. The legislation does not definitively endorse or condemn the practice, but provides restaurants rent protection if they have a service charge that goes directly to their employees’ base wages or tips, rather than to other costs or overhead.

Two councilmembers — Chairman Phil Mendelson and Ward 4 Councilmember Janeese Lewis George — had introduced amendments related to McDuffie’s service charge provision. But they withdrew their amendments at the dais during the legislative meeting, hoping to garner more support ahead of the second vote. At the meeting, Ward 5 Councilmember Zachary Parker also expressed interest in an amendment that caps service charges.

Original: The D.C. Council will vote on a bill Tuesday that aims to reduce financial burdens to local restaurants coping with higher costs and declining customer demand.

The bill introduced by At-Large Councilmember Kenyan McDuffie, who chairs the business committee, has been months in the making. It attempts to find a middle ground in the ongoing debate over service charges and other menu fees, specifying that in order for restaurants to be eligible for a benefit under the law, money they collect from fees labeled “service charge” must go directly to workers, either to their base wages or as a tip.

It also aims to ease burdens on restauranteurs in big ways — by reforming liquor liability insurance (a significant expense for bar and restaurant owners) — and smaller ones, like allowing mandatory sexual harassment training for managers to be done virtually.

The bill has garnered support from many within the restaurant industry, though some progressive advocates have criticized it for encouraging restaurants to rely on service charges or other menu fees to address increased labor costs.

The legislation now before the council is a compromise of multiple bills that were introduced over the last several months. It leans on a bill introduced by councilmembers Christina Henderson (At-Large) and Brooke Pinto (Ward 2), which essentially reduces liquor liability on licensed businesses and is thus expected to reduce insurance costs. Among other things, the latest bill limits liquor liability for a business to when it “knowingly” serves an “obviously intoxicated person,” according to the legislation, and defines “intoxicated” for the first time in the D.C. Code. Liquor liability is currently dictated by legal precedent, not explicit D.C. law.

Several restaurant owners across the District testified in favor of the liquor liability provisions. Among them, Eric Heidenberger, who is the owner of The DC Restaurant Group which includes Shaw’s Tavern and Madhatter. Heidenberger said in his testimony that his group’s insurance premiums in D.C. are six times higher than in Delaware and were equal to its entire net profit in 2022.

The bill also adopts a few provisions from a bill introduced by Ward 6 Councilmember Charles Allen, including modifying liquor licensing requirements for bar managers so that it’s not as costly. Allen’s idea for an education campaign on Initiative 82, which phases out the tipped minimum wage in D.C., is also in the bill, and is to be implemented no later than October 2024.

The bill is not without controversy. It’s gotten pushback from some local groups who believe it will incentivize more restaurants to add service fees. Since the height of the COVID-19 pandemic, these fees have become an increasingly popular tool for bar and restaurant owners who want to avoid raising menu prices but need help covering new expenses. Fees run the gamut, with different names, explanations, and percentages of a patron’s total tab.

McDuffie’s bill would save a restaurant owner money by excluding “service charge” fees from rent calculations if their lease bases rent on sales. Critically, the legislation defines “service charge” as a percentage of the total cost of food or beverages and is “used to pay base wages or tips of the employees.”

The Fair Price Fair Wage Coalition — whose members include DC Jobs With Justice, Metro DC Democratic Socialists of America, and the DC Fiscal Policy Institute, among others — formed because of the proliferation of restaurant fees, says member Ed Lazere, a prominent progressive advocate who unsuccessfully ran for council in 2020 and 2018. The coalition is against restaurants using fees to cover wage increases under Initiative 82 because patrons are less likely to tip on top of a fee and workers’ overall earnings will be reduced as a consequence, Lazere says.

Moreover, he believes service charges that simply cover base wages mislead customers into thinking workers are getting more money. He points to testimony from the Maryland Restaurant Association, whose president Melvin Thompson told the Maryland State Senate finance committee last week that most patrons interpret services charges as being a tip.

“If tips go down as base wages go up, then Initiative 82 — the intent — is undermined by a deceptive restaurant practice,” Lazere tells DCist/WAMU. “The workers aren’t benefiting. It’s just an accounting gimmick … It doesn’t increase anybody’s base wage. It just covers base wages.”

Lazere argues that most restaurants “have figured out a way to survive without a service charge,” so the change in McDuffie’s bill is not necessary.

The coalition found an ally in Ward 4 Councilmember Janeese Lewis George, who on Monday introduced an amendment to McDuffie’s bill that would define service charge as strictly tips. The rationale behind the amendment is service charge should supplement workers’ base wages, not supplant wages. In a notice to move the amendment, Lewis George said that paying workers their base wages is the “cost of doing business” and therefore restaurant owners should not receive a benefit as the bill currently offers, which she compared to “a form of property tax exemption.”

It’s unclear whether the amendment will pass. Councilmembers declined to comment or did not respond to DCist/WAMU’s emails or phone calls. When asked at a press conference Monday afternoon, Council Chairman Phil Mendelson said he did not have a position yet as he just learned of Lewis George’s amendment.

Fair Price Fair Wage supports Lewis George’s amendment, though some members would prefer all mention of service charge be eliminated from the bill, says Lazere.

Meanwhile, the Restaurant Association Metropolitan Washington believes McDuffie’s bill as now written does not go far enough in providing restaurants relief. The trade group wanted to see the bill fast track Initiative 82, as McDuffie originally proposed, says RAMW President Shawn Townsend. Some restaurateurs wanted to speed up implementation because they wanted to “rip off the band-aid.”

Mendelson appears empathetic to RAMW’s concern, introducing an amendment that would implement Initiative 82 two years earlier than planned. Mendelson’s amendment would eliminate tipped minimum wage by July 2025 and defer the initiative’s wage increase in 2024. The council chairman says the initiative creates uncertainty for the restaurant industry and causes confusion.

“Deferring the 2024 increase in the tipped minimum and moving up the date for full elimination of the tip credit will not only decrease the period of [uncertainty], but benefits currently tipped workers as they will receive over $12,000 in additional base wages over the next three years.”

But Initiative 82 advocates are against the idea, which was originally McDuffie’s, because they worry mom-and-pop restaurants won’t be able to manage the significant wage increase, from $8 to over $17 per hour, plus some tipped workers are banking on the 2024 wage increase.

Mendelson also introduced an amendment that makes clear that restaurants have to notify customers of fees, in writing or verbally, ahead of charge. The amendment basically codifies guidance from the city’s Office of the Attorney General.

McDuffie also initially proposed excluding service charge from sales tax calculations, reducing costs to patrons, but that also did not make it to the final version of the bill. Some restaurant owners supported the sales tax provision because of customer complaints regarding the fees, however, it would have likely been costly for the city.

“Am I satisfied where we are? No, I’m not,” Townsend tells DCist/WAMU. 

Townsend is still grateful for McDuffie’s bill as written and would like it to pass.

The bill also includes provisions around food delivery that would make permanent emergency legislation regulating food delivery companies. Specifically, the bill would prevent delivery companies from reducing the delivery area for a restaurant below a four mile radius because the owner pays a lower commission, as occured when the city’s blunt cap on commissions expired almost a year ago. Nor could a company reduce the number of delivery drivers available to restaurants that pay less in commission. Restaurants would also have to allow delivery workers to use their bathrooms during a pickup, and the bill also requires a publicly-funded study on the working conditions of food delivery workers.

The bill is up for a first vote Tuesday at noon. The bill has one-time costs regarding implementation: $600,000 in fiscal year 2025, per the District’s chief financial officer. Both the Initiative 82 education campaign and food delivery worker study have a financial impact.

This post has been updated to include vote outcome and Chairman Mendelson’s amendments.