S1E57 / Disrupting Restaurants Part II / Amanda Cohen, Saru Jayarmanan, Pete Ternes

There are structures and systems that frankly never worked, and the pandemic just laid them so clear and bare. And now that we know them, and now that we see them, it is all of our responsibility to change them.

It's my responsibility as an owner to figure out how to afford to pay everyone an ethical, fair, livable wage.

You're listening to Epidemic, the podcast about the science, public health, and social impacts of the coronavirus pandemic. I'm your host, Dr. Celine Gounder. Amanda Cohen is the James Beard-nominated chef and owner of Dirt Candy. It's a vegetarian restaurant in Manhattan's Lower East Side.

Before Dirt Candy, when people thought about vegetarian restaurants, they really thought about sort of more like hippie, natural, health food restaurants, which actually can be totally, absolutely delicious, but they're not usually sort of that cool nighttime romantic restaurant. At Dirt Candy, we really wanted to change people's idea of what vegetables and vegetarian food could be. We have these white walls with graffiti plants drawn all over them, red banquettes, a big, huge open kitchen. You can see everything that's happening. There's no private kitchen. I like my kitchen to be fun, so it's already pretty— always pretty boisterous. There's a lot of talking. It's certainly not a quiet dining room. Every dish is based around a different vegetable, even desserts. Even our cocktails. You definitely get your all servings of vegetables that you're supposed to have in one day in one meal at Dirt Candy.

One of Dirt Candy's iconic dishes is a portobello mushroom mousse.

And this is the dish that put us on the map. So we took the portobello mushroom, which, you know, for years it's sort of been either grilled on a plate with some side vegetables as your entree as a vegetarian or stuffed into a bun as your burger. Instead, we turned it into this really, really luscious, sensuous pâté, super creamy, super decadent, has a little bit of truffle oil in it. It's, I think, the closest thing to foie gras that you can eat as a vegetarian.

Amanda's been rethinking what vegetarian cooking could be since she opened Dirt Candy back in 2008. But she's also been a leader in rethinking how restaurants work. And one of her biggest innovations was getting rid of tipping.

6 years ago, I had a much smaller restaurant. It was 18 seats and it was tiny and I only had one server, but I knew that in the next year or so that I was moving to a bigger space and I, and I was starting to look for staff and I want sort of ramping up and I, I had to hire somebody right away.

Amanda placed an ad looking for a cook. She got zero responses.

And so like I would put out an ad in the years before that and I would get like 30, 40 applicants at a time. So to put out an ad and not get a response was really, really shocking.

It's no surprise that New York City is expensive. And before the pandemic, other cities were building up their reputations as food destinations. Chefs and line cooks were leaving.

Well, we're losing them because it's so expensive to live here. Okay, I'm gonna have to pay them more money. That seems fine, but I'm looking at my bottom line. I'm like, but there's not a lot of money here.

Amanda started looking at the numbers. Her line cook was making $150 a night, but the server in her restaurant was pulling $600 $100 a night. And because of some very specific laws in New York City, the server was not allowed to share tips with the back of the house.

There's something wrong with this system. This doesn't make any sense. So then I started doing a lot of research with tipping, and I was like, okay, this actual entire system is broken, and I can't believe I've participated in it for so long. You know, you start going into the research and you're like, wow, this is pretty sexist and it's pretty racist. And I now understand that I've just been sort of hiding the true cost of my food and what it is to dine in the restaurant, and I've been outsourcing it to my customers, and I don't want to participate in this anymore. Like, this feels really uncomfortable to me. So when I moved to the big restaurant, I opened without tipping.

Several big-name restaurateurs around the country, including Danny Meyer, the guy behind restaurants like Shake Shack and the Union Square Cafe, announced in 2015 that they would end tipping in their restaurants for many of the same reasons as Amanda. But since then, most have gone back to the old model. And then the pandemic hit. Estimates say as many as 40% of U.S. restaurants may have closed in 2020. When Danny Meyer's restaurants reopened this summer, he announced he was ending his no-tipping policy. The reason? Workers need every possible revenue stream right now.

The COVID-19 pandemic is the absolute worst time to get rid of hospitality included.

Amanda has continued her no tipping policy despite the pandemic.

To me, this seems like a, a moment when a lot of restaurateurs are looking at their front of house and thinking, well, I need a front of house, but I also need to be able to guarantee them a living wage while they're coming to work. And the only way I can guarantee them that living wage is if we change how we pay them.

Today on Epidemic, another episode on industries disrupted by the COVID pandemic. We're revisiting restaurants and specifically how the pandemic is reshaping how some think about tips and the minimum wage. We'll learn why tipping is so problematic.

It was based on this notion of not wanting to pay workers after emancipation at all because they were Black.

Why we can't seem to quit it.

The scary thing is the quiet backlash where people look at your menu online and don't even show up. Suddenly you got no customers.

And what a fair wage might look like in the post-pandemic world.

I don't think any restaurant should reopen or bring any employees back unless they're contributing to that employee's healthcare.

On today's episode of Epidemic, Disrupting Tips. Saru Jayaraman is the director of the Food Labor Research Center at the University of California, Berkeley. She's also the founder and president of One Fair Wage, a national organization working to raise wages and working conditions for restaurant and service sector workers nationwide. Zaru says restaurants occupy a special place in American life.

We just made world history a few years ago, becoming the first nation on Earth in which we now spend more money on food eaten outside of the home than we do on food eaten inside of the home. Now, obviously, that's changed with the pandemic, but it is important to understand that prior to the pandemic, we ate out more than any other nation on Earth.

Proposals, weddings, birthdays, graduation celebrations— they all take place in restaurants. They've become important spaces in our lives.

And it's just unfortunate that with it being such an important space, there is so much veneration of the chefs and the restaurant owners who create that space. And so little acknowledgment or even visibility of the workers who are doing the work of creating the food and bringing it to our tables.

Restaurants are also major employers. More than 13 million Americans worked in restaurants prior to the pandemic.

1 in 2 Americans had worked in the industry at some point in their lifetime, and 1 in 10 Americans, close to 1 in 10, worked in the industry prior to the pandemic. It was the nation's second largest private sector employer just after retail, and the number one fastest growing private sector employer in the United States.

But restaurants are also some of the lowest paid work in the United States.

Prior to the pandemic, 1 in 3 working Americans worked full time and lived in poverty. The growth of these very low wage, in fact, lowest wage jobs meant that we were heading closer and closer to 1 in 2 working Americans living in poverty. We were already really on the precipice of disaster with the largest and fastest growing industry proliferating the lowest paying jobs. The pandemic just kind of just gently nudged us into disaster.

That disaster has disproportionately hit women and people of color. And Saru says that's no accident. The practice of tipping in the United States didn't become common until the end of slavery.

Tipping had originated in feudal Europe. It was an extra or a bonus on top of a wage, never instead of a wage, always an extra. The idea of tips as wage replacement or a non-wage essentially, and having to live off of tips, was really a direct legacy of slavery and Jim Crow America, in which employers just didn't want to pay Black workers. And that became law in 1938 as part of the New Deal, when everybody got the right to the minimum wage for the first time, except for tipped workers, who were mostly Black women even then, and were given a $0 wage as long as tips brought them to the full minimum wage.

Sari was talking about the Fair Labor Standards Act. This is not the first time we've talked about this law on this podcast. This is the same legislation that exempted farmworkers and domestic care workers from minimum wages and benefits protections, two other groups disproportionately impacted by the pandemic.

And we went from zero in 1938 to the whopping and incredible $2.13 an hour in 2020, which is the federal minimum wage for tipped workers in the United States.

Let's take a moment for that to sink in. If you've never worked in a restaurant, you might be shocked, but she's right. The federal minimum wage for tipped workers in the United States is just $2.13 an hour. That's what's called a subminimum wage. Saru says that even cities or states that have raised their minimum wages to $15 an hour still have exemptions for tipped work.

All of the states in the Midwest and the East Coast that had a Fight for $15 and moved to a $15 minimum wage, including New York, Massachusetts, Connecticut, Maryland, Illinois. I mean, I can name state after state. New Jersey that went to $15. All of those states left tipped workers out, threw them under the bus, in most cases left them below $5 an hour while everybody else went to $15.

And tipping creates a work environment that brings more than just financial instability.

They struggle with the highest rates of poverty and economic instability of any workforce, and worst of all, the highest rates of sexual harassment of any industry because they're having to tolerate all kinds of inappropriate customer behavior to feed their families in tips.

When One Fair Wage surveyed restaurant workers if they had ever experienced sexual behavior in the workplace that was unwanted or scary, 90% said yes. That includes men and women.

The women in the 43 states with the subminimum wage were 3 times as likely to be told by a manager, dress more sexy, show more cleavage, wear tighter clothing in order to make more money in tips.

And when many of these workers lost their jobs because of the pandemic, they couldn't even get unemployment benefits.

10 million of these 13 million workers, at least, who lost their jobs 60% of them unable to access any kind of unemployment insurance because their state unemployment insurance offices are telling them, with your $2 wage plus tips, you didn't meet the minimum threshold to qualify to get benefits.

But there are some states that have implemented a full minimum wage for tipped workers. States like California, Oregon, Washington, Nevada, and Minnesota. Saru says states that have a full minimum wage with tips on top have higher restaurant sales per capita, higher job growth in the industry, and even tipping averages are higher.

But I think the most important data point to look at is not only do poverty rates go way down among tipped workers in those states, but those 7 states have one-half the rate of sexual harassment as the 43 states with a subminimum wage for tipped workers.

Saru says moving away from a subminimum wage has benefits for employers too, not just workers.

And what they have found is that investing in their workforce results in reduced turnover, which we've quantified costs restaurants thousands and thousands and thousands of dollars annually. We actually have the highest rates of turnover of any industry in the United States. States because wages are so low. So workers keep moving to find higher wages. And so when you reduce turnover, that actually eliminates all kinds of costs in terms of rehiring, retraining, advertising, also staff morale. And it reduces employee theft and it actually increases customer service quality. And that in turn increases sales.

Many restaurants have had to lay off their entire staff. If they rehire, it's usually a much smaller staff and fewer tips. It's pushed the system to a point where many workers have decided restaurants aren't worth the low pay and high exposure risk for coronavirus.

And so a lot of employers have come to us saying, we're ready to rethink everything about the way we pay and treat people. And other employers are just feeling like they're forced to pay a full minimum wage, otherwise they can't get people to come back to work. So in terms of reimagining the industry. The moment has just created this— some people are calling it the Great Awakening in our industry. It's just created this huge revolution in restaurants.

We'll hear from Amanda Cohen at Dirt Candy and another restaurateur about how they implemented no tipping policies at their businesses and why some servers were not happy with the arrangement. That's after the break. One of the restaurateurs who used the pandemic to reimagine their business is Pete Turnus.

My name is Pete Turnus, and I'm one of the co-founders of Middlebrow Beer Company in Chicago.

Middlebrow is a lot more than beer these days. In 2019, they opened a pizza restaurant called Bungalow. Originally, Pete and his partners wanted to open Bungalow without tipping.

I think sheer cowardice led us to the tip model just because it was what we understood. It was what we were comfortable with. You know, we didn't know if anyone would show up. We didn't know if we'd have any customers, if we'd make it through a year. And so we chickened out.

But the restaurant was a hit. Things like their mushroom pizza quickly became customer favorites.

And I'm not a mushroom kind of guy, and this pizza knocks me out every time I eat it.

The success of their pizza and beer and bakery had Pete and his partners rethinking their goal of eliminating tips. They started a tip pool to spread tips more equitably among the front-of-the-house staff. They added a service charge that went to the cooks and other staff. But then the pandemic hit. They had to lay off their entire staff. Tipping was the least of their worries.

We just focused on surviving for a little bit, and then when we started thinking about redesigning our place for this new era, talking about what we'd serve and what kind of staffing we'd need, it seemed like the right opportunity to revisit the tipping problem.

Pete says the pandemic has made customers open to new ways of doing business. He also felt his customers would be willing to pay a little more if they knew they were contributing to healthcare and benefits.

You know, we sort of investigated whether if they had worked 8-hour shifts on the days that they worked and made $20 an hour, would they make more than they made last year or less than they made last year?

After they crunched the numbers, they found that a server working for a lower hourly wage but working more hours made more than the server working fewer hours at a higher rate. The back of the house staff was on board, but Pete was worried how waiters would respond. After all, in some cases, they would be making less by the hour.

Some of our servers who made the most money last year, we expected them to be the most sort of recalcitrant. They said that after they got my email explaining this new system, they like breathed this enormous sigh of relief. The reason they gave for that was it felt like they could finally just relax and plan their lives. They work a little bit harder for it or a little bit more for it, but they can really plan their lives. And there was this sort of sense of serenity that overcame them. We were told that story by a few of our front-of-house servers.

Today, Pete's employees make $20 an hour with an additional $0.75 an hour to cover healthcare. Sounds great, right? But how do they pay for it? Fine dining may be able to get away with a 20% increase in prices, but for a pizza and beer spot like Bungalow, that could be a hard sell.

But everyone knows that a beer should cost X and a loaf of bread should cost Y, you know, and a pizza should cost Z. And so increasing prices on all those things is risky. And so instead, we decided to institute a service charge to help fund our increase in wages and our banning, so to speak, of tipping.

The service charge ranges between 10% and 30%, depending on if it's dine-in, takeout, or even groceries. Pete is also proud to offer health insurance to his full-time employees.

Because I don't think any restaurant should reopen or bring any employees back unless they're contributing to that employee's healthcare. Hazard pay feels a little strange to me. It's like paying someone a little extra for the risk that they could contract this terrible disease and they could die, or they could, you know, be left with some permanent affliction, or they could infect their family member and something terrible could happen to their family member, and you're paying them an extra few bucks an hour. It doesn't, it doesn't seem right. It seems totally, you know, unethical.

But there are costs beyond service charges. When Amanda Cohen at Dirt Candy moved her staff from tips to full wages,, it rippled through her business in all sorts of ways.

Probably your biggest two expenses are your payroll and your rent, and then sort of matching your payroll are your payroll taxes, and they are so unbelievably high. I think right now my payroll, just to give an example, and my payroll is very, very low right now because I've only hired back a fraction of my staff, but it's somewhere around like $7,000. But my payroll taxes are $4,000. So, I mean, that's a huge amount.

And then there's insurance. Not health insurance. All the other kinds of insurance businesses need to operate.

Your limited liability insurance, your workman's comp insurance, your general insurance, and that really starts to add up. And in particular for me, I don't have tipping, right? So my payroll is already incredibly high.. But then my insurance is based off of all that money that I've now pulled in as revenue. Before, some of it would've not actually counted as revenue because it would've actually been tips. If, if I didn't have tipping, my revenue would probably be somewhere around $1.5 million a year. Because I don't have tipping, so it goes up to somewhere around $2.5 million, cuz that's actually what my staff would've made in tips basically. And it comes back to me that way. It's, it's why it's very problematic. It's sort of this game trying to figure out how you compensate for these extra costs.

These aren't small challenges and the burden falls unevenly because the vast majority of restaurants don't provide these benefits. But for owners like Pete and Amanda, it's worth it. How have you done this? I mean, you're in New York City, the rents are damn high in New York City, and you have found a way to get rid of tipping. How did you do it?

Oh, I'm a masochist. The, you know, I wouldn't say I'm the most successful business person. I don't have— when COVID hit, I didn't have a huge bank account to fall back on, but I gave up, I gave up profit so I could pay my staff more. That's the reality. And we work really hard to find staff that wants to work for us. And my front of house, you know, we spend a lot of time talking to them. About why we pay people the way we pay them. My front of house is willing to give up some in their tips so that the back of house actually can have a fair wage, and I'm willing to give up some of my profits so both my front of house and back of house make a decent living. Go support your local restaurants. They need it more than they have ever needed it beforehand.

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