Traverse City restaurateurs are bracing for a Michigan Court of Appeals hearing Tuesday that could determine if a planned minimum wage hike and elimination of the state’s tip credit in February will proceed – a move owners say would make restaurants unsustainable and pose an “existential threat” to the industry.

Michigan’s minimum wage is set to jump from $9.87 to just over $13 in February after a Michigan Court of Claims judge cleared the way this summer for the proposal to proceed. The minimum wage for tipped employees – such as bartenders and servers – would also increase from $3.75 to approximately $11.75, according to the Michigan Restaurant & Lodging Association (MRLA). That increase would effectively eliminate the tip credit in Michigan, making it one of just a handful of states in the country without one. Currently, employers can pay tipped employees $3.75 an hour – taking a tip credit of up to $6.12 per hour – as long as employees make at least $9.87 an hour with tips.

A 2018 ballot petition sought to increase the minimum wage, including for tipped employees – forcing the legislature to either offer a statewide vote on the proposal or pass legislation to enact it. Lawmakers passed the legislation, but then effectively weakened it with subsequent bills, keeping the tipped wage at 38 percent of the standard one and putting off the minimum wage increase until 2030, among other changes.

This summer, Michigan Court of Claims Judge Douglas Shapiro ruled that the legislature can’t circumvent a ballot petition vote by passing legislation and then amending it in the same session. At least one election needs to take place in between, he said, allowing voters to mobilize if they desire. Shapiro gave a green light for the minimum wage proposal to move forward, giving business owners and regulators 205 days – until February 19 – to prepare for the changes. On Tuesday, the Michigan Court of Appeals will hold a hearing to determine if the legislature did in fact have the ability to amend its legislation and whether Shapiro’s ruling should be overturned.

The MRLA says if the proposed changes are allowed to proceed, they will have “disastrous effects on Michigan’s restaurant industry.” In a survey MRLA conducted this fall of 307 restaurant and hotel operators in Michigan – representing over 75,000 employees, or roughly 24 percent of Michigan’s hospitality industry – 91 percent said the ruling would force them to increase prices, while 58 percent said they would have to lay off employees. Thirty-six percent anticipated reducing hours, while 16 percent said it could force them to close their businesses altogether. Referring to public comments made by Governor Gretchen Whitmer this fall acknowledging concerns and a willingness to work with legislators on potential solutions, MRLA President and CEO Justin Winslow expressed hope either a court or legislative remedy will blunt Shapiro’s decision.

“Through the release of our operator survey, it is empirically clear that without relief in court or through the legislature, Michigan’s restaurant industry is staring down pandemic-level closures and job loss in February when the ruling takes effect,” Winslow said in a statement. 

Multiple local restaurant owners affirmed that view, citing the tight margins restaurants operate under and the 200 percent increase in wages they could soon pay for tipped employees. “That big of a swing can take a restaurant that’s making 10 percent net to one that’s losing money,” says Pam Marsh, co-owner of Red Ginger. “It’s not sustainable. It’s important to understand that our servers are far exceeding minimum wage. They don’t want to work for minimum wage. They don’t give up their nights and weekends for a minimum wage job. They love the industry, and they get rewarded for the work that they’re very good at.” Marsh believes that eliminating the tip credit could be especially damaging to “mom-and-pop” businesses. “We thought COVID was scary,” she says. “This is beyond that.”

The Workshop Brewing Company owner Pete Kirkwood agrees, calling the proposal an “existential threat” to the service industry. “It’s hard for me to conceive it’d actually go into effect,” he says. “It feels like an idea that came from somebody who has no idea how restaurants work and has never worked in the restaurant industry.” He says the changes would making staffing kitchens – already a challenge for many restaurants – “virtually impossible” because of the wage disparity that would emerge between front-of-house and back-of-house employees. “I want to be clear: I’m in favor of generous wages for workers,” he says. “But it’s just misunderstanding the world if you’re not including tipped income in that.”

While proponents of the proposal have said it offers workers better protections and helps ensure staff – including tipped employees – earn a consistent living wage, the organization Save Michigan Restaurants has begun compiling testimony from servers across the state opposing the proposal. According to MRLA’s survey data, servers reported earning an average of over $25 per hour under the current tipping system, with 83 percent of respondents preferring “the status quo system over one with higher base pay and a less certain tipping culture.”

“For sure we will be impacted,” says Jeff Lobdell of Restaurant Partners Management LLC, which owns Apache Trout Grill, West End Tavern, Boone’s Prime Time Pub, and several other local restaurants. “But (it’s) even worse for a lot of our front-of-the-house staff people, primarily servers, many of whom are single parents making a great income with flexible schedules and enjoying the jobs, compensation, working environment, and way of life.”

Restaurant owners say they are anxiously awaiting the outcome of Tuesday’s hearing. “Hopefully it is overturned on December 13 in the Court of Appeals,” emailed Adrienne Brunette of Honest Hospitality TC, which owns Mama Lu’s, The Flying Noodle, and The Burrow TC. “If it's not, it's just going to be one more hurdle for restaurants in an already struggling climate. We would have to take drastic action that will take a tremendous amount of time and planning, and for that reason, I'm just waiting until the thirteenth before spinning my wheels. Fingers crossed for restaurateurs!”