Massachusetts 2023-2024 Regular Session

Massachusetts House Bill H4606 Compare Versions

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1	1	HOUSE . . . . . . No. 4606
2	2	The Commonwealth of Massachusetts
3	3	_______________________
4	4	HOUSE OF REPRESENTATIVES
5	5	_______________________
6	6	REPORT
7	7	of the
8	8	SPECIAL JOINT
9	9	COMMITTEE
10	10	on
11	11	INITIATIVE PETITIONS
12	12	on the
13	13	INITIATIVE PETITION
14	14	of
15	15	IRENE S. LI
16	16	AND OTHERS
17	17	FOR THE PASSAGE OF AN ACT
18	18	TO REQUIRE THE FULL MINIMUM WAGE FOR
19	19	TIPPED WORKERS WITH TIPS ON TOP
20	20	(see House, No. 4254)
21	21	_______________________
22	22	April 30, 2024.
23	23	_______________________ MAJORITY REPORT.
24	24	A majority of the Special Joint Committee on Initiative Petitions (“The
25	25	Committee”) recommends that the Initiative Petition 23-12, House 4254, “An Act to
26	26	require the full minimum wage for tipped workers with tips on top,” (“the Initiative
27	27	Petition”) as currently drafted and presented to this Committee, OUGHT NOT TO BE
28	28	ENACTED BY THE LEGISLATURE AT THIS TIME.
29	29	The purpose of this report is to provide a recommendation to the full legislature on
30	30	whether to accept the Initiative Petition as written for consideration and enactment.
31	31	The proposed Initiative Petition would remove a provision in state law allowing
32	32	employers to compensate their tipped workers at a lower minimum rate if the “tipped
33	33	minimum wage” together with the value of the worker’s tips plus equals at least the state
34	34	non-tipped hourly minimum wage over the course of each shift worked. Additionally, the
35	35	Initiative Petition would allow restaurant owners to require their tipped employees to
36	36	share their tips with non-tipped employees working at the restaurant.
37	37	Testimony
38	38	The Committee heard from experienced professionals, proponents and opponents of the
39	39	Initiative Petition, as well as members of the general public.
40	40	Lauren Moran, the Chief of the Fair Labor Division of the Office of the Attorney
41	41	General, testified as a subject matter expert and spoke about the 2018 “Grand Bargain”
42	42	legislation. The Grand Bargain changed the tipped worker minimum wage from $3.75 per
43	43	hour plus average hourly tips for the week up to the state minimum wage, with the
44	44	employer paying the difference to $6.75 per hour plus average hourly tips for the shift,
45	45	with the employer paying the difference, and the rate increasing incrementally over a
46	46	five-year period beginning in 2019. The Fair Labor Division currently has broad
47	47	enforcement authority over wage rights for workers and collects data on claims of tip
48	48	violations. The data presented showed that from March 2021 to the present hearing date,
49	49	15 per cent of claims came from the restaurant and salon industries, industries typically
50	50	employing a high number of tipped workers, with 30 per cent of active open claims
51	51	coming from these industries. Nearly 700 complainants claimed tip violations from
52	52	workers, and these industries have accounted for 35 per cent of total civil enforcement,
53	53	with nearly $2,000,000 in restitution and $3,400,000 in penalties assessed.
54	54	In addition to the Attorney General’s office, university-based economists also shared
55	55	their perspectives and findings. Dr. Jeannette Wicks-Lim, Associate Research Professor
56	56	at the Political Economy Research Institute at the University of Massachusetts Amherst,
57	57	cited two peer reviewed papers that surveyed all of the contemporary research on
58	58	minimum wage data, and suggested that there is little to no evidence suggesting negative
59	59	employment outcomes from raising the minimum wage. Dr. Wicks-Lim stated that there
60	60	is limited data available regarding the labor and economic impacts of a similar measure
61	61	passed in Washington, D.C., which since 2023 has been incrementally phasing out the
62	62	tipped minimum wage until it is completely removed by 2027. Dr. Wicks-Lim stated that
63	63	restaurants would not necessarily see their total costs go up by the same proportion as the increase in wages paid to employees, and that restaurants have flexible ways to adjust to
64	64	cost increases, such as modified price increases. Additionally, Dr. Wicks-Lim observed
65	65	that the increase in wages will lead to lower administrative and training costs due to
66	66	reduced worker turnover. Dr. Wicks-Lim also cited that the poverty rate is higher for
67	67	tipped workers than non-tipped workers — a statistic especially noticeable in states with
68	68	a lower tipped minimum wage — and that the industry is made up of mostly women a
69	69	quarter of whom are raising children. Dr. Sean Jung, Assistant Professor at Boston
70	70	University’s School of Hospitality Administration contrasted Dr. Wick-Lim’s testimony
71	71	by pointing to evidence showing that the removal of the tipped minimum wage will likely
72	72	lead to full-service restaurants converting to limited or counter service, due to labor costs.
73	73	Dr. Jung also highlighted that removing the tip credit could lead to increased menu prices
74	74	and service charges and more restaurants going out of business due to low profit margins.
75	75	Dr. Jung predicted this would be especially acute in rural areas where profit margins and
76	76	customer demand are lower, but labor costs would increase at the same rate as suburban
77	77	or urban areas. Dr. Jung also testified that historically when labor costs increase,
78	78	restaurants pivot to methods that allow for a reduction in service staff, such as tablets for
79	79	ordering
80	80	A panel of proponents of the Initiative Petition from the national One Fair Wage
81	81	campaign consisted of an academic professional, a restaurant owner, and tipped
82	82	restaurant workers. The panel described the current tipped minimum wage practice as a
83	83	“subminimum wage” that is an economic, gender and racial equity, gender justice, and
84	84	gender pay equity issue. The panel argued that a power imbalance exists where tipped
85	85	workers, especially women and women of color, are forced to ignore gender violence,
86	86	sexual harassment, and wage theft because they rely on tips as part of their full
87	87	compensation. The proponents pointed to seven states that currently do not have a lower
88	88	minimum wage for tipped workers: Alaska, California, Minnesota, Montana, Nevada,
89	89	Oregon, and Washington. The proponents cited evidence that the growth in the net
90	90	number of restaurants in California outpaced the average growth in states subject to a
91	91	tipped minimum wage, including Massachusetts. They also highlighted data that shows
92	92	the average tipped worker in those seven states takes home between 10-18 per cent more
93	93	than the average tipped worker in the rest of the country. The proponents also maintain
94	94	that there are higher levels of poverty, unenforceable wage violations and the highest
95	95	rates of sexual harassment of any industry as studied by Professor Catharine A.
96	96	MacKinnon.
97	97	Opponents of the Initiative Petition consisted of restaurant industry representatives,
98	98	restaurant owners, and tipped restaurant workers. The first panel of opponents pointed to
99	99	the costs associated with eliminating the tipped minimum wage, which would raise what
100	100	a restaurant pays an employee from a wage of between $6.75 to $15 an hour to a flat $15
101	101	an hour. They described new restaurant Point of Sale technologies that provide enhanced
102	102	data tracking designed to reduce discrepancies relating to wages and tips earned per shift.
103	103	Opponents to the Initiative Petition also attributed instances of sexual harassment and
104	104	assault to the bad actions of patrons and poor management of employers rather than being
105	105	endemic to a tipped wage system of compensation. Opponents further argued that
106	106	removing the tip credit would hurt affordable restaurants, which operate at a much lower
107	107	margin than high-end restaurants and are currently in competition with grocery stores,
108	108	takeout and quick service establishments, and fast food. The opponents fear that the increased costs associated with implementing this practice will wipe out the affordable
109	109	restaurant industry and take with it a tipped workforce that on average earns $35-40 an
110	110	hour, with atypical wages up to as high as $70 an hour, ending the testimony by
111	111	highlighting that the practice of tipping as an incentive for good service is an affect, not a
112	112	defect, of the restaurant industry.
113	113	The second panel of opponents, which consisted of restaurant workers, provided
114	114	anecdotal evidence and their personal beliefs that removing the tipped minimum wage
115	115	would lead to a decrease in tip percentage and eventually overall compensation compared
116	116	to the current model, with one opponent member panel arguing that the fact that only
117	117	seven states have no tipped minimum wage is evidence that the current system works
118	118	well.
119	119	The Committee was not presented with data showing the impacts to the Massachusetts
120	120	restaurant industry based on the tipped minimum wage and minimum wage increases of
121	121	the “Grand Bargain” legislation enacted in 2018. According to the U.S. Department of
122	122	Labor in 2024, because of these increases Massachusetts is tied for the sixth highest
123	123	effective minimum wage for tipped workers out of all fifty states and the District of
124	124	Columbia, even when accounting for the highest possible minimum wage in states that
125	125	have different rates for employers in cities, counties, or by employer size and status.
126	126	Massachusetts also has a higher effective minimum wage for tipped workers than all but
127	127	two states that do not have a tipped minimum wage: California and Washington. There
128	128	was also a question on the impact of a similar recent phase-out policy in Maine, which
129	129	had to rollback a similar provision to the Initiative Petition before the committee due to a
130	130	spike in restaurant loan defaults, but there was no evidence available from a subject
131	131	matter expert on the situation in Maine.
132	132	Another element of the public hearing focused on the provision of the Initiative Petition
133	133	concerning tip pooling. The practice of requiring the pooling of tips from “front-of-
134	134	house” staff with “back-of-house” staff is currently outlawed in the Commonwealth of
135	135	Massachusetts under M.G.L. c 149, s 152A(c). In addition to removing the tipped
136	136	minimum wage in the Commonwealth, the Initiative Petition would also change this
137	137	separate law to allow a restaurant to require the pooling of all tips with non-service staff,
138	138	provided that waitstaff are being paid the full minimum wage.
139	139	Subject matter experts testified that there are strict rules regarding tip pools, specifically
140	140	that any employer, manager, or supervisor cannot receive tips on days that they have
141	141	managerial or supervisorial responsibilities, even if they serve customers that day. There
142	142	is currently a low variance between the wages of “front-of-house” and “back-of-house
143	143	staff”, but this provision would reduce the disparity that may arise from the removal of
144	144	the tipped minimum wage.
145	145	Proponents argued that the tip pool would still be governed by federal law preventing
146	146	supervisors or employers from receiving tips from the pool and would encourage more
147	147	teamwork between “front-of-house” and “back-of-house staff”, since they would all
148	148	benefit in a shared manner from tips received. Proponents also cited instances where
149	149	“back-of-house” staff use tipping as leverage, sexually harassing wait staff to ensure food
150	150	comes out promptly or correctly. Opponents viewed the tip pooling provision as harmful to “front-of-house” staff who
151	151	receive tips for their good service in customer-facing roles. Currently, “front-of-house”
152	152	employees can “tip out” to “back-of-house” staff at their discretion, with an example
153	153	given that a tip was shared with “back-of-house staff” for helping the employee out, but
154	154	the “front-of-house” staff does not want to lose this important component of their work.
155	155	Several opponents who are restaurant employees stated that their opposition to the
156	156	Initiative Petition was more in part due to the tip pool provision, but they would likely
157	157	still oppose the Initiative Petition if it was just to remove the tipped minimum wage.
158	158	Conclusion
159	159	At this time, there is insufficient evidence provided on the overall impact that this
160	160	Initiative Petition would have on the restaurant industry and restaurant workforce in the
161	161	Commonwealth. Questions remain on the viability of restaurants and other tipped wage
162	162	industries to absorb the costs of the more than 100 per cent increase from the current
163	163	minimum tipped wage an employer is responsible for paying, and comparisons to other
164	164	jurisdictions are challenging given that the seven states employing this law have followed
165	165	this policy for many years. The Committee does not believe it received enough evidence
166	166	on the experiences in Washington, D.C. (currently phasing out the tipped minimum
167	167	wage) or Maine (rolling back the raise of the tipped minimum wage), or the impact that
168	168	the Grand Bargain tipped minimum wage increase that was finalized in 2023 to draw
169	169	conclusions on what the likely impact this Initiative Petition would have on restaurants in
170	170	Massachusetts. Based on testimony received, the Committee believes the legislature
171	171	would be well-served to work with the Attorney General to support enhanced prevention
172	172	of wage theft, sexual harassment, and assault in tipped wage industries. It should be noted
173	173	that this Initiative Petition is also the subject of a legal challenge that sits before the
174	174	Supreme Judicial Court in the month of May 2024, after the deadline that the legislature
175	175	would need to enact this Initiative Petition.
176	176	For these reasons, we, the majority of the Special Joint Committee on Initiative Petitions,
177	177	recommend that “An Act to require the full minimum wage for tipped workers with tips
178	178	on top” (see House No. 4254) as currently drafted and presented to this Committee,
179	179	OUGHT NOT TO BE ENACTED BY THE LEGISLATURE AT THIS TIME.
180	180	Senators. Representatives.
181	181	Cindy F. Friedman Alice Hanlon Peisch
182	182	Paul R. Feeney Michael S. Day
183	183	Jason M. Lewis Kenneth I. Gordon
184	184	Ryan C. Fattman David T. Vieira