President-elect Donald Trump is unlikely to support continued federal labor and employment agency activism in wage and hour and other employment-related matters. How will this expected shift in federal labor policy affect restaurants’ business model and workforce? These are the five areas in which the restaurant industry might see significant policy shifts:
1. Minimum Wage
Employee wages are always a pressure point within the restaurant industry. While some states and municipalities have recently increased the minimum wage, the federal rate remains at $7.25 per hour. While, early in his campaign, Trump suggested that he would support a federal minimum wage increase to $10 per hour, it is more likely that a Trump administration will choose to leave the issue to state and local legislatures rather than pushing Congress to act at the federal level.
Earlier this year, the U.S. Department of Labor (DOL) published a final rule updating the regulations governing the exemption of executive, administrative and professional employees from the minimum wage and overtime pay protections of the Fair Labor Standards Act (FLSA). This rule doubles the annual salary threshold that generally determines who qualifies for overtime pay under federal law from $23,660 to $47,476.
This rule dramatically impacts restaurants with midmanagement employees. The rule had been scheduled to go into effect on December 1, 2016, but in September, 21 states joined together to file a lawsuit alleging that the new overtime regulations are an unconstitutional exercise of power. The fate of this new rule hangs in the balance.
As the president-elect transitions into power, it remains relatively unclear what his position will be on the matter. Some have predicted that the Trump administration might reverse course and adopt a more business-friendly approach to the “white collar” employee overtime threshold, while others anticipate that Trump may support the significant extension of overtime pay, as it stands to positively impact many of his core voters.
3. Joint employer liability
Recent rulings by the National Labor Relations Board (NLRB) have jarred the hospitality industry by lowering the bar for establishing joint-employer liability. Two of the NLRB’s five slots are vacant and another member's five-year term will expire next December. Mr. Trump will almost certainly fill the two immediate vacancies on the NLRB with Republicans, thus shifting majority control of the agency very early in his presidency.
The NLRB’s decision in the Browning-Ferris Industries (BFI) case (currently on appeal) could create myriad issues in the restaurant industry, including conflict between franchisors and franchisees over who is liable when lawsuits arise, as well as increased liability when working with contractors. Under the new joint employer standard, a finding of joint employment is much broader and only requires that a business exercise “indirect” (or potential) control over workers. Hence, under the new test, a company may not only be held liable for its own labor violations, but also for those of another entity. This affects all companies that outsource any aspect of their business, including contractors, suppliers or even outsourced cleaning or IT work.
McDonald’s is currently locked in a battle with the NLRB on this very issue in a case regarding whether the fast-food chain is a joint employer of franchise workers. The outcome of the McDonald’s case, as well as the likelihood of future enforcement of the joint employer doctrine, is very much in the balance in the wake of the recent election.
4. Mandatory arbitration
In recent years, the NLRB has prohibited employers from requiring employees to submit employment-related disputes to binding arbitration. Although the federal courts are divided on this issue (in some instances allowing binding employment arbitration agreements), the NLRB has taken an activist approach. Mandatory arbitration provisions are now common in employment agreements, including within the restaurant industry, and the ultimate resolution of this Circuit Court split will have huge ramifications for restaurant owners. If class actions replace individual employee arbitrations, the potential exposure for restaurants is multiplied exponentially.
5. Tip pooling
The U.S. Department of Labor’s tip pooling rule, which bars restaurants from requiring their waitstaff to share tips with employees in the back of the house, has affected the financial bottom line of restaurants throughout the country. The rule was upheld by the Ninth Circuit Court of Appeals, and a petition is now pending before the Supreme Court. The Trump administration is likely to oppose the rule as being anti-business, because it is seen as economically advantageous for restaurant employers to have back-of-house employees participate in tip pools. In the meantime, restaurants throughout the country have begun to rethink their approaches to tipping.
The consolidation of power across the three branches of government will have significant consequences for the restaurant industry’s management-labor relationship, as Republicans will control federal agencies that govern wage and hour laws, union formation and other significant employment issues. There is a sense of uncertainty and anticipation across the restaurant industry as owners and operators wait to see how Trump’s administration will affect their employment model.
Dana Kravetz is the managing partner of Michelman & Robinson, LLP and leads the firm's employment litigation practice group.