Among the many ballot measures Arizona voters are deciding this year is Proposition 138, which the state Legislature referred to the ballot. It’s called “The Tipped Workers Protection Act,” although critics have argued that title is misleading.
Under current law, restaurants are allowed to pay their tipped employees up to $3 per hour less than the minimum wage, as long as their tips bring that total up to the minimum wage.
Prop. 138 would keep what’s known as the "tip credit" in place. But it would amend the state Constitution to allow restaurants to pay tipped employees up to 25% per hour less than the minimum wage, as long as those workers earn at least the minimum wage plus $2 an hour.
Supporters argue it’ll help workers, by ensuring they earn above minimum wage and that it’ll help restaurants keep their costs under control. Meanwhile, critics say it’ll hurt workers by paying them an even lower salary and worry those employees will have to rely more on tips than they do now.
Steve Chucri, president and CEO of the Arizona Restaurant Association, and Geraldine Miranda, economic policy analyst with the Arizona Center for Economic Progress at Children’s Action Alliance, joined The Show to talk about it.
Full conversation
MARK BRODIE: Steve, let me start with you. Why do you think this is a good idea?
STEVE CHUCRI: Well, it obviously was fostered by us and our industry, and it was actually a direct response to the One Fair Wage, which is a group that came in from outside of Arizona trying to take away our tip credit, to change the current construct of how our tipping structure works here in Arizona. They’ve targeted Arizona, Ohio, Massachusetts. And so this is a direct response to that.
Our tipped workers — 90% of which, by the way, support our tipping structure, support how they run restaurants and how they operate. And to upend that would create a fiscal disaster for restaurants.
So what Prop. 138 does is it preserves the tipping credit structure that we have here in Arizona. And it also guarantees $2 more than the minimum wage, with tips, for all of our tipped employees.
BRODIE: Is this still necessary, given that the one fair wage withdrew their signatures and will not be on the ballot?
CHUCRI: It is, because they’re going to keep coming back. In fact, they’ve said they are going to come back and go city by city starting in 2025 to take away the tip credit. We wanted to be on offense this time and say, “No, not in Arizona.” We want to preserve our tip tipping structure, as well as our employees and our restaurateurs.
BRODIE: All right, so, Geraldine, why do you think that Prop. 138 is not a good idea?
GERALDINE MIRANDA: We advocate for children and families. And so in looking at this proposition, we think that this will be harmful to children and families in particular. Women make up 70% of tipped workers in Arizona. And tip workers, do not make a living wage right now. And this will just make it even harder for workers to meet the rising costs of living.
BRODIE: What concerns do you have about tip workers earning less money if Prop. 138 were to pass than they do now?
MIRANDA: So housing is through the roof, right? Census data just came out showing that 54% of Arizonans are paying more than 30% of their income in housing, which means that they’re cost-burdened. This is higher than the 47% in 2019. And this proposition will essentially lower wages for workers.
BRODIE: Steve, there have been a number of workers who work for tips, who have stated publicly that they’re concerned about potentially earning less money were this to pass and are nervous about, as Geraldine referenced, being able to pay their bills and things like that. Can you assure workers that they will not earn less money if this initiative passes?
CHUCRI: Well, first and foremost, I think it’s important to to preface by saying I think the work that Geraldine does and the organization she represents, they are trying to help families. And it’s not a disagreement about their scope of work, because I applaud the gesture and what they try to do for families. And I think that’s a very good thing.
I think where we disagree is how we get there. And to Geraldine’s point that it is tough right now with rising costs. We see inflation all across Arizona, we see it all across the country. And that all being said, though, I think when you look at the restaurant industry, we are a multibillion-dollar industry here in Arizona, but there’s a lot of multibillion dollars worth of costs that come with it. So all that being said, we believe we’re the industry of opportunity.
Seventy percent I don’t know if I’ve heard that. I haven’t heard that number. I don’t believe that’s accurate of 70% of all our servers are female. That sounds awfully high.
But I will tell you that restaurant servers in the state of Arizona are making well above $30 an hour with tips. On a national basis, it’s $27 an hour with tips. So you’ve got the industry of opportunity in the restaurant business.
BRODIE: Is there a concern, though, that there could be some workers who will take home less pay, if Prop. 138 passes?
CHUCRI: No, because we’re guaranteeing $2 more than the minimum wage with tips. That’s more than they’re making now. So no, we don’t see that. And you have to also imagine that restaurant menu prices go up, tips go up. The counter is the concern — 87% of tipped workers across the country are concerned that if you remove the tip credit, as has been done in other communities, that tips will go down because surcharges will be added to tickets. That’s more of a threat to the servers than what we’re proposing here today.
BRODIE: Geraldine does the fact that, as Steve said, there’s sort of that almost kind of like a hold-harmless provision where workers will get that extra $2. Does that sort of alleviate any of the concerns that you have?
MIRANDA: It doesn’t. It does not guarantee that workers will make more money. There is no evidence of that. When it does guarantee is that workers will get less wages. If they make the $2 above, employers will be allowed to pay them 25% less than the minimum wage. Right now, they’re paying them 21% less than minimum wage.
So yeah, this will allow them to pay them more. And how do you calculate who’s making $2? How do you know when someone’s making $2? This doesn’t repeal what’s currently in statute. So it’s essentially adding a third wage system. So essentially it would be on workers to determine: Did I make $2 above minimum wage this week, or did I not?
If I did this week and my wage was slightly lowered. If I don’t next week, how do I go to my employer and say, “I didn’t make $2 above. Are you going to pay me more?” It’s really complicated. It makes it just very difficult and opens opportunities for potential violations.
CHUCRI: I think it’s important to note that we’re not creating anything new here. This tip credit already exists. It’s existed for decades. It’s always existed in in Arizona. And so there are protocols. If you’re not making the minimum wage now, you’re somehow not going to make the minimum wage should Prop. 138 pass.
And so that’s why we have the industrial commission. That’s why we have federal agencies that govern all of that. And so if a restaurateur is not paying their servers the minimum wage with tips, they can get into serious trouble with that. And so I don’t want to suggest that this is a whole new way of doing things. No. We’re simply modifying the current construct.
There are, by legal authority — according to the Legislature, according to the lawyers that have been hired to look at this — there are teeth in this. You can’t simply get away scot-free without paying your employees.
BRODIE: Geraldine, do you agree that there is enough of an enforcement provision in this to make sure that workers are treated fairly?
MIRANDA: You know, it’s just really hard to enforce. It’s almost impossible. The U.S. Department of Labor did a federal sweep in from 2010 to 2012 where they looked at 9,000 restaurants, and they found that there was an 84% violation. If you look at data from 2012 to 2019, of violations, that's 85%. It’s just really difficult. Even for like employers who are well intentioned, it’s just hard to keep track of this. And it just puts everyone in a very difficult, situation.
BRODIE: Steve, who exactly would be covered by this measure?
CHUCRI: So it’s going to be any tipped worker primarily. We’ve got four segments of the industry. We’ve got the quick service industry. We’ve got the fast casual, which would be like a Panera Bread.
BRODIE: Counter service kind of thing.
CHUCRI: Yeah. And then you’ve got casual, which is your mainstream restaurant. You would see an Olive Garden at the like. And then, fine dining, right? Your steakhouse and high- or upper-end white tablecloth restaurants. So primarily casual and fine dining is where this impacts, which is a bulk of the industry. There’s a lot of quick service as well.
But we’re not we’re not pioneering here. And I think that’s an important note to make is that maybe back in the ’80s, yes. It was more difficult to track these things. But now with point-of-sale service machines and everything else. Ninety eight percent of all transactions happen with credit card. It’s very simple. If someone wants to tip pool with the hostess but not the back of the house, they can do that. It’s all up to the restaurant.
But through technology and how we pay our employees on debit cards and everything else today, it’s very streamlined, and it’s very straightforward. So restaurateurs know what they’re doing. Arizona restaurants are growing across the state. Our daily payroll right now is $21 million without tips. So we are a huge economic engine, an economic driver for employment in the state of Arizona.
And if all that was awry was going so badly, we would be suffering. And we’re not.
BRODIE: Geraldine, I want to ask you a little bit about what some have called a tipping fatigue, which is that at a lot of places now over the last few years, you are asked for a tip in places that you weren’t necessarily asked for it before. Most restaurants have traditionally given the option for a tip, but I’m wondering if, given inflation given, as you say, things are more expensive now than they used to be.
Is there reason to believe that people are tipping less? And might that potentially impact the people who are relying on those tips now, and might rely on them, continue to rely on them should this pass?
MIRANDA: I think so. There certainly seems to be tip fatigue, right? You’re being asked to tip everywhere that you go. And so, with this proposition, what guarantees that customers are going to pay more tips? But you are guaranteeing that workers are going to get lower wages.
So how do you — especially with the tip fatigue — how do you know people are going to pay more in tips? They’re not. That actually helps the argument that you know you’re going to get less tips. And at the same time your wages are going to be cut. And your wages are stable wages, so you’re going to have to work more for unstable wages.
BRODIE: Steve, I guess the opposite question goes to you then. Let’s say people do tip less — maybe not even universally, just at a particular meal or on a particular day at a particular place. What does that mean for the restaurants who would then, if this passes, have to make that up to their workers.
CHUCRI: They do. They won’t be able to take the tip credit. This isn’t going to cause tipping to go down. Again, we’re guaranteeing $2 more an hour with tips. If the restaurant isn’t making that, meaning the server’s not making that — then the restaurateur can’t take the tip credit. He’s got to make sure that employee’s making the minimum wage.
And so, where we might actually agree is there is a truth about the tipping fatigue. You know, you go to Sky Harbor Airport, you pull a water out of the refrigerator, you put it down, and they spin it around it to ask for a tip.
We believe that tips are not an entitlement in the restaurant industry. We believe that tips are something to be earned.
BRODIE: Steve, we know that over the past couple of years, restaurants, some of them anyway, were kind of struggling to fill their staff. They didn’t have enough workers for a number of reasons, it seems like. Where is that standing now?
CHUCRI: We’re back up to capacity. We’re one of a handful of states that is. Nationally, we still haven’t recovered 100%. But in Arizona, we have.
And so we aren’t putting a gun to anyone’s head to come work in the restaurant industry. They want to come and work in the restaurant industry, and we’ve seen that as one of the fastest recovering states in the nation when it comes to laboring back up post-COVID.
