Chicago Co-Managing Partner Brian Roth was quoted in an article entitled "Chicago votes to kill the tip credit," published in Restaurant Business magazine.
This article explores the recent Chicago City Council vote to phase out the city's tip credit, which will require restaurants to increase tipped workers' wages to meet the citywide minimum wage by July 2028. Opponents of phasing out the tip credit argue that the climb in labor costs will be a devastating burden for Chicago restaurants.
Roth remarked that this change "will prove economically challenging to some in a business with notoriously tight profit margins and escalating business expenses." He added that this is a “watershed moment” that changes the restaurant industry’s current labor model. Roth predicted that Chicago restaurants will need to raise menu prices and/or implement mandatory service charges to support increased payroll.
Mandatory service charges differ from tips under the law because they are not discretionary. Service charges belong to the house and are considered part of its gross receipts and income. Service charges can be retained exclusively by management or distributed to employees in any amount – including to offset the increased minimum wage.
“An optimistic view is that if patrons continue to visit in droves even with increased prices and mandatory service charges – which many people don’t seem to mind in lieu of discretionary tipping – this could be a net positive,” Roth stated. “Proponents point to the favorable impact on wage equity. With tips, the law allows pooling/sharing only among certain employees, typically front-of-the-house staff. Kitchen staff, on the other hand, could not share in tip pools, leading to earning disparities and labor shortages. With mandatory service charges, a broader group of employees can be compensated.”
Roth focuses on business, employment, environmental, and product liability litigation. He has successfully represented clients in significant disputes in state and federal courts nationwide, including jury trials in the Midwest. In his long-standing employment practice, Roth frequently provides forward-thinking counseling to clients on compliance and risk management strategies, including drafting employment contracts, handbooks, and policies, as well as conducting audits and investigations.
The Gordon Rees Scully Mansukhani Employment Law and Retail & Hospitality teams are prepared to guide Chicago businesses as they restructure their pricing. The GRSM team will provide assistance throughout every phase of implementation, aiding restaurant owners in making the most informed and forward-thinking decisions for their businesses. To learn more about how the GRSM Chicago team can help your business, please click here.
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