How Two Oakland Restaurants Are Dealing With Higher Minimum Wage

When Measure FF passed in Oakland last November, raising the city's minimum wage to $12.25 an hour, restaurant owners were faced with difficult decisions.

Other Bay Area cities, including San Francisco, have passed minimum wage laws that are being phased in over several years. But Measure FF took full effect on March 1, suddenly raising the minimum wage in Oakland by $3.25 an hour. This 36 percent hike was the highest percent increase in the nation at that time.

“Restaurants operate on extremely tight margins as it is,” said Chris Hillyard, co-owner of Farley's Coffee, which has three Bay Area locations, one in Oakland. “So this is a huge increase in one day.”

With labor costs rising so quickly, how could restaurant owners alter their businesses to remain open and profitable?

In November, Hillyard joined a group of independent Oakland restaurant owners, the Oakland Indie Alliance, to discuss the best way to deal with the increased labor costs. The group came up with three different options. The first was to simply increase prices on all menu items. The second was to add a service charge on each bill. The third option was more radical: a price increase combined with a no-tipping policy.

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Hillyard decided to go with the first option: to raise all the prices at Farley's East, his company's Oakland store, by approximately 20 percent. So far, he hasn't seen any decrease in sales, and the higher prices are covering the higher wages.

“It's great for the workers,” Hillyard said. “Their wages are higher. They're happy about that.”

Piper Conrad, a barista at Farley's, isn't so sure. While she is very happy to be working at Farley's, she's not convinced that the minimum wage increase is something to be happy about because it isn’t high enough to be truly effective.

“I think the new minimum wage in Oakland is a pacifier,” she said. “[Workers] are settling for something that's a little higher, but not really what they asked for” -- referring to a proposed $15 per hour wage that many workers advocated for prior to Measure FF.

Conrad claims that tips are down across the board since prices have increased at Farley's East. She estimates that about 30 percent of her regular customers are tipping less or not tipping at all.

Fred and Elizabeth Sassen, co-owners of Homestead Restaurant on Piedmont Avenue in Oakland, are trying one of the other options to handle the higher minimum wage— a no-tipping policy. It's a growing trend in Oakland restaurants.

Before Measure FF was proposed, Homestead operated under a standard restaurant model in which the servers were receiving tips. With tips, servers were the highest-paid members of the staff, making approximately three times as much as cooks and other employees.

Fred Sassen described the problem anecdotally. If one imagines restaurant revenue as one bill in the amount of $100, labor costs would account for 30 percent. In a restaurant with 20 employees, each employee would be entitled to $1.05 of this hypothetical check. If nine of the employees are servers, they would split an additional $20 tip, increasing their share to $3.22.

“There is a lot of resentment in the industry between servers and cooks,” Elizabeth Sassen said. “The line cook works all day preparing food, while the server comes in at the end of the day and takes home the lion’s share of the money.”

The Sassens decided that simply raising prices wouldn’t address this underlying inequality. Measure FF presented them with an opportunity to try a new kind of pay structure. Homestead raised its prices by 20 percent and raised the wages for every employee, but servers are no longer allowed to collect tips.

The Sassens believe this change has created a more unified staff.

“In the old system, a server would never want to become a manager because it is an increase in hours and not necessarily an increase in pay,” Fred Sassen said. “Now we've created a career ladder.”

The Sassens didn’t say exactly how much they were paying servers, but they did say that employees are now paid higher wages based on experience. The lowest-paid employee is now making $15 per hour and the highest-paid employees make approximately $24 per hour. Servers are now paid a consistent wage, but they no longer have the opportunity to make substantially more money on a good night.

After the no-tipping policy was implemented, many servers at Homestead moved on to other restaurants.

“Tips are what we absolutely rely on,” said Conrad. “If I was working in a restaurant that didn't allow tips, I would quit.”

As a barista, Conrad makes a certain amount of her income in tips, but not as much as a server would make in a full-service restaurant. She hopes to get a job as a server in the near future, while she finishes her massage therapy studies.

Conrad believes that most servers do not see their job as a career. They choose to work as servers because it affords them the opportunity to make decent money with a flexible schedule while they pursue other career options.

While the dust from Measure FF is still settling, it's clear it is impacting the burgeoning Oakland restaurant scene.

“Measure FF was extreme," said Elizabeth Sassen, "but maybe Oakland was so far behind that we needed something extreme to catch up.”

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Correction: An earlier version of this story contained an incorrect spelling of Chris Hillyard's name.

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