Tip Sharing Bill Could Hurt Restaurant Industry, Profs Say

June 07, 2012 - News Release

Ontario lawmakers should carefully consider a private member’s bill that would prohibit restaurant owners from requiring servers to share tips, two University of Guelph professors say.

Bruce McAdams and Mike von Massow of Guelph’s School of Hospitality and Tourism Management say the proposed change could harm Ontario restaurants and the people who work there.

The bill by Toronto-area MP Michael Prue is set to be reintroduced this month. It seeks to amend the Employment Standards Act to ensure that gratuities go entirely to servers.

Allowing wait staff to keep 100 per cent of their tips seems simple and fair, the professors say. But it’s really a complex issue with significant impacts, affecting everything from operations and staff morale to employee trust and the bottom line.

“It’s critical that it not be oversimplified and that people not rush to judgment,” von Massow said. ”We’re not opposed to the bill; we’re saying that it’s imperative to talk about the issue because such blanket regulation might create more problems than it will solve.”

McAdams added: “We need to think it through more carefully before we get too far down the path — it has huge economic implications.”

The two are studying how gratuities affect restaurant operations as part of a larger project on issues affecting restaurant sustainability. Preliminary findings are contained in a new discussion paper called “The Tipping Point: Is There a Fair Share?”

“We felt it appropriate, given the current media coverage on the topic and the pending legislation, to make some of our findings public now in order to contribute to the discussion,” McAdams said.

Customer tipping brings in more than $4 billion a year in restaurants and bars in Canada each year.

It’s a social norm in North America and has become a predictable revenue stream in restaurant operations, the professors say.

The majority of Canadian restaurants use mandatory “tip outs” to pool gratuities and share a portion among employees. Amounts and distribution vary from one restaurant to another.

“While it’s clearly not perfect and some approaches are better than others, sharing tips can often make the best of a bad situation,” McAdams said.

Banning the practice would increase inequality and take money away from the lowest earners, he said. “The one-size-fits-all fix will not be effective.”

The restaurant industry has changed dramatically in the past 30 years. Many businesses now employ a wider variety of staff positions in the kitchen and dining room who contribute value to the experience, the researchers say.

Servers continue to receive the highest compensation in the restaurant. “The average server in a restaurant makes $20 to $50 an hour and more in restaurants with high cheque averages, while most of the kitchen staff make little more than minimum wage,” von Massow said. “Tip sharing is an attempt to close that gap somewhat. In the past decade, minimum wage has increased and food prices have gone up significantly. Add that to the economic times that we are living in, and you will see that some restaurants are barely making it.”

Prof. Bruce McAdams
School of Hospitality and Tourism Management
519-824-4120, Ext. 56597

Prof. Michael von Massow
School of Hospitality and Tourism Management
519-824-4120, Ext. 56347

University of Guelph
50 Stone Road East
Guelph, Ontario, N1G 2W1