Business & Economy

Los Angeles restaurant owners worried about future $15 minimum wage

Bill Chait, who operates a handful of L.A. restaurants – including Republique, Bestia, and Sotto – says a $15 minimum wage will have a significant effect on the city's restaurant industry.
Bill Chait, who operates a handful of L.A. restaurants – including Republique, Bestia, and Sotto – says a $15 minimum wage will have a significant effect on the city's restaurant industry.
Ben Bergman/KPCC

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Hours after the Los Angeles City Council voted to gradually raise the city's minimum wage from $9 per hour to $15, restaurant workers said they were worried about how future payroll increases would cramp their bottom line.

In recent months, as council members have studied the wage hike and invited public comment, restaurant owners in Los Angeles have argued that their employees'  tips should count toward their minimum wage. Mayor Eric Garcetti and some council members had expressed support for that, too. However, that exception was ultimately left off the proposal.

“I think it will fundamentally change the business model for many restaurants,” said Jot Condi, President and CEO of the California Restaurant Association.

He said he expects some restaurants to close, because many small locally-owned restaurants are already operating at the margins.

Very few businesses support the idea of paying a higher minimum wage, but restaurant owners are especially opposed to it because they spend so much of their overhead on labor costs.

“You can take all the other costs combined to equal what labor costs,” said George Abou-Daoud, who runs eight Los Angeles eateries, including Rosewood Tavern and Bowery.

He says he doesn’t know what to do, because it’s not like he has extra people on the payroll; He’s already running a slim operation. Now he’s going to have to look at every worker in his restaurants to see if they can stay.

"I don't think there's any question you're going to see a lot of restaurants close," said Bill Chait, who operates a handful of L.A. restaurants, including Republique, Bestia and Sotto. "If you slam through a $15 an hour minimum wage, it's going to be very challenging to do that without raising prices by an enormous amount."

But $15 an hour is still many years away. The proposal calls for L.A.'s minimum wage to first rise to $10.50 per hour in July of 2016. At that time, California's hourly minimum wage will be just 50 cents less than L.A's. Each year, the wage would increase incrementally until it tops out at $15 per hour in the year 2020. The proposal itself still needs a final vote from the city council, which will come after the City Attorney drafts an ordinance.

The Employment Policies Institute released a survey Tuesday of 254 Los Angeles restaurants, and 24 percent said they would be “very likely” to close, while half said they’d be “very likely” to cut back on employee hours or reduce operating hours.

The Institute has long advocated against higher minimum wages, but when KPCC reached out to a handful of local restaurants, owners echoed those sentiments.

“I’m not going to get enough clientele,” said John Porosye, whose family has been running Sofi Greek Restaurants for 38 years. He says a $15 minimum wage would mean he has to raise prices substantially, which he is afraid will turn customers away. 

“If it continues for six months, I might be out of business,” said Porosye.

Another way some restaurants will absorb the increased labor costs: adding a mandatory service charge to customers’ bills, said Condi.

The Los Angeles city council added a last-minute amendment Tuesday instructing the city's Chief Legislative Analyst to study the possibility of adding new regulations to ensure service charges would only be used to pay to restaurant staff. Those rules could come as a separate ordinance from minimum wage. Restaurant owner Abou-Daoud says that would be a bad idea.

“There were people who were concerned service charges wouldn’t go to the employee,” he said. “That is 100% incorrect. I think the discussion is whether the city council should be the ones that mandate how a restaurant places a service charge, what the amount is, and how it’s applied.”