The short end of the stick

By now our legislators are more than familiar with the arguments for and against a minimum wage increase. Small business owners, especially restaurant owners, continued to submit testimony against the Senate’s minimum wage increase bill, SB2609, at yesterday’s House Labor Committee (LAB) hearing.

LAB passed a house draft of the Senate’s minimum wage increase bill in an attempt to reach compromise between employees and small business owners, but it was the owners who came out on top.

The arguments made by the owners against the bill were no longer in diametric opposition, as we saw during the beginning of the session, but rather focused on whittling down the effectiveness and scope of the bill. Language concerning the tip credit was upheld, while language concerning the consumer price index (CPI) as a peg for the wage to continue increasing was omitted. The increase schedule was also modified from a three step process, to be completed by Jan 2017, to a four step process to be completed by Jan 2018. Now the minimum wage will be hiked 50 cents starting January 1, 2015, followed by three other hikes in Jan. 2016, Jan. 2017, with the final one happening in Jan. 2018.

Chair Mark Nakashima hoped that both sides would be satisfied with his compromise solution. “We have been through this a number of times and we continue to try and find a middle ground on where we are going to go on this,” he said after the hearing.

Roger Morey, the executive director of the Hawaii Restaurant Association, brought up the fact that the restaurant industry represents 85,000 jobs across the state, or 14 percent of the entire workforce. According to Morey, 93 percent of restaurants in the state are small businesses.

Morey’s testimony perfectly demonstrates the shift in the owners’ strategy from absolute opposition to reducing whatever bill does emerge to its least effective state. “Is there going to be an increase in the minimum wage? Well of course there is,” he said. “We would just ask that you make it not quite so steep, so quickly. Whatever actions you take here are going to have a significant impact on those small business.”

While the restaurant owners certainly got most of what they wanted out of Nakashima’s house draft, employees did get some protection for their poorest members. Protective language exempting workers who earn less than 250 percent of the poverty level (about $30,000 a year) from the tip credit was included in the HD1, language that came from Finance Committee Chair, Sylvia Luke. But it will be much less helpful to Hawaii’s minimum wage earners now.

“Many comments have been made about the unique cost that businesses in Hawaii face,” said Jack Temple, an analyst for the National Employment Law Project. “But of course, we want to reiterate the unique costs that workers and those who live in Hawaii face.”

Temple also pointed out that Hawaii is tied for the lowest minimum wage in the country, saying there is “considerable room” for the proposed $10.10 per hour rate. He also pointed out that, in the late 1960s, the minimum wage was $1.60 per hour which, translated into today’s dollar amount, comes out to roughly $10.70 per hour.

“So roughly 40 years ago, employers were already [able to afford] a $10.70 minimum wage in Hawaii,” said Temple.

“Many restaurant owners have claimed that unless they increase the tip credit, they will not be able to pay back of the house employees—who are customarily untipped—increases in wages or as much as they would like to,” said Jenny Lee, a staff attorney for the Hawaii Appleseed Center for Law and Economic Justice.

Lee suggested restaurant owners could institute a tip-pool to solve that problem, backing up her argument with a Ninth Circuit Court of Appeals ruling in Cumbie v. Woo that found, in 2010, that under the Fair Labor Standards Act there is nothing preventing restaurant owners from setting up such a system to help back of the house employees without denying front of the house workers a wage increase.

Temple pointed out that in seven states, tip credits have been eliminated all together and that those states have actually seen a faster rate of restaurant industry job growth than the national average, as well as lower rates of poverty among tipped employees.

“There has been an argument that indexing to the CPI is too unpredictable,” said Lee. “If the minimum wage had been raised since 2007, incrementally, it would have been just $0.12 annually—significantly less than the increase from this bill. The CPI is actually a more stable mechanism than stepped increases where we don’t know the economic climate.”

Bart Dame, of the Progressive Democrats of Hawaii, also said that he wanted the CPI mechanism preserved. “I’ve heard of no reasonable argument for eliminating it,” he said.

However, Dame did say that he was pleased with the inclusion of the “poverty trigger” language. “I think it’s a very good way to balance the interests of employers and employees,” he said.

Senator Clayton Hee, who wrote SB2609 and who chairs the Senate Judicial and Labor Committee, has not scheduled a hearing for HB2580 (which Rep. Nakashima said he still prefers), which could mean the end of that bill. Representatives Roy Takumi, Aaron Ling Johanson and Kyle Yamashita (the vice-chair) voted with reservations, saying they prefer HB2580 over the senate bill as well.

SB 2609 now goes to Luke’s Finance Committee. She has the option of further tweaking the bill into a second house draft.