A New Equitable Business Model for the Restaurant Industry

Boston, MA

Population: 500,000 - 1,000,000 | Government type: City | Topic: Economic subsidies

OVERVIEW

In response to the Covid-19 crisis, the city of Boston established a three-part recovery fund totaling $6.3 million. This was part of a larger $15 million effort to support small businesses during the pandemic. One fund provided small businesses with up to $15,000 in commercial rent relief between April 1 and December 30, 2020.  The second provided up to $15,000 in direct relief for BIPOC-owned small businesses. 

For the third program, the city of Boston partnered with High Road Kitchens and One Fair Wage, two nonprofits dedicated to fair working conditions in restaurants, to fund a pilot program supporting small restaurants and their employees during Covid-19. The city contributed $350,000 from CARES Act dollars, and local non-profits contributed $150,000 to create the High Road Kitchens Relief Rund. 

As part of this $500,000 pilot, the city provided 25 restaurants with $15,000 direct grants to provide wage reimbursements to retain or rehire employees who had been underemployed due to Covid-19.  The grants came with one key stipulation: employers must pay all employees at least $12.75 an hour and must increase pay to $20 an hour by January 2026. Currently, the Federal Labor Standards Act (FLSA) mandates that servers earn $7.25 an hour, only $2.13 of which is designated as the tipped or cash minimum wage. The city effectively eliminated Masachusettes’s $5.55 tipped minimum wage by requiring a full wage of $12.75 an hour in place of the tipped wage. 

The fund is housed within the administration’s small business program as part of the Mayor’s Office for Economic Development, which provides technical and operational assistance to the restaurants. Restaurants can secure an additional $5,000 from High Road Kitchens upon the successful completion of an anti-bias, race, and equity training. Business owners must also commit to completing the equity toolkit and training program within nine months. Finally, they must agree to, participate in, and comply with standards set by One Fair Wage and High Road Kitchens.

The city proposed a pilot program to ensure maximum creativity, to speed up grant dispersal, and to avoid a lengthy RFP process. The city will expand the program based on the pilot’s success and future funding.

Collaborative Governance

The restaurant and small business industry is in distress, and this is felt most acutely at the local level. Across the country, owners are fighting to survive, especially in colder climates with indoor dining either severely limited or prohibited entirely.  While they are vocal in pushing for federal relief, local funding is sometimes more quickly accessible. In this context, the city of Boston sought a way to compile resources in order to help owners rebound, stay open, and keep their workers employed while also promoting higher road models of employment. 

High Road Kitchens was conceived as a response to Covid-19, both to help people who were laid off and increase food security. The program started in California, where High Road Kitchens raised philanthropic support from foundations and individual donors in partnership with Governor Gavin Newsom. One Fair Wage (OFW) offers initial grant funding, and then the state’s workforce development boards work with restaurants in an ongoing fashion to support operations and staffing costs as they endeavor to meet the program’s objectives. In California, the program seeks to establish a new form of business within the restaurant industry: feeding people who are food insecure as well as those who have the resources to buy food. Participating restaurants offer meals at zero cost to anyone who is food insecure, and offer meals to between $10 and $20 people who have means to purchase. Essentially, this scaled payment structure functions as a loan that customers provide and restaurants repay by offering meals to those in need. 

In Boston, offering zero-cost meals to food-insecure restaurant workers was a suggestion, not a program requirement. However, the High Road Kitchens maintains three long-term goals across all jurisdictions: save restaurant workers’ jobs, increase wages, and create a network of restaurant owners committed to equity. 

According to High Road Kitchens, the murder of George Floyd and the resulting uprising motivated many restaurant owners to explore a new industry model, with the depths of inequity and racial injustice laid bare. As a result, many established restaurateurs were more willing to come out and lead among their peers in the network of owners participating in High Road Kitchens. These employers were selected in part because they would be strong advocates for a future expansion of the program. 

In Boston, all 35 participating restaurants agreed to pay a higher base wage of $12.75 to front-of-house workers for the entire month of December, in exchange for grants paid by High Road Kitchens and the City of Boston, making this program particularly significant for these workers during the holiday season.

As the program evolves, organizers hope to secure additional funding to expand the number of restaurants that receive funds and the number of workers getting a higher wage. The city of Boston is looking at other ways to fund the program after CARES dollars run out.

There is significant promise in the future of scaling up the One Fair Wage model. The network of owners involved in the program create a community of practice and provide mutual support and incentives that establish and strengthen the model. Boston Mayor Marty Walsh, an enthusiastic proponent of the program, could soon be confirmed as Secretary of Labor, opening up an opportunity for a similar federal program.

Emphasis on equity

The restaurant industry employs women and BIPOC who are disproportionately underpaid as a result of the subminimum tipped wage. The practice of modern American tipping finds its origins in the post Civil War reconstruction era as Black workers—recently freed from bondage—looked for work in the few menial positions available to them. For those who worked in the restaurant and railroad industries, employers would not pay them, suggesting guests leave them a small tip instead. The practice is much the same today as in 1938 when federal legislation required employers to pay a minimum wage that would bring workers’ hourly pay up to the federal minimum wage. 

In Massachusetts, a recent One Fair Wage report found that tipped workers with a subminimum wage were three times as likely to live in poverty.  7,000 restaurant workers applied to OFW’s Massachusetts emergency fund with 77 percent saying they could not afford two weeks’ of groceries and 82 percent reporting they could not afford rent. These numbers were even higher for Black workers.

As designed, the High Road Kitchens Restaurant Relief Fund had two goals: provide immediate relief to those impacted by Covid-19 and to disrupt a system that underpays workers through the tipped minimum wage. The subminimum tipped wage is a public health challenge, as workers face reduced tips or customer based retaliation for enforcing mask mandates along with increased exposure to the virus. Workers may also experience a decrease in tips if restaurants implement a PPE surcharge.  By adding the stipulation that restaurants must commit to ending the practice of the tipped minimum wage for servers, and instead paying all workers $20 per hour by 2026, the fund is effectively helping to end the practice of underpaying workers and empowering them to enforce public health measures. 

With regard to how the pilot program fund chose fund grantees, the city opted to prioritize small restaurants with less than 25 employees and specifically offered grants to family-owned, immigrant-owned, and BIPOC-owned businesses.

Analysis

• Preemption: The city was able to use local funding and collaborate with nonprofits to run the pilot without any issues at the state level.

• Local government dynamics: The council was supportive, particularly given the urgent challenges small business owners faced across the city.

• Impact: While immediate cash assistance was critical, the city leveraged funding to support not just businesses but workers as well. This extra layer of support ensures that workers are better equipped to weather the pandemic, especially during slow winter months. Integrating funding for small business with worker guarantees is a particularly effective program design.

Last updated: January 26, 2021

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