The sleek appearance of the Tel Aviv restaurant TYO, the well-dressed clientele and the attractive dishes show nothing of the upheaval the place has been through recently. Five weeks ago, five servers, some of whom had been there for years, quit at the same time.
“When I started working I loved the place. The manager was charming, the atmosphere was pleasant. It was like a second home. Sometimes I even worked 10 shifts a week,” said Libi Budashev, who worked there for two years.
But things changed suddenly. “From January 1, 2019, “with no notice, they decided to take off 20 percent from our tips for the restaurant to use. We were told it was to pay our social benefits, but when I checked with a lawyer I was told that this can only be done with the permission of the servers, and we said we were against it.”
The restaurant, on the other hand, tried repeatedly to get the servers to sign a contract that they agreed to the change. After that, things soured. Budashev and her colleagues turned to the Histadrut labor federation to back them, and in the end they quit together. Since then, they’ve been waiting for their severance pay, which has not arrived.
The change Budashev described is the result of a court ruling that came into effect at the beginning of 2019, that all tips are to be calculated as part of the wages paid by the employer, and will be counted toward social benefits. The ruling, by an expanded bench of five judges and two representatives of the public, headed by the former president of the National Labor Court, Yigal Flitman, came about as a result of two suits brought by two servers regarding their rights.
Flitman, who presented the ruling at his retirement ceremony, said that because there was no law on the matter, the court would have to rule on it.
Flitman may have had the good of the servers in mind when he ruled, but they probably don’t thank him for it now. “The law is a harsh edict for every server. After all, it’s temporary work, most people do it for quick money. Of course I understand the importance of the ruling and no profession is above the law,” Budashev wrote on Facebook recently.
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But the law, Budashev pointed out, says that the whole tip has to be part of their salary and that should determine our social benefits, “the ones the employer is supposed to pay (!) If our pension, vacation and severance pay have been paid so far according to a fictitious minimum wage, suddenly they have to be paid according to the real wage that we get.”
Budashev said that before the ruling the custom was for the employer to give the servers a salary slip with a minimum amount – “a ridiculous sum – and they would take money out of the tips to pay the servers’ social benefits and divide all the rest of the tip money among the servers, based on the hours they worked. According to Budashev, about seven shekels ($2) used to be taken out of their salaries per hour for social benefits. “Now it’s 20–25 shekels,” she said.
Budashev says she realizes her social benefits were being shortchanged when the smaller sum was withheld but “it’s waiting tables, I do it for ready money,” she says.
Operation succeeded, but patient died
The labor court ruling came after servers, backed by the Histadrut, complained that their social benefits were not being paid as required by law. But most of the servers aren’t focused on the future and they didn’t realize what the ruling would mean.
“Experienced servers are getting out of the field because they don’t really care about actuary calculations of how much pension they’ll get back. They’re looking for cash and they see their salary going down. They’re replaced by kids before the army, 17, 18 years old who come for six months and leave,” Budashev wrote
Shai Berman, head of the restaurants association, says that this is a new situation for restaurateurs as well, and not necessarily a better one. “Before that, we worked according to the discipline set in Supreme Court rulings: Restaurateurs give a minimum salary slip and the server gets another sum, that doesn’t belong to us, that comes from the generosity of the patron who wants to tip the server. We weren’t a party to it at all.”
When the labor court ruling was made, the restaurateurs said they would go bankrupt over it. They claimed it was illogical and that because tips depended on the patrons, the restaurants didn’t control the level of salary and could not be expected to pay employers’ costs.
Then everyone discovered an exception hiding in the 70-page ruling: That with the consent of the servers, the cost of the social benefits would be taken from the tips alone and would not burden the restaurant. Not surprisingly, the restaurateurs, in a field where in most cases the profit margin is low, were happy to adopt the loophole, and the new custom became common.
Restaurant owner Ben Yakir says that he compensates his servers for their lost income, but the burden is heavy. “We looked at the real wages of a server at the end of each month and we found that in 2018 they made 55–65 shekels an hour, and today they don’t even make 50 shekels an hour. We give then a safety net of 50 shekels an hour and find ourselves funding every server at the rate of between hundreds of shekels to 1,000 shekels a month, where it’s hard enough to survive already. So the operation succeeded but the patient died,” he said.
Nimrod, who owns a restaurant in Tel Aviv, says that while it used to be difficult only to find kitchen workers, now servers are hard to find as well. “Today they’re making 20 percent less and so it less worthwhile for young people to be servers.”
“It’s not for nothing that no country regulates tips,” says A. a veteran restaurateur. In 2013, A. says that in the New York restaurant Sushi Masuda they raised the prices to raise employee wages. But since in the United States tips are a cultural norm, like in Israel, it didn’t change consumer habits.
“There are things that are a matte of culture. The field still depends on tips because patrons would prefer to pay a tip rather than a “service charge,” as is common in Europe. The question is whether this is what we should be dealing with. Workers’ social benefits should be assured like in a proper Western country, but do they really have to take from a 24-year-old kid 25 percent tax because he makes 900 shekels a night in a restaurant?”
Some earn more than 90 shekels an hour
Another server, H., says that in the restaurant where he works the wait staff was asked to sign a document stating that they agreed that their income from tips would be used to pay their taxes and social benefits. “Nobody thought to say no, because it would mean leaving the restaurant and nobody wanted to give up their job in one of the best restaurants on the city,” he says.
But another reason the servers may have kept quiet is a new balance created in the restaurant: On the one hand more money went into the salary slip and on the other, the managers realized that they couldn’t deduct the whole amount, and they found a way to hurt the net salaries as little as possible, he says.
Moreover, according to H., under these circumstances, servers are unable to understand how their salary slip is calculated, but they look the other way because the restaurant has done what it could so the damage would be minimal.
As opposed to H.’s employers, A., a veteran restaurant owner, was forced to ignore the law. He has no choice, he maintains. His current profit margin can’t afford the increased costs, and if he puts them on the servers they’ll leave and he’ll have trouble finding others. According to A., the waiters were afraid the ruling would be applied to their restaurant, apparently because they are too short-sighted to think about their pension.
But the servers are between 23 and 27 years old, he says. “They need the money now. Today minimum wage is 5,300 shekels a month with deductions for social benefits on that salary. The gap between the full amount they make from tips and the amount they get in their salary slip isn’t that great.”
Despite the disagreements, all parties agree that one of the main problems is that this was a court ruling, not a law. “They haven’t reached a comprehensive solution. A judge dropped a bombshell and didn’t think about 15 other factors,” A. says. On the other hand, in legislation a committee sits in the Knesset that hears all sides, and thinks about all the parameters. “A judge tries to resolve in one ruling something that for years a Knesset committee couldn’t solve,” he adds.
Meanwhile, on the ground, everyone is uneasy. Are these only the birth pangs associated with the first year of a new arrangement? Berman doesn’t think so. He says that the change has made waiter jobs less attractive, and since there is hardly any unemployment in the labor market, the way restaurants work is expected to change.
“We’ll see more places with self-service, with much fewer people in this business,” he predicts. A. agrees, saying restaurants with waiters will become something only the well-off will be able to afford. He predicts that in their stead there will be more take-out restaurants or ones preparing food for delis.
TYO says that “the court ruling has introduced new elements into paychecks, related to national insurance, pension and income tax. This has raised wages in an aggressive manner. The court understood that this could destroy restaurateurs and has created a mechanism whereby tips will be shared between waiters, chefs, barmen and hosts – the entire service chain of a restaurant.
“The interpretation given by waiters is wrong,” TYO continues. “They were given faulty legal advice by the Histadrut, which wrongly interpreted the court ruling. They were led to believe that the 20% of tips taken by the restaurant were taken illegally. They didn’t understand that restaurants could have taken 50% of their tips instead of 20%, since the tips in fact belong to the restaurant.
“They were also misled to believe waiters’ consent was required to collect this portion of the tip, but it’s not the case and there is no legal requirement to get their consent,” said TYO. “The labor agreement says this 20% is for the benefit of all service providers, as the court ruling states. Regrettably, this interpretation has led to chaos in this business and they’re not helping in reducing it. TYO realizes that if the Histadrut did its work properly and interpreted the ruling correctly, the chaos in the restaurant business would diminish.”