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Should Tipping Be Banned?

freakonomics.com—Suzie Lechtenberg

The following is an exceprt from the program transcript. The full transcript can be viewed here. The full program can be heard here.

Justin SWARTZ: I think it is plausible. My firm would take a good, hard look at a case if a server came to us and made that complaint.

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DUBNER: Justin Swartz is a lawyer at Outten & Golden in New York City. He represents employees in class-action discrimination cases. He’s sued some of the biggest restaurants in New York for shorting employees on the tips they deserved. If his firm were to take on a discrimination case, like Michael Lynn has proposed, Swartz pursue two lines of argument. 

SWARTZ: The first would be disparate impact analysis. The purpose of disparate impact analysis is to eliminate what the Supreme Court calls headwinds, policies that make it harder for racial minorities or other people in other protected classes to succeed.

DUBNER: With disparate impact, you don’t have to prove that discrimination is intentional; it’s a proxy for discrimination.

SWARTZ: The idea is that if there’s a disproportionate impact on a particular group here it would be African American or non-white servers, then the plaintiffs have made the first showing that they need to make in their case.

DUBNER: And the second argument?

SWARTZ: The second step then is the employer’s burden.

DUBNER: Meaning, it’s up to the employer to prove that tipping is a business necessity—not a custom, but a necessity.  

DUBNER: Let’s say I’m a restaurateur and I come to you and I say look, I know what you do, I know who you represent, and I want to avoid, I want to avoid unfairness and I also want my business to prosper. So let’s say I calculate the average tips in my restaurant and it’s 20 percent, and I hate the fact that wait staff member A earns 50 percent more than wait staff worker Z because wait staff worker A happens to have these attributes that for whatever reason get a lot of tips. Pooling is complicated for whatever reason. Let’s just say I don’t want to deal with all the complication, so I’m just going to say on my menu to my clientele, we’re getting rid of tipping because it’s inefficient, sloppy and potentially discriminatory. Average tips here were about 20 percent and therefore we’re going to ban tipping and instead raise our prices 20 percent.

SWARTZ: I don’t see any problem with that from a labor law perspective. And in fact, that might be the best way for restaurants to insulate themselves from liability.