One of the great enigmas of COVID-19, restaurants, and the Paycheck Protection Program, is how realistic it truly is for restaurants to rehire employees as they start to reopen. At the center of this concern is expanded unemployment benefits and the so-called “replacement rates” brought forth by the CARES Act.
Stripped to the basics, the figure for reach state is determined by dividing the average unemployment payment by the average 40-hour-a-week salary of those who receive unemployment benefits. The stimulus bill then tacks on an additional $600 per week.
The obstacle for restaurants is that “average unemployment payment,” adjusts the curve pretty dramatically since the foodservice industry is, by and large, a low-wage business. It’s a cyclical workforce that generally turns over entire staffs over the course of a year. And, per the Bureau of Labor Statistics, about 40 percent are part-time employees—more than twice the proportion for all other industries.
The New York Times calculated the equation as follows: When you add $600 to the national average unemployment payment in 2019 ($371.88 per week), the replacement rate goes from 38 percent of a worker’s salary to almost 100 percent, which is exactly what the program was intended to do. But if you punch the same math for minimum-wage workers, UI benefits come in at a minimum 160 percent of their typical wage, and as much as 270 percent in some states.
By those numbers, an employee clocking 35 hours per week at $14 per hour could make their entire year’s earnings in roughly four months. Even going by the New York Times’ average (and higher) number, workers in more than half of the country’s states will receive more in unemployment benefits than they did from their normal salaries.
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These dilemmas are nothing new—they’ve been spotlighted since the CARES Act landed in March. Only now we’ve reached a different stage. Many restaurants have progressed from the “do I apply for a loan and try to figure out forgiveness later” phase into the reopening one. Deciding whether or not to keep or furlough employees is in most operators’ rear view. Recalling them, though, is where today’s COVID-19 wheel has spun.
Black Box Intelligence released its first Workforce Response results Wednesday, which stemmed from polled restaurants.
Here were some findings:
We’re still in the early stages, which makes sense given many states are still closed for dine-in service: Despite many companies beginning to bring back employees from furlough, of those people employed by chain restaurants back in January, only 45 percent of them remain actively employed today on average.
In February, there were more than 12 million people on the payrolls of eating and drinking places nationwide, according to the National Restaurant Association. By early May, more than six million restaurant workers were off the books.
The sobering reality: the restaurant industry lost more than three decades of jobs in a two-month window. The BLS said foodservice establishments dropped 5.5 million jobs in April alone. That follows a net decline of nearly a half-million jobs in March. Total since COVID-19, it’s nearly three times more jobs lost than any other industry.
Managers are a different story. Restaurants have held GMs throughout the pandemic. It’s been common to see a restaurant manager taking on cross-functional duties during the crisis; directing skeleton crews as well as being a part of them. Everything from running a kitchen to bringing food to customers curbside. Black Box said of those employed back in January, on average, 75 percent of restaurant managers remain actively employed today.
Will employees return? This is the big question. Black Box’s data found that many of the employees separated through furloughs or layoffs are not expected to return to their former employers. About 25 percent of furloughed workers and 67 percent of laid-off employees are not expected to return if given the opportunity.
Let’s go deeper into this.
A question that has come up continuously during COVID-19 is whether or not returning to work is really up to the employee or not. More than 33 million Americans have filed for unemployment since mid-March, including people who were furloughed but remain employees with their company, as well as those who had their hours cut and qualified for partial unemployment.
Can restaurants say, like the old days of unemployment, here’s your job back—take it or give up unemployment? Do people have to prove they’re actively looking for work?
COVID-19 has changed this a bit. Businesses must follow guidelines from the CDC as they reopen, things like PPE supplies, hand-washing stations, etc. This differs state-by-state as well.
Employers who follow federal, state, and local safety measures and call employees back to their former jobs will likely be recognized as providing “suitable work,” CNBC said. Here’s a look at the CDC’s interim guidance for businesses and employers responding to coronavirus. It’s essential material right now.
So, plainly, workers cannot refuse “suitable work” and still get unemployment benefits, Michele Evermore, a senior policy analyst with the National Employment Law Project, told the publication. They also can’t stay on unemployment just because they’re making more money. The Department of Labor Employment and Training Administration added “general fear” of exposure to COVID-19 is not enough to refuse work or quit to go collect unemployment.
What this all means is straightforward. Restaurants have to invest in becoming safe workplaces for reasons beyond superficial ones. It’s not enough just to look at guidelines from the perspective of “what customers want to see,” or what our marketing team hopes to convey. It doesn’t come down to if employees want to work here—it’s whether they have to. Reopening guidelines are a high-stakes affair.
For example, Evermore told CNBC Make It that “workers could argue that the conditions are no longer safe and try to refuse work in the first place instead of going in.”
The National Employment Law Project submitted proposals to the Employment and Training Administration to clarify how suitable work applies during the pandemic. Meaning, more guidance could be coming.
CNBC added restaurants must also follow safety guidelines from the Occupational Safety and Health Administration. Found here, these predate COVID-19, and include things like, “Tell your employer that you won’t perform the work unless and until the hazard is corrected.”
The bottom line is if restaurants fail to follow guidelines, workers can claim it’s a “hazardous working condition,” and quit or stay on unemployment.
To do so, employees need to document specific reasons their workplace presents a hazardous environment and notify their employer of the need to eliminate the danger, CNBC said. If no action is taken, workers can file a formal complaint with OSHA for investigation. The programs vary by state. The administration also said its latest guidance for handling COVID-19 in the workplace creates no new legal obligations for employers. This is required reading, too.
Attorney Joshua Hawks-Ladds, chair of Pullman & Comley’s Labor, Employment Law and Employee Benefits Department, told CNBC they’ve seen “whistleblower complaints” filed with OSHA already from employees worried about COVID-19 exposure.
Something else to consider
This next issue might be more relevant for restaurants reopening in the next few weeks. Employees might be able to turn down work and stay on unemployment if their employer drastically changed the way they do their job. CNBC said this could include a significant pay cut, permanent changes to their assigned shift without consent, or moving them to a facility that would require a substantially longer commute. So if your restaurant shut one store and wants to move furloughed employees to another, there are considerations to take into account.
In Iowa, as an example, a pay cut of 25–30 percent could justify a worker collecting unemployment if they choose to quit. What’s considered a “substantial change” varies on a case-by-case basis. For franchise organizations, this is a good time to make sure operators understand it’s a restaurant-level issue more than it’s a corporate one.
CNBC added that small tweaks, like adding an extra hour to an employees’ shift or moving them to a different part of the facility (say, from drive thru to cashier) wouldn’t count toward unsuitable work conditions.
The publication noted that it remains unclear whether tipped workers who come back to work with the same base pay but receive far less in tips will be able to argue that their pay has been cut. It’s likely servers will take some hit, just given the 25 or 50 percent dining-room restrictions. While people might be apt to tip more these days, it will be hard to cover the foot-traffic loss.
If an employee’s direct wages plus their earned tips add up to less than the federal minimum wage or the minimum wage in their state, employers are required to make up the difference. That point really can’t be understated in the COVID-19 recovery period for full-service operators.
The CARES Act’s Pandemic Unemployment Assistance program, or PUA, expands the scope of workers who can receive benefits, including those unable or unavailable to work because of certain health or economic consequences of COVID-19. In this case, it doesn’t matter if the workplace is open.
Employees can qualify for PUA if they’ve been diagnosed with coronavirus, told by a health official to quarantine, are providing care to a sick householder member, or need to take care of a child at home while school or childcare facilities are closed. The same goes for anybody with an underlying medical condition that prevents them from working.
Evermore told CNBC that employees no longer eligible to receive traditional unemployment (for whatever reason) and have qualifying conditions can instead qualify for PUA. They would receive state unemployment aid for up to 39 weeks and an additional $600 per week until July 31.
In sum, restaurants really need to look at recalling employees as something other than a numbers game. Every case is going to be different. And every restaurant must stay up to speed on federal and state reopening guidelines to guard against what might come next.
Beyond just trying to get back to speed, these measures are critical for turning PPP loans into actual grants, too. Restaurants need to show they spent 75 percent of the loan on labor costs to get it forgiven and rehire staff to previous COVID-19 or higher levels by late June.
Important to note, in early May, the government clarified that employers will not be penalized regarding PPP loan forgiveness if they offer employees their jobs back at the same rate of pay (up to $100,000) and for the same number of base hours if the employees refuses to return, says Rania Sedhom, managing partner of the Sedhom Law Group. Employees who prefer to stay home with enhanced unemployment benefits may forfeit those benefits for refusing to return to work.
But a question that could loom, she adds: “What happens on July 1, 2020, when retailers exhaust their PPP loans and companies are still closed for business?”
Part of this employee conversation, unfortunately, must also consider the fact a lot of restaurant workers are still not even receiving unemployment benefits they applied for and might be more apt to return to full-time, or part-time, jobs. One Fair Wage said in an email to QSR Thursday only around 56 percent of applicants are receiving benefits, meaning about 44 percent were denied or still waiting.
“Denials are, in fact, happening to many restaurant workers, because their subminimum tipped wages are so low they sometimes don’t meet the earnings thresholds in their states, even if they work full-time,” the company said. “Others are receiving much less than they deserve because their tips are not included but ‘estimated’ up to the bare minimum wage.”
“What no one is talking about is the disastrous state unemployment insurance systems that are the only way for Americans to apply for benefits, and according to the same government data, are plainly failing,” One Fair Wage president Saru Jayaraman said in a statement. “Using data from the Bureau of Labor Statistics, we estimate that more than half of states have processed and paid less than 60 percent of total submitted unemployment claims. For 12 states, less than 50 percent of initial claim applications are receiving benefits. And we know that the situation is even worse for low-wage and tipped service workers, who have earned a subminimum wage and in some cases cash tips. These workers are often being told they didn’t earn enough to qualify for unemployment, even when they’ve worked full-time, and are rejected at higher rates.”
“Unemployment insurance is a broken system—it is processed through state systems that are using antiquated technology and were designed to deny claimants as a way to disincentivize people from accessing benefits, rather than accepting jobs with low wages,” she added. “Propping it up will not work.” More on that topic here.
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What some restaurants are doing
Black Box’s survey found that most restaurants expect to re-hire or bring back employees from furlough at the same base wages and salaries they had before.
Additionally, close to half said they are adjusting their bonus criteria or performance goals in response to COVID-19.
Some of the most common safety practices taken so far include requiring all employees to wear masks and gloves, adding Plexiglas shields to customer-facing stations, like host/hostess stands and counters, taking temperature of employees, removing tables, and providing hand sanitizer throughout the restaurants.
A few have also noted they plan to stop taking cash and might even discontinue the use of physical credit cards in favor of mobile payment.
The sales picture, and if reopenings are helping
Black Box’s latest financial trend insight discovered the number of restaurants reopening dining rooms has steadily increased in recent days. As of May 9, on average, almost 30 percent of the restaurants operated by companies in Black Box’s Recovery Sales Flash survey reopened their dining rooms to some capacity.
The impact has been meaningful. Over the last week, the difference between comp sales for full-service restaurants that have dining rooms open in some capacity and overall same-store sales for sit-down chains ranged between 8 and 15 percent.
Dine-in sales still represent a small percentage of the total, however. During the last week, dine-in business represented an average of 11 percent of total limited-service sales and 13 percent of full-service mix. It remains a dramatic shift for the latter, which tended to see roughly 86–88 percent of its sales coming through dine-in over the last year (before COVID-19).
Comps sales for the industry were negative 45 percent during the week ending May 3—a 2.5 percentage point improvement week-over-week and the best result since the period that ended March 15.
Black Box also spotlighted Texas results, which allowed its dining rooms to open May 1. The following analysis includes the first three days (Friday, Saturday, and Sunday) of that week.
While casual-dining’s year-over-year dine-in comp sales in Texas improved by nearly 11 percentage points compared with the previous week, the improvement for fast casual and quick service was lower at 3.4 percent. Texas’ to-go comps declined compared with previous weeks. After averaging 142 percent, year-over-year growth for the last two weeks, it slowed to 123 percent.
Still down by more than 80 percent, year-over-year, in Texas, beverage sales growth improved by 9 percentage points compared with the previous week for casual dining. Upscale casual improved beverage by 3 percentage points and fine dining jumped an industry best 14 percentage points.
Breakfast and lunch were the only two dayparts that improved their comps compared with the previous week in Texas. Lunch made the biggest gain at 5 percentage points.
However, the rest (mid-afternoon, dinner, and late night) actually saw their year-over-year numbers worse. This suggests guests might be favoring their local independents for these occasions as dining rooms reopen, Black Box said.
