Fair tips, fair pay? Not in a recession

Restaurants say 45,000 jobs are at risk if waiters' pay law is changed

The restaurant industry is warning that 45,000 jobs could be cut unless the Government delays plans to outlaw the use of tips to "top up" below-minimum wages.

After The Independent's "fair tips, fair pay" campaign, ministers pledged last July to stop restaurants from using tips and service charges to bring pitiful wages up to the £5.73-an-hour legal minimum. This campaign uncovered evidence that some workers were paid as little as £3 an hour. Some of the restaurant groups are owned by wealthy private equity firms and they were accused yesterday of using the recession as an excuse to stave off paying their employees fairly.

The hospitality industry warned the Government that 45,000 jobs will be at risk if "topping up" is made illegal. The new rule was due to take effect this October but the industry is lobbying for a delay. Some insiders blame its campaign on private equity firms who rely on restaurants to maintain their cash flow.

While many restaurant groups have dragged their feet on changing their tipping policy, their parent companies have reaped handsome rewards. Tragus Group, which controls the Cafe Rouge, Bella Italia and Strada chains, and is one of Britain's largest restaurant operators, is understood to be lobbying the Government for a delay of several years before implementing the new policy.

The company is 81 per cent-owned by the American private equity giant Blackstone and recorded a 56 per cent rise on its pre-tax profits last year to £44m on earnings of £248m. It confirmed last year that it dips into the gratuities earned by its staff to bring their earning up to the minimum wage.

Tragus paid one of its directors £325,000 last year – a 128 per cent increase on the previous year. Stephen Schwarzman, the chief executive of Blackstone, last year received a remuneration package including stock and shares worth $729m (£689m). The average salary in Tragus restaurants was £10,855 a year.

Gondola Group, which is owned by the private equity company Cinven and controls chains including Pizza Express, ASK and Zizzi, reported a 7 per cent rise in pre-tax profits to £103m last year.

The Independent revealed that staff at Zizzi and ASK restaurants had used those tips left on credit cards to make up their earnings to the minimum wage, while Pizza Express workers received the gratuities on top of their earnings subject to an 8 per cent deduction for "administration costs". Both practices are perfectly legal at the moment.

Gondola, whose parent company controls assets worth £35bn including Bupa private hospitals, paid its six directors a total of £972,000 last year, with the best-remunerated receiving £311,000. The average salary for one of its restaurant's staff was £12,800.

Pat McFadden, the Employment minister, said yesterday: "We believe that customers expect tips to go to staff in addition to the minimum wage – not to be used to take them up to the minimum wage.

"That is basic fairness for workers we rely on every day. This is a change we are going to make." But he said no decision had been made on the timing.

The British Hospitality Association (BHA) which represents the hotel, catering and leisure industry, has asked Lord Mandelson's Business Department to delay the implementation of the rules until April 2010.

Bob Cotton, its chief executive, said that would give restaurants time to prepare and reduce the prospects of job cuts. "Turnover is down by 10 to 15 per cent in the recession," he said. "About 35 per cent of costs are labour costs. The first priority is to keep people in work."

He insisted the BHA supported the Government's move, saying private equity firms owned only two or three out of 50 restaurant chains and were "not driving" the industry's campaign.

Last night, MPs and trade unions said the private equity owners of restaurants should not use the recession as an excuse to exploit low-paid staff. They urged the Government not to delay the new rules.

The Labour MP Michael Connarty, whose Commons motion backing The Independent's campaign was signed by 95 MPs, said: "Companies like private equity firms, that are in it for big bucks and taking out disproportionately large amounts of money, have to be told this is about fairness. It is offensive to the public at this time if the lowest-paid workers are prevented from getting out of poverty when people at the top of these companies are trousering large amounts of money."

Len McCluskey, the assistant general secretary of the Unite union, said: "Everyone, except greedy bosses, believes that tips and service charges belong to the hard-working staff. There is no justification for the British Hospitality Association to attempt to defend this loophole. A tip is a reward for good service and it should go directly to the people who earned it."

He added: "This sector has so far failed to demonstrate its commitment to a fair and transparent tipping system. We cannot continue to allow them to abuse customer generosity."