Is it time to end tipping?

David Jones | BCBusiness
David Jones says his employees make more money, not less.

David Jones’s once tip-free restaurant on Vancouver Island has shone a spotlight on a business model that many of us take for granted

Editor’s note: On August 21, Smoke ‘N Water ended its no-tipping policy—after the story below had been sent to BCBusiness‘s printers. According to the restaurant’s website, “After three months of pioneering the No Tipping concept in Canada, we have chosen to listen to the majority of our local customers, who have expressed their desire to have a say on the quality of food and service they receive.” Owner David Jones said he still liked the idea and will revisit it at some point in the future. “The truth is we are two to five years ahead of the curve,” Jones told the Times Colonist. The issue is one we will likely be debating again in the years to come.

“The truth is we are two to five years ahead of the curve,” – See more at:
“The truth is we are two to five years ahead of the curve,” – See more at:

When David Jones moved from Southern California to Victoria in 2007, he had spent two decades in the not-for-profit sector, counselling prison inmates on rage control, developing workshops on healing past hurts and helping people in recovery. In his new hometown, he built on that experience and opened a Centre for Inspired Living and became its founding minister—and continued to run the successful enterprise for another eight years.

But 25 years of providing spiritual care and emotional support to others was taking its toll: Jones was burning out, and he knew it. He’d spent much of his teenage years running an organic café with his mother in California— baking bread in a hearth oven, serving farm-fresh veggies and wholesome food for their regulars—and he started to think that something similar could be the new career direction that he needed.

At the age of 53, he figured there had to be other ways for him to help people without destroying himself. “We didn’t have a lot of money,” he says, “but my mom nurtured our family with food. I knew that could be the basis of a business philosophy.”

He started scouring the classifieds, and in November 2013, found a turnkey lease on a restaurant inside the Pacific Shores resort in Parksville, B.C. (He’d vacationed there the previous August and was already familiar with the area.) But while he loved the resort, the restaurant’s location wasn’t ideal. “There are two kinds of restaurants you don’t want—one that’s connected to a hotel, and one that’s a destination restaurant,” says Jones. “It’s a beautiful location, a great view of the ocean, but signage is poor. As for the 150,000 tourists a month in the summer, we’re not getting them from driving by.”

Jones’s plan was to create a value-filled menu that would draw tourists and locals alike. “Coming from the Los Angeles area, I felt that 90 per cent of the restaurants I tried on Vancouver Island disappointed me in price, quality and quantity,” says Jones. “This was the opportunity to put my money where my mouth was.” But while dropping his daughter off at preschool one day, he heard a fateful interview on CBC radio that changed his plans: Bruce McAdams, a professor from the University of Guelph’s Hospitality and Tourism Management program, was chatting on CBC’s The Current about tipping culture and no-tip restaurants—describing a culture that resulted in great pay inequities between front and back of house. That system, he explained, was due for an overhaul.

The interview had planted a seed. Jones got home, Googled “no tipping Canada,” and discovered that he couldn’t bring up a single hit for a Canadian restaurant that followed that system. He knew he’d hit on something big: a concept that could both create some buzz for his new restaurant, Smoke ’N Water, while challenging an established system that might be in need of a big fix—the perfect fit for someone used to taking care of others for a living.

Restaurants Canada vice-president Mark von Schellwitz says tipping leads to better service.

The restaurant business is a $10.3-billion industry in B.C., according to industry association Restaurants Canada, employing more than 170,000 British Columbians. The typical pay model is almost universal: so long as the restaurant serves alcohol, wait staff is paid a basic server’s wage (currently $9 an hour in B.C., versus $10.25 standard minimum wage). The rest of their income is supplemented by the customer in the form of a tip on their bill—though they don’t keep all of it. If a customer tips 15 per cent, typically two to six per cent is “tipped out” to cooks, dishwashers, hostesses, and in about a third of restaurants, managers (though the latter has its controversy).

It’s a system that’s been a part of North American culture for as long as most of us can remember. The underlying assumption is that the incentive of a good tip will result in better customer service—and conversely, good service will encourage generous returning customers, padding the bottom line of restaurant and server alike.

But Bruce McAdams—the prof that inspired David Jones to rethink his business plan—believes that the tipping model is fraught with problems, the most significant for restaurateurs being the financial uncertainty it creates. “By allowing tipping, restaurant owners are giving away the decision on how 15 per cent of their revenue is distributed,” says McAdams from his home base in Guelph, Ontario. “If I’m going to spend $100 and I know I’m going to tip 15 per cent, then I’m willing to spend $115 on this product. We can’t find any other instances of industries where the consumer is allowed to determine where such a high percentage of revenue goes.”

And there are even bigger financial liabilities that a restaurant assumes when they choose to “tip-out” (or share) the waiters’ collected tips to the back of house as a means of making wages more equitable. “As soon as the restaurant takes any ownership of that money, it’s called a controlled tip,” McAdams explains. “They are legislated by the CRA to hold taxes on that money. If they’re audited, they’re responsible for that tax money. We found only a third of operators are doing that—and that’s a huge risk.”

Restaurants Canada, with 4,000 members in B.C., still argues in support of the current model. “I don’t think you’re going to be changing tipping culture,” says Mark von Schellwitz, the association’s Vancouver-based vice-president for Western Canada. “There are some very good reasons why it exists. Tipping encourages professionalism; it encourages wine and food and service knowledge. And many of our employees in the industry make a very good living. They’re motivated to take care of customers through gratuities.”

David Jones, meanwhile, argues that other service industries don’t seem to need the tip motivation to provide quality service. “What do I do if I go into a department store like the Bay and I don’t get good service?” he says. “I might speak with my feet and not walk back in, or I might say something to the manager. It’s their job to make sure you’re being properly serviced. But in the restaurants, if you don’t do a good job, the customer takes away from your salary.”

Of course, there’s an argument to be made that, unlike the service they expect from a bank teller or a department store clerk, diners expect restaurant staff to elevate their experience to something beyond the routine. “Customers are willing to pay gratuities well above average because they want to be treated special,” says von Schellwitz. “A good server is also a good sales person—someone who knows how to provide the guest with what they want at their particular price point. And career servers pride themselves in being able to deliver that.”

While he admits that great service may be a small motivator for a better tip, Bruce McAdams thinks the relationship between tipping and service isn’t as strong as we’d like to think. In 2012, McAdams and his research partner, Mike Massow, surveyed 50 restaurant owners about tipping culture. McAdams says the results show we’re creatures of habit—those of us who tip 15 per cent will almost always tip 15 per cent, whether or not the service was adequate. And, he adds, many servers often believe they can judge whether a table will tip well or not—and they compensate their service accordingly. “The business owners we interviewed all admitted that servers sometimes feel they’re going to get a good tip from a table of business people, and if there’s a single parent with two screaming kids, they may assume they’re not—and they’re not going to get as good service,” he says. “The owner is allowing the server to dictate who should get good service based on their income. Servers can become almost mercenary: they’re not working for the best interest of the organization; they’re working for their own best interest.”

At Smoke ’N Water, Jones will be charging slightly more for food (though not outrageously so for a resort—burgers run $16; nearby they range from $9 to $15), and paying an hourly wage along with a revenue-sharing plan that includes staff in both the front and back of house: 15 per cent of gross sales will be divvied up proportionately, based on amount of hours worked. (If someone does insist on leaving a tip, it will be donated to charity.) While it’s still early days in the business—he opened June 2—he figures the total compensation should work out to between $20 to $24 an hour for servers, with back-of-house (namely cooks and dishwashers) receiving between $16 and $18. Staff will also receive health benefits.

Jones says that servers have told him that, under the old model, they made less—around $16 an hour. But the real winners are the back-of-house staff, who earned around $10.50 an hour—and rarely benefitted from more than a small percentage of tips. “There’s typically a huge disparity between front and back of house,” says Jones. “If you knew somebody was making three times more than you’re making for doing about the same work, how would you feel as a human being? A social change needs to take place in the service industry in North America.”

MAP: How people tip around the world
Click here for the complete infographic >>

The new wage structure at Smoke ’N Water also falls within the Canadian Centre for Policy Alternatives’ definition of a living wage. In 2014 in the Qualicum/Parksville area, that’s calculated to be $17.42 per hour—for a family with two children and two parents who work full-time—which the CCPA argues provides a basic level of economic security. (In Metro Vancouver, it’s $20.10 per hour.) Minimum wage, as Iglika Ivanova, an economist and public interest researcher at the CCPA, points out, doesn’t come close to covering costs. “The miminum wage is $10.25, and if you work 40 hours a week for 50 weeks, that works out to $20,500 annually,” says Ivanova. “The poverty line—the low-income cutoff before tax for a large city like Vancouver—is just over $23,000.”

Ivanova doesn’t buy the idea that a tipping culture creates top-level service in most restaurants. “I come from Bulgaria,” she says. “We don’t do tipping—it’s just expected that the price of your meal includes something built in for proper wages of the staff, as prices do for any other service you purchase. When I first came to North America, people tried to explain that it’s about the quality of service—you can reward the server. But that’s not how it works. A lot of my friends who have been servers say they always tip now, regardless of service, because they know the base wages are so low.”

While David Jones is reportedly the first to attempt the new non-tipping restaurant model in Canada, he has a few predecessors south of the border. Alice Waters’s San Francisco restaurant, Chez Panisse, famously went tip-free nearly 20 years ago as a means of shifting the disparity in wages between front and back of house. That restaurant now charges a flat service fee of 17 per cent, which is divided among everyone on the team. In San Diego, Jay Porter’s The Linkery earned a name for itself for its strict anti-tipping policy, and Porter himself penned a few articles stating that service improved once he did away with tips in 2006. Sushi Yasuda followed suit in New York City in 2013, posting a note to customers that it would be following Japan’s customs and paying their servers a living wage.

In Athens, Ohio, the employee-owners of the Casa Nueva worker co-op restaurant decided they needed to rethink their system in September 2012, after the U.S. Department of Labor ruled that the restaurant’s practice of sharing tips with non-traditionally tipped employees (cooks, dishwashers, et cetera)—a practice that’s commonplace in Canada—was illegal. “Rather than make it inequitable between our employees, we stopped taking tips altogether,” says Grace Corbin, marketing coordinator for Casa Nueva. To compensate, they raised their prices about 20 per cent across the board; employees share a percentage of the gross sales based on the number of hours they’ve worked. It’s still a variable wage—if business is good, the staff’s income is up—but wages have become more predictable based on the restaurant’s ongoing success.

They had anticipated an outcry, but in the end it was almost a non-issue. “Some customers were confused, but we made information sheets, explaining the changes,” says Corbin, who also waits tables at the restaurant. “It took a little getting used to—but now it’s no big deal.”

Bruce McAdams says that if more restaurants were to move to a no-tip model, the very approach to service would change dramatically. “Our North American approach is the ‘Hi, I’m Bruce, I’m your waiter, I’m a good-looking college student and I’m trying to pay off my student loans, I’ll tell you about the daily features, I’m going to touch a shoulder and I’ll crouch at your table’—that’s how service has evolved in North America. It’s very personality-centred,” he explains. “There isn’t tipping in Italy, and the service is good, but different. The waiters don’t come over and introduce themselves—they’re there to get what you need when you need it.”

McAdams notes that it’s often those that come from outside the restaurant industry—Jay Porter from the Linkery, for instance, was a software engineer from Silicon Valley—who look at the current model and immediately see its flaws. David Jones’s background as a spiritual adviser seems to play a guiding role in his own decision to follow this new model. “It’s very denigrating to a human being to believe the only reason they’re going to provide good service is there might be a financial reward,” he says. “That’s just not treating a human being as a human being should be treated. I have a five-year-old and a 14-year-old. It just wouldn’t be OK to know there are other parents out there that are working for me, and they’re trying their hardest, and they don’t get to see their kids because they’re working long hours trying to earn a living.”

Jones believes it isn’t a matter of if but when more restaurants will shift to his model of tip-free service. “It’s coming,” he says. “All that’s happening is we’re going from the horse to the car.”