On September 14, 2023, the Committee on Workforce Development, a procedural committee under the Chicago City Council, voted in favor of the One Fair Wage Ordinance, legislation that would phase out tipped minimum wages within the City. Then, on October 6, 2023, the Chicago City Council approved the measure, marking the beginning of the end of the tipped minimum wage in Chicago. A copy of the Ordinance can be found here.  

Under federal, state, and Chicago law, employees that customarily receive tips can be paid an hourly rate below the minimum wage, known as the “sub-minimum wage” or “tipped minimum wage.” The employee earns the difference between this “sub” wage and the full minimum wage from customers’ tips. However, if an employee’s hourly wages with tips still fall short of the full minimum wage, the employer must pay the difference.

Chicago has one of the highest minimum wages in the country. The city’s minimum wage currently sits at $15.80 for large employers (21 or more employees) and $15 for small employers (4-20 employees). However, the tipped minimum wage is only $9.48 for large employers and $9 for small employers.

Under the One Fair Wage ordinance, the difference between the full minimum wage and the tipped minimum wage cannot exceed:

• 40 percent of the full minimum wage until July 1, 2024;
• 32 percent of the full minimum wage from July 1, 2024 until June 30, 2025;
• 24 percent of the full minimum wage from July 1, 2025 until June 30, 2026;
• 16 percent of the full minimum wage from July 1, 2026 until June 30, 2027; and
• 8 percent of the full minimum wage from July 1, 2027 until June 30, 2028.

Coming on July 1, 2024, this equates to an 8 percent annual decrease in the tip credit that employers can take.

Further, the amendment allows unionized restaurants with lower wages set forth in their existing collective bargaining agreements to maintain those lower rates. Likewise, tipped minimum wages may be agreed upon in future CBAs, provided that such agreements explicitly waive the employees’ rights under the ordinance in “clear and unambiguous terms.”

The Ordinance also includes a reporting requirement. Any employer who pays a covered employee the tipped minimum wage must provide the Department of Business Affairs and Consumer Protection substantial evidence establishing (1) the amount the employee received as gratuities during the relevant pay period, and (2) that no part of that amount was returned to the employer. Details of the substantial evidence required were not provided under the Ordinance.

Employers who violate the new ordinance will be subject to a fine between $500 and $1,000 for each offense. Significantly, each day a violation continues constitutes a separate offense, meaning penalties can escalate quickly.

Ultimately, it remains unclear what effect this change will have on the restaurant industry and other sectors that rely on tipped workers. While employees’ guaranteed pay will go up, it remains to be seen whether patrons will continue tipping at similar levels notwithstanding the change. Likewise, consumers will be on the lookout for potentially higher costs as restaurant owners will almost certainly pass the increased expenses along to consumers. Currently, Alaska, Los Angeles California, Minnesota, Nevada, Oregon, Washington State, Washington D.C., and Wisconsin have already passed legislation to eliminate sub-minimum wages. More cities and states will likely follow suit. According to reports, the founder of the One Fair Wage Movement, Sara Jayaraman, is turning her focus to Boston and New York City next.