Sep 29, 2016 - 10:30am

One-Two Punch: Minimum Wage Hike, Overtime Rule Drove This Restaurant Out of Business


Executive Director, Strategic Communications

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One year after its opening, federal and local regulations have forced Cantina 1910 out of business

Last September, Chicago entrepreneurs Mark Robertson and Mike Sullivan opened the doors to Cantina 1910 in the city’s Andersonville neighborhood, culminating two years of planning, recruiting and extensive construction. Complete with a rooftop farm and boasting one of the region’s rising stars on the culinary circuit, the owners’ ambitious farm-to-table restaurant offered traditional Mexican cuisine sourced from Midwestern ingredients. In fact, the majority of the ingredients used in the restaurant were sourced from small farms within 200 miles of the Windy City.

They were sourced.

One year later, Cantina 1910 has already been permanently shuttered, driven into the ground by a one-two punch from regulators at both the local and federal level.

“It is with heavy hearts that we announce the closing of Cantina 1910 and Café 1910 effective immediately,” the owners announced last month. “Unfortunately, the rapidly changing labor market for the hospitality industry has resulted in immediate, substantial increases in payroll expenses that we could not absorb through price increases.”

So what about the labor market changed so rapidly for Sullivan and Robertson?

First, Chicago’s City Council passed a minimum wage increase that will drive up the hourly minimum from the previous $8.25 to $13.00 by 2019. The latest phase took effect in July, pushing the minimum wage to $10.50 and nudging the restaurant’s labor costs toward unsustainable levels.

“In the last two years, we have seen a 27 percent increase in the base minimum wage, a 60 percent increase in kitchen wages, and a national shortage of skilled culinary workers,” the owners stated when explaining their decision to close the restaurant. And yet, that was only half the story.

As we look down the road, we are facing a December 1 change in federal labor regulations that will nearly double required salaries for managers to qualify as exempt.

Mark Robertson and Mike Sullivan, co-owners of Cantina 2019

Around the same time, Department of Labor regulators in the nation’s capital finalized a new “one-size-fits-all” overtime rule, which will more than double the salary limit under which employees qualify for overtime pay. If it takes effect as planned, the rule will raise costs substantially for employers in many industries, limit flexibility for thousands of American workers, and may leave other small businesses across the country in the same position as Cantina 1910 – with no viable future.

As Sullivan and Robertson said: “As we look down the road, we are facing a December 1 change in federal labor regulations that will nearly double required salaries for managers to qualify as exempt, a 2017 mandatory sick leave requirement and another minimum wage increase. Coupled with increasing Chicago and Cook County taxes and fees that disproportionately impact commercial properties and businesses, we are operating in an environment in which we do not see a path forward.”

The bottom line for the business partners: “We are unable to further raise prices in this competitive restaurant market in order to sustain the labor costs necessary to operate.”

What makes these entrepreneurs’ story all the more disheartening is that it isn’t the least bit surprising. Supporters of minimum wages increases say they’re fighting for low-wage workers, but what they routinely neglect to mention is that a wealth of research shows that low-wage employees are the ones who tend to be the most adversely affected when such ordinances are signed into law. 

Moreover, since minimum wage employees are more common at small businesses, it’s those small businesses – the ones we lean on to create most of the country’s net new jobs – that bear the brunt of mandatory pay increases like the one approved in the Windy City. 

It’s not that Chicago’s leaders didn’t know this would happen. The Chicago Federal Reserve issued a report in 2013, a year before the city approved the wage increase, that showed a large minimum wage hike would prompt businesses to leave town sooner than they might otherwise. Some would move in to take their place, the Fed predicted, but those newcomers would be intentionally less labor-intensive, resulting in a new loss of jobs for Chicago’s workers – further evidence of the inverse correlation between lifting the minimum wage and economic prosperity.

Meanwhile, the Department of Labor’s ill-advised actions pour salt in the wound. By doubling the salary limit for overtime pay, the department will decrease the number of employees who are exempt from overtime pay rules and by extension drive up costs for American businesses large and small. In this case, it’s a regulation that we have argued oversteps the agency’s constitutional authority.

We have heard from our members, small businesses, nonprofits, and other employers that the salary threshold is going to result in significant new labor costs and cause many disruptions in how work gets done.

Randal Johnson, U.S. Chamber

“The DOL went too far in the new overtime regulation,” Randy Johnson, U.S. Chamber senior vice president of Labor, Immigration, and Employee Benefits, said in announcing the Chamber’s lawsuit challenging the overtime rule. “We have heard from our members, small businesses, nonprofits, and other employers that the salary threshold is going to result in significant new labor costs and cause many disruptions in how work gets done.”

Right now, there’s a vacant building on the market that should instead  be filled with patrons and the aroma of homemade chorizo. There are dozens of workers who are out of job, who should instead be serving those patrons and preparing tomorrow’s ceviche. And there are two ambitious entrepreneurs who should be thinking about next month’s menu – and maybe their next restaurant – but who are instead trying to pick up the pieces after three years of work and investment just evaporated.

All because regulators – some nearby, others hundreds of miles away – approved cumbersome labor rules that hurt workers, threaten businesses, and further deflate an already sagging economy.

About the Author

About the Author

J.D. Harrison
Executive Director, Strategic Communications

J.D. Harrison is the Executive Director for Strategic Communications at the U.S. Chamber of Commerce.