Why restaurants freak out over Obamacare

Papa John's, Denny's and others are as worried about employee pay as health insurance.

By Jason Notte Nov 20, 2012 4:04PM

Impatient waitress waiting to take order copyright Brand X Pictures, Brand X Pictures, Getty ImagesSince President Barack Obama was re-elected earlier this month, the harshest criticism of his Affordable Care Act and most pointed threats about its implementation have come from the Papa John's pizza chain, the Jimmy John's family of sandwich shops, and franchisees for Applebee's and Denny's restaurants.

Why are chain restaurants so disproportionately disturbed by "Obamacare?"

The standard answer is that it's going to eat into restaurant franchises' bottom line. The Affordable Care Act's casual food critics have taken a highlighter to the law's stipulation that businesses with 50 or more full-time-equivalent employees that do not provide health insurance coverage must pay a penalty of $2,000 per full-time employee in excess of 30 full-time employees. There's a bit more to it than that, but why clutter up a perfectly good rant?

Papa John's (PZZA) founder and chief executive John Schnatter proclaimed immediately after the election that his franchise owners may have to raise prices and cut worker hours to adhere to the rule. Almost a month earlier, Jimmy John's sandwich shops founder and chief Jimmy John Liautaud said he would cut employee work weeks "down to 28 hours" in order to meet the law's requirements. Both men openly supported Obama's opponent, Mitt Romney, during the election.

Since Obama's re-election, though, restaurant opposition to his health care plan hasn't been nearly as top-down. Zane Tankel, who owns 40 Applebee's franchises in the New York metropolitan area, said he would freeze hiring and cut worker hours because of the Affordable Care Act. Applebee's parent company, DineEquity (DIN), issued a statement almost immediately asserting that "It's certainly our hope that our guests recognize and realize that Mr. Tankel's views are not representative of the broader Applebee's brand."

John Metz, who owns 30 Denny's (DENN) locations in Florida, proposed tacking on a 5% Obamacare fee to each bill and told Huffington Post, "Customers have two choices: They can either pay it and tip 15 or 20%, or if they really feel so inclined, they can reduce the amount of tip they give to the server." That didn't sit well with Denny's chief executive John Miller, who scolded Metz into an apology on Monday for putting Grand Slam Breakfast-sized words into the company's mouth as Denny's managers in Florida dealt with falling sales and angry customer phone calls.

All of this wailing over employee numbers and hours obscures the aspect of the Affordable Care Act that may be concerning chain and franchise owners most. Under the new law, health insurance premiums charged by employers to employees can't exceed 9.5% of an employee's household income. The largest franchise group in the world, the International Franchise Association, issued a report stating that as many as 38% of employers may be at risk of violating that particular provision.

The group estimates that the act will add $6.4 billion in costs to franchise businesses. Based on feedback from International Franchise Association members, the report estimates that both the employer responsibility and employee pay provisions could cost about 3.2 million full-time franchise workers their jobs.

But hidden in that report is some language that speaks right to the core of this issue for restaurant franchises. The report found that in 2010, 50% of restaurant employees worked part-time "i.e. under 35 hours per week." Under the Affordable Care Act, once an employee puts in 30 or more hours a week, he or she is "full-time equivalent." That means they'd have to be insured as a full timer or, at the very least, paid like a full-timer to offset the cost of buying insurance.

If customers jonesing for an appetizer special, a cup of melted garlic butter for their crust or a big pile of all-day breakfast wonder if the new health care law is really going to hurt restaurant franchises -- or if surcharges really help -- Slate's Matthew Yglesias has pointed to San Francisco as an example. The city passed universal health care legislation that meant increased costs for employees in the restaurant industry. Restaurants tacked on surcharges, but much of that money just ended up in the pockets of business owners.

That isn't going to be news to anyone who reads a site with the word "Money" in its name. Shipping fees, baggage fees, ATM transaction fees and myriad other fees are revenue creators and an accepted -- if often grumbled-about -- part of the consumer experience. Restaurants' threatened Obamacare surcharges may or may not be tied to actual, associated costs of the new health care program, but as AdAge pointed out last week, they could give confused consumers some idea of what the money on their bill is buying besides hastily assembled sandwiches and cheap french toast.

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Dec 1, 2012 5:57PM
My company, Squeeze In, was way ahead of this curve by offering all qualifying employees 75% premium paid health insurance back in 2009. Why? Because it's the right thing to do, it has made our associates happier and literally STOPPED attrition. Happy employees make happy food and serve happy, loyal guests. Worked for us. Misty Young, The Restaurant Lady
Nov 26, 2012 2:42PM

Have you ever been served your food by someone you can tell is sick and didn't go to the doctor because he / she couldn't afford a basic doctor's visit? 



Nov 24, 2012 8:40PM

Another step towards Socialized Medicine....The next step is to force everybody to get health Insurance and keep your job. Taking all employers of the hook. ON INSURANCE - NO JOB......Employers will drop all paid Insurance plans and opt for the personally paid plan that each individual person if forced to get. So on your next JOB interview you will be asked for SS card ID and Proof of Insurance .This turns the tables on the individual and out of pocket expenses. GET READY....THIS IS SOCIALIZED MEDICINE 1.0

Nov 24, 2012 12:47PM

Just keep the food stamps and obummer phone coming.  I didn't want to work that many hours anyway.

Nov 24, 2012 10:36AM
won't be going to any of the above mentioned chains. I always try to spend my money at non chain restaurants.

Nov 21, 2012 3:35PM

Maybe we should take a page from these businese owners and tack on a surcharge to our wages every time our gas prices go up, our food prices go up, our insurance premiums go up, our bank fees go up....


Sorry for the sarcasm, but I'm sick of this class of people that think that they are entitled to a certain after tax lifestyle while the rest of us have to live with increased costs.

Nov 21, 2012 3:18PM

Red Badge of Courage
Even in the face of an overwhelming defeat, Republicans still refuse to accept reality.
What happened to the good ole days when after your opponent was soundly trounced, they would disappear from the spotlight in shame or admit they were wrong, shake hands and apologize?
Instead they're louder and prouder than ever, still insisting that what everyone witnessed was fake or manipulated. That somehow they were robbed of their birth right instead of fessing up and admitting the only plan they had was just more of the same (stealing from the poor to continue feeding the rich).


These are not the actions of an honorable people. These are not the actions of American citizens.

Nov 21, 2012 2:54PM

my boss is big democrat liberal! luckily sales haven't been as bad as most and instead of giving

us our usual bonus cause we don't get regular raises she CUT OUR BONUS TO BUILD A NEW

STORE SHE DIDN'T NEED AT THIS TIME! and she's spent millions on her million dollar summer

house and bought her sons who don't work 2 million dollar houses! i had my only asst let go saying

it's cause work was slow but my dept is the busiest in the company! and now she ranted and raved

about Obama being re-elected and she's cutting our health insurance when Obamacare kicks in!

it's funny the left wing liberals are always talking about the right but it's the 1% liberals who dont' practice what they preach and most a rich and want to keep their money and let big govt take over

so they can get bailouts and payoffs but then make the hard working taxpayer pick up the tab!

after 20 years i got NOTHING from this bitch or vice president not even a thank you!

but i still don't want big govt Obama liberal agenda taking over america and our freedom!

Nov 21, 2012 2:49PM

OhBummer wins again... more costs and regulations slowing down business and the economy.


You vote for it.. you own it.

Nov 21, 2012 1:40PM

Tp provide better life and security to workers is always a good idea. It is good idea for me to have once a week a dinner at decent steak house or seafood place. But that dinner is not in my budget.


So question remains. Ultimately is Obama care extra expense comes from cost savings or just and add on expenses that will benefir healthcare industry that will increase its share of national GDP and get fat while total helath care expenditure will go up.


Also Obama care did not provide for extra doctors, nurses and pharmacist that will be needed. I suggest we import 25000 doctors, 25000 pharmacist and 100,000 nurses from semi developed countries who can produce them much chealer than we can,


I also suggest we produce more health care consultants, judges, lawyers, facilitators to manage issues arising from 2200 page long law. And there is issues of those who will stay uninsured either they cannot fgure it our or just not into information age and are cluless but will end up at emergency room and are beyond the ability to be explained. And there is doctors liability inurance that is not reformed. There is also how much insuraqnce companies will charge in premiums, co-pays and deductibles.


Presently average AMerican citizens are stumped by complexity of life at every state and have to deal with savvy proffessionals who are running lose ot exploit. This is from cable, gas, electricity, phones, cables and variety of cybertech services.


Welcome to Huxleys Brave New World with missing all beautiful and helathy people only.

Nov 21, 2012 1:34PM

Here is a possibility not figured into the math. Better benefits, more coveted jobs, less turnover, more employee loyalty,

less training costs, better service and product, more return business. Not a fact of course, just a thought.

Nov 21, 2012 1:20PM

Remember, if one does it they all do it. They compete with each other and the rest of the country. The only ones who have a step to complain are the ones who directly compete with imports or with the export trade.

Nov 21, 2012 12:46PM
I am having a good week.   Today I dumped two democrats I did business with.  One a customer, and one a supplier.    I told the customer that he had two choices to pay a huge  increase in price, which I attributed to Obamacare, or take his business elsewhere.  His response was he would, and that if he paid my price, he would have to layoff a lot of people.  I said good bye...  Today he called back, and wanted to negotiate the price, I laughed and said take it or leave it...

The supplier said cancelling my purchases would probably put him out  of business.  I told him I was going to buy from Mexico, as I had to slash my costs to cover expected tax increases.  I enjoyed hearing that from a democrat, stone silence on the other end of the phone.  I remarked that I probably would become a competitor of his selling the imported products.

I hope other Republican business conduct their  affairs with democrats the same way.   These people are our enemies and we need to treat them as such...
Nov 21, 2012 12:41PM
Close 'em all down. In the next decade, that will reduce me to being inside any of the chains mentioned as many times as in the past decade.
Nov 21, 2012 12:07PM

What, losing restauants, prices going up for fast food; here in Houston a 50% reduction will still leave 2 in every shopping center all over the city where tacos off a truck are will still be the best tasting food in town :)

Nov 21, 2012 10:54AM
so restaurant owners pitch fit over obama care, perhaps raising prices $0.15 a plate.  MEANWHILE the prices have been jacked up like crazy for rising energy costs, city-state-local sales taxes, the prices of food, grain, beef, etc, BUT it's obama care that warrants the major complaint? 
Nov 21, 2012 10:45AM
Tax them, over regulate them, and tax them again.  Why OH why do they close their doors and move overseas?? 
Nov 21, 2012 10:41AM

To keep hammering on It's Obumpa's fault is a waste of time..

Unless you want to go back and discuss why a LOT of small business' went broke and are closed...

THAT HAPPENED, because of a MAJOR DOWNTURN in 2007-2008....

So let's MOVE ON....

Being in business is tough, there are a lot of unforseen expenses and pitfalls..

That's why you need a good business plan or model, and should have access to capital...

The lack of access to Capital is a reason for most failures in the 1-5 year range..

Failures within the 1-2 year range never had a plan....Just a dream.

We made it for 20 years in a small commercial business, until the owner(my wife) retired 2 years after I did... It was tough early on, because of under-capitalization...If I had not kept my job, we would have been gone...After the first 3-5 years things got better and all expenses were covered and there was some breathing room...It's is hard work, most don't make it...So make a good plan and have a little money to back you up...Health Insurance...Is just another EXPENSE.

Nov 21, 2012 9:16AM
The bottom line is still restaurants are in business to make a profit, not to please or provide everything for their employees. Save money and eat at home; you're probably going to need the extra money anyway.
Nov 21, 2012 8:53AM
Businesses need to make this as painful as possible. The idiots that voted for Obo need to understand their actions have consequences.
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