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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Nov 20, 2012 5:11PM

For those who think Obamacare is such a good idea, don't whine to the rest of us when you notice the cost of many of the services we all take for granted will go ahead (regardless of whether it is overtly stated as a fee or hidden in the total bill).

Nov 20, 2012 5:17PM
There ain't no such thing as a free lunch.  Sorry, the devil made me say it.
Nov 20, 2012 6:17PM

Prince of Darkness:


Your an idiot. As you boycott, the restaurant owner just cuts staff or cuts hours due to lost revenues. Either way, the only one that loses is the poor employee because of you asinine boycott initiative. Why would you even suggest something like that. Go take some business and marketing courses and maybe you will understand how the marketplace actually works. 

Nov 20, 2012 7:17PM
More people will be forced into part time - More will be layed off so the companies drop below the 50 employee cutoff - More people will lose their jobs as corporations simply move jobs overseas - More people will pay more for food and other services because companies will pass on costs to consumers - Idiots - Can't see more than what you desire !
Nov 20, 2012 6:12PM
LOL....   The same people that are for Obamacare are some of the worst tippers.

Do what I have done in my business, EXIT the insurance business.  Don't provide any coverage.  Let these people buy it on their own.  Of course you will have to raise prices just to pay the tax, but it is well worth getting out of the business.

Insurance and pensions came into being during WWI because Wilson froze pay (illegally).  Employers offered these because they could not increase pay.  Just another cause and effect caused by a democrat policy.

Once people find out how much this is going to cost they will be up in arms.  

I am looking forward to the chaos and people being really made that not only will they be forced to buy insurance, but they will also have to pay for others.

I figure for the fine of $2000 alone, the price of a meal will have to go up half a buck.   Tips probably must be in the 35% range for the poor worker to cover the cost of their new insurance.

So if you are not one of the fortunate people that contributed heavily to Obama and received the exemption from Obamacare, then you probable should drop all healthcare options for employees.
Nov 21, 2012 8:31AM

I would be interested to know how many supporters of Obamacare (as a percentage) have ever or currently own and run a business.

     It is not just the health care cost increase. Add up workmans comp.,osha costs, unemployment insurance, etal.   It is cumulative. It is very difficult to pay all these costs and survive even in a good economy, much less a weak one.

    Regardless of how you cut it, these costs will be paid by someone and in addition to all the other imposed costs will have a negative impact borne by someone.


That is reality.   Philosophy does not trump math.

Nov 20, 2012 7:14PM
Many of the good doctors have plans on leaving the health insurance fields altogether since they are forced into 27% paycuts under obama health tax. That will leave many with nothing but waiting in long lines for the quacks that are left - what kind of health care system is that? Now only the rich will receive quality health care - Idiots - Can't see beyond their own desires !
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.
Nov 20, 2012 5:54PM
@ PRINCE     You dont eat at any of them anyway so whats it matter to you. And its a shame if someone has a differnt opinion then you then you want blood or revenge. will this is still the usa and we can agree to disagree unless something has changed
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 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 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 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 20, 2012 9:29PM
Did you know that in some right to work states, restaurants and other places where customers normally pay a tip; that establishment does not have to pay minimum wage.  The owner only has to pay about $2 an hour.  Slave labor don't you think?   
Nov 20, 2012 11:07PM

A lot of restaurants many places pay low wage scales, not necessarily by State, Casinoes the same thing...Several places make it up the differance in tips or are suppose to; (?) I'm not going to boycott anyplace for 50 cents more a meal or 10 cents a drink....

If some of the friggin owners are azzholes, then maybe many of these kids or others trying to make a living feeding their kids could try something else?

Remember don't be a cheap bastard, and leave a tip, if you get  good service! You will probably be treated better... 

The one thing that grinds me is the tips are supposed to be claimed as wages&taxed...How the hell does that work.....?   But a 100 million offshore..skates.

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 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 :)

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