Denny's Shareholders Revolt After Top Exec Concedes $15 Minimum Wage Won't Hurt Business

Citing a Newsweek report, Denny's shareholders are demanding that the restaurant chain end its membership in the National Restaurant Association, halt all lobbying efforts against legislation to eliminate a subminimum wage for tipped workers, and start paying all its workers at least a full minimum wage.

In a letter sent to Denny's CEO John Miller, shareholders wrote that the Association's lobbying campaign against legislation to end the subminimum wage for tipped workers runs contrary to the interests of the company's investors, citing reporting in Newsweek that gradual increases in the minimum wage have not hurt the company. On an earnings call in February, Newsweek reported, Denny's Chief Financial Officer Robert Verostek told investors that the California law raising the minimum wage to $15 by 2023 has actually been good for the diner chain's business.

"As they've increased their minimum wage kind of in a tempered pace over that time frame, if you look at that time frame from us, California has outperformed the system," Verostek said. "Over that time frame, they had six consecutive years of positive guest traffic—not just positive sales, but positive guest traffic—as the minimum wage was going up."

A day before that earnings call, the National Restaurant Association sent a letter to congressional leaders arguing that the federal Raise the Wage Act—which would raise the national minimum wage to $15 an hour by 2025 and eliminate the subminimum wage for tipped workers—is "the wrong bill at the wrong time for our nation's restaurants." The letter added: "The restaurant industry and our workforce will suffer from a fast-tracked wage increase and elimination of the tip credit."

The federal minimum wage is currently $7.25, while the subminimum wage for tipped workers is $2.13. Democrats considered including the Raise the Wage Act in President Joe Biden's American Rescue Plan, the COVID-19 relief bill passed in March. While Democrats ultimately axed the minimum wage hike, the final legislation created a $28.6 billion grant fund specifically for restaurants, designed to cover their entire pandemic-related revenue loss up to $10 million per company and $5 million per physical location.

"Counter to the best interests of shareholders"

In their letter to CEO Miller, Denny's investors wrote: "Given that California has 'outperformed the system' for Denny's because of 'positive guest traffic,' lobbying against the same kind of policies that California has already enacted is counter to the best interests of shareholders."

The letter noted that Denny's restaurant sales growth has been higher in states like California, Minnesota, Oregon and Washington, where businesses are required to pay a full minimum wage to tipped employees, unlike the 43 states that allow restaurants to pay lower wages to workers who rely on tips.

Suggesting that a higher minimum wage encourages increased consumer spending, the letter also noted that during the pandemic, the five states with the greatest amount of restaurant closures all allowed a subminimum wage for tipped workers.

The letter was signed by corporate social responsibility organizations including the Interfaith Center on Corporate Responsibility, As You Sow, Robert F. Kennedy Human Rights, and Adasina Social Capital, representing dozens of investors.

The organizations planned to ask Denny's management about their demands during Tuesday's earnings call, but were not called on during the question-and-answer portion of the call.

Instead, responding to a question about company margins after COVID staffing challenges, Verostek said that "in the short term, as we mentioned, there will be the cost of restaffing these units, getting them up to speed."

As far as a minimum wage hike, he said: "You have the administration talking about minimum wage increases... that we will be dealing with on a longer time frame."

Denny's did not respond to a request for comment.

The National Restaurant Association, a lobbying group representing restaurants across the country, has been one of the biggest opponents to legislation to increase the minimum wage to $15 an hour. The organization, which raised $289 million in 2018, spent $2.6 million on federal lobbying last year, including on lobbying against the Raise the Wage Act.

Denny's, like many major U.S. restaurant brands, has long been a member of the Association; last May, the lobbying group highlighted the diner chain's COVID-related safety protocols on its website. Denny's does not publicly disclose its political spending or its membership dues to trade associations like the National Restaurant Association. The group used to list its corporate members on its website, but does not appear to do so now.

When federal lawmakers were considering including a $15 minimum wage in the American Rescue Plan this winter, the NRA said in a letter to lawmakers that the policy would cause an undue burden on restaurants that had already been hit hard by the economic fallout from the pandemic. But during first quarter earnings calls, Denny's was one of several major restaurant chains that suggested to investors that increasing the minimum wage to $15 an hour wouldn't hurt business, and instead may actually help.

In their letter, the Denny's shareholders compared this duplicity to fossil fuel companies telling investors they are preparing for a low-carbon future while funding trade associations working to block climate-action legislation.

"We are writing to share our concern that Denny's is using a similar playbook; telling one story in private to investors about the benefits it has experienced in states that have increased minimum wage requirements, while funding the exact opposite with its support of the National Restaurant Association," said the investors.

Democratic Senators Joe Manchin and Kyrsten Sinema were selected to headline the NRA's annual lobbyist conference in April after the two helped Republicans keep a $15 minimum wage out of the American Rescue Plan. At that event, Manchin told attendees he didn't support a minimum wage above $11 an hour, and said he believed that the tipped minimum wage should be half that.

"From your lips to God's ears," responded Sean Kennedy, the Association's chief lobbyist.