We, the undersigned investors, are writing to express our concern about Brinker Restaurants, Darden, Disney Restaurants, DINE, and Denny's continued refusal to raise wages for tipped workers despite the well-documented material risks associated with paying a subminimum wage. Despite these companies’ nationwide inaction, the issue of paying restaurant workers the full minimum wage has proven widely popular at the state level in recent years – the number of states requiring the full minimum wage for these workers has doubled from four states in 2020 to eight states in 2024. 

In recent years, the issue of paying restaurant workers the full minimum wage has continued to pass legislatively at the state level. Each of these restaurant groups currently pays a full minimum wage in one or more of the eight states where it is mandated, indicating the payment of a full minimum wage is feasible. As voters continue to support ending the subminimum wage via state-level amendments and local referendums, it is not a matter of if, but when companies will be required to comply. As investors, we believe it is time for the named companies to pay all tipped employees the full minimum wage, plus tips.   

Frozen at $2.13 per hour for the past 34 years, a tipped, subminimum wage worker can be paid as little as $4,430 per year for full-time work. Generally, these low wages directly impact workers and can create material risks to restaurants as they struggle to find enough cooks, cleaners, and waiters. As recently as last month, the U.S. Chamber of Commerce found that “Jobs that are fully in-person and have lower wages tend to have a more difficult time retaining workers, a trend that accelerated during the pandemic. For example, the leisure and hospitality industry has experienced the highest quit rates of all industries, with the accommodation and food services subsector of this industry experiencing a quit rate consistently around or above 4 percent since July 2022. Meanwhile, the number of employees quitting has been lower in more stable, higher-paying industries, such as financial [services] and manufacturing.”

Further, paying a subminimum wage has a disproportionate impact on women, who are overrepresented in the tipped worker sector, where over 70% of tipped workers are women and 36% are mothers. These two factors, of more women being paid lower wages in an environment where the customer determines wages through tips versus a fair hourly wage, contribute to a risky environment where sexual harassment is experienced at significantly higher rates than in any other industry. 2021 research from Penn State empirically linked tipping to instances of sexual harassment. The largest share of tipped workers comes from the restaurant industry, which is also the single largest source of sexual harassment charges filed by women, with a rate five times higher than any other industry. This is not just a bad labor practice, it is also a legal risk for these companies. And the risk isn’t potential – it is real. 

• In 2023, Brinker settled a sexual harassment lawsuit with the EEOC involving teenage employees.  

• In 2021, Darden was sued by One Fair Wage, claiming “Darden's pay policies violate civil rights laws that prohibit sexual harassment, gender bias, and racial discrimination in the workplace. According to One Fair Wage’s legal team, Darden has spent years filing motions to dismiss lawsuits on four different procedural grounds without answering the ultimate question of whether its policies violate Title VII.  OFW has successfully defeated motions on three of those four grounds; the 4th is on appeal to the U.S. Court of Appeals in the 9th Circuit and will be ruled in the fall of 2025.

• In 2019, IHOP (DINE Brands) settled a sexual harassment suit with the EEOC for over $1 million.

• Between 2010 and 2018, more than 60 women filed complaints against IHOP and Applebee’s (DINE brands), prompting the EEOC to file a class action suit.

In addition to gender-based discrimination, subminimum wages and tipping in particular foster a power imbalance for Black, Indigenous, and People of Color (BIPOC) employees. Tipping upholds systemic racism by disproportionately paying people of color less than white employees. Tipping is a legacy of slavery that emerged during the era following Emancipation to exploit recently freed people, particularly Black women. As such, racial inequities continue to be rampant throughout the tipped service sector, particularly in restaurants, which claim the largest share of tipped workers paid the subminimum wage. Today, 41% of all tipped workers are people of color. Despite people of color being overrepresented in tipped front-of-house restaurant positions, Black tipped workers receive less in tips than their white counterparts, with Black women earning just 60% of what white men earn who work in the same positions. Given these disparities, paying a subminimum wage may directly contradict a corporation’s anti-discrimination policies and increase the risk of employee discrimination claims.

• In 2022, Denny’s settled a $45,000 lawsuit alleging that a restaurant manager subjected an employee to a hostile work environment based on their national origin.

• The lawsuit filed by One Fair Wage against Darden Restaurants in 2021 alleges that the company's tipping policy results in employees of color reportedly receiving less in tips than their white counterparts, ​and workers, particularly women, are being increasingly exposed to sexual harassment from customers.

In the past, parent companies have claimed they are not responsible for wages set by the franchise owners. However, this reasoning implies the parent company would not be impacted by a franchisee's actions. We assert that these lawsuits subject the parent companies to significant reputation and financial risk as the franchise settles and spends money on legal fees. These named parent companies are liable (or hold responsibility to investors) for the actions of the franchisees. 

In addition to the outlined company-specific risks, poverty wages pose a systemic risk to portfolios. Based on a 2024 report from Shareholder Commons, “Closing the living wage gap worldwide could generate as much as an additional USD $4.56 trillion every year through increased productivity and spending, which equates to a more than 4 percent increase in annual GDP. Inadequate pay thus materially reduces the intrinsic value of the global economy, which in turn affects investment portfolios.” As investors concerned with companies' material and reputational risks and the systemic risk of subminimum wages, we ask that you pay all your tipped workers a full minimum wage in 2025 to lead the industry in this matter.