Unionization Threatens US Restaurant Profits

shareholder at the firm. Uh. You know, thanks for your time, gentlemen. Thank you make great to be here. Alright. So, uh, with the US approval of labor unions now it's seventy one. I was just reading that it was the highest point since nineteen sixty five. We have a very union friendly administration. Uh, we're seeing unions unionization efforts increase across the country. You know, restaurants are low margin, uh, and their employe these have

historically fought back against unionization. They have not been a very easy group to organize. So why are they targeting targeting this industry so aggressively? Aggressively and and why are they targeting Starbucks and Chipotle, two companies you know that we cover that have a long history of treating their employees better than most of their peers. Well, there is a there is a very um significant uptick in n l RB union election filings across the country and across industries,

and that that includes restaurants. The in a in a well reported statistic, the n l r B M reported earlier this year that union election filings are up fifty seven percent over a six month period relative to the year prior. UM that statistic came out in March or

maybe April around then. I would think that I would think that that number is it has gone up a lot um and driven driven largely by restaurant industry UM in l RB elections that UM that that uptick, it's it's much more acute as in areas of the country like the South and the Rocky Mountain states and industries like restaurants that that historically have been more resistant to UH to unionization. UM. We think there's a number of factors that are driving this, that are driving this trend.

One UM the social justice demonstrations over over the past past two years around me Too and blm UM made more popular the notions of protests and challenging the status quo, particularly among among younger segments of the population UM that historically have comprised the bulk of UM restaurant the restaurant industry workforce. President biden Um campaigned in part on strengthening

organized labor. He has delivered on that promise UM in one way by appointing former former union officials to the top posts that run that run the n l R b UM. Yeah, and then there's then there's a lot a lot of it is driven by the pandemic UM and as we and as we emerged in where to have a post pandemic nation, So frontline workers who had to who had to had to show up to the workplace every day, feel feel undervalued. That's what they're That's

what they're reporting. At least as UM as they're higher paid office employees worked from home and and earned a lot more money while while working from the safety of their home during the pandemic. A lot of the frontline workers, including in restaurants, report that they that they have not benefited or shared in need in the country's economic economic success and growth over the past several years. UM and this is all all culminated in an effort that to

to make union organizing cool. UM their Time magazine recently named the Amazon labor union leaders Chris Smalls and and Derek Palmer to their one hundred most Influential People list of Also on that list are are our household name celebrities Mary J. Blige, Pete Davidson, UM Sarah Sarah, Jessica Parker, well known popular politicians. UM and it quoted the quoted Mr Mr Smalls as UM as saying as saying making it cool to organize as as one of as one

of his goals. UM And So that's so there's a number of social factors probably others too, that are contributing to the contributing to this uptick in in union organizing. And then economically there's very high inflation, labor shortage, supply chain issues that have that have been UM that have affected restaurants significantly. Those are all causing UM employee employees to to do more with us. Yeah, and Mike, you know, it's been really hard to be a restaurant employee during

the pandemic across the entire country with staffing shortages. UM it's been hard to be a restaurant owner and operator as well, and everybody has been required to adjust. But the staff being shortages at restaurants, and especially why are some of these businesses being targeted. They are the better employers. They are those that have been known for for treating employees better. And these are in place I want to stay. They want to work there, They don't want to go

somewhere else. But as as Jonathan said, you know, they feel that they should be treated better. And the organizers behind this, as we talked about, you know, the last week's episode with with the Fast Act, they've been very smart and savvy. So they're they're hitting the right notes at the right time with the right audience under the right circumstances. And you know that's why we're seeing this this very unique and significant change from what we had

ever experienced previously. Yeah, that's an interesting point, right, Like Starbucks and Chipotle are almost the victims of their own success in that way that that you know that they have employed, they have had, you know, an employee base that has stuck around that they've treated well, and they um you know, contribute to college tuition and give better benefits than their peers, and so employees do stick around in an industry where employees tend to be very very transitory,

and they don't want to pay dues historically because they figure, you know, this is just a very short term gig for me, right, and my John can touch on this, but that's a precise reason why they're targeting these employers as opposed to who you might think franchise fast too, because you know, on how you unionize a location, you know, it requires John will tell you an employee vote, and if employees aren't around, they're not gonna be their vote.

But for those employers what people have been there for

a long time and want to stay they are. Yeah, it's interesting and another point to uh, you know the fact that the left um you know, you mentioned this last week, Riley, that that um, you know, some of these groups have been playing the long game, right, and so part of it is the left UM has done a good job of controlling the culture, right, so you know, putting union organizers on Time magazine, right, and like by by controlling a lot of the um messaging out of

these media outlet's, it's definitely become an advantage for them and they're they're weaponizing it absolutely. UM. So what do you too think about the Starbucks? About Starbucks efforts so far to head off unionization at that chain, well, UM, you know they're they're not working particularly well as the as the numbers suggests. There's my account is about two Starbucks locations have voted to unionize. And that's that's in addition to the approximately three and forty more locations where

the where the union. UM it's mostly Workers United, which is a Service Employees International c i U affiliate UM has filed for has voled for more votes at other stores. UM. And you know that that's all since since about late so UM a very remarkable play, a very remarkable pace for UM. For for this to have happened just just at one employer alone. UM. You know it's it is difficult to stem the tide of labor organizing once it

is underway. And UM, as as Riley alluded to, UM, there's you know, there's there's a couple of reasons why that's why that's difficult. One is the UM the under the n l RB's election process, UM, the union first needs to gather gather authorization cards from thirty at least thirty percent of the employees it's trying to trying to organize, and then it files it files a petition for election and based on those cards, and then once that petition

is filed, the the election happens. Happens pretty quickly with then within a matter of weeks weeks or maybe a little bit longer than in some cases, but but usually

usually pretty quickly. So once that once that petition is filed, there's not a lot of time for for the employer to change employees hearts and minds um And then legally, the the n l r A significantly limits employer's ability to change wages, benefits, scheduling practices, and and other and other working conditions that may have caused employees to organize

in the first place. Once the employer is aware of the is aware of the union campaign, the law generally makes of them awful um for employers to try to improve or worsen um wages as an effort to influence how employees might feel about a union or my or my vote in an election, which all underscores that that it is important for employers to act um promptly and to act now before before they haven't acted organizing drive underway.

And it was interesting because Starbucks, you know, they raised their wages for their employees in non unionized stores, and uh, you know, I guess if you want to have any comments about that strategy, I mean, the union kind of countered pretty quickly. I was like, oh, we agree to that as well, So you know, why can't you, um, you know, issue raises across the system, you know. Um, I thought that was a curious, uh, a curious way to kind of combat it. And and I thought, you know, um,

you know, the unions had a good answer to it. Yeah, I mean at Starbucks and at other other employers, both within and outside of the restaurant sector. It's you know, there's there's the standard standard age, old issues that that employees and union site as reasons why why union is necessary.

Better pay, more predictable scheduling, better benefits. But it's UM and that this ties into what I was what I was discussing earlier about the UM about the rise of about how social justice movements plated into the the current what we're seeing currently. Uh, it's an employee. Employees site that they want a seat at the table, and um, you know, once once collective bargaining with the employers underway. UM, the unions have no ability to require require the employer

to agree to the union's proposals. But one thing that a union can do under the under the n l r A as as it's set up currently is UM is that they can provide a seat of the table because the law does require the employer and the union UM to sit down, to sit down and negotiate in good faith. So it does it and give employees a mechanism to voice their concerns to management directly. Thanks for that and Starbucks brought up but election tampering recently? Is

this a real concern for restaurant chains? And uh? If so, what can be done to fight it? Well? So the NLRB, it is supposed to be neutral when it is administering elections and when investigating unfair labor practice or ULP charges, which are which are allegations that the n l r A has been violated. The problem is that the same agency that investigates alleged misconduct UM also acts as the prosecutor and its judges are also within the NLRB. And

the n lrb's top positions are our political appointees. So under Trump, the board members were UM majority majority um at majority management side backgrounds. And under under President bide In, the n l RB's top positions are are predominantly held by individuals who had significant union side experience. So you know, this is the this is the structure that Congress set up when it enacted the n l RB um um

about ninety years ago. But that structure makes the agency highly prone to allegations of favoritism um and and in fact, it does make it hard for the agency to be to be in fact neutral, much less maintained that maintained

that position credibly to the public. You mentioned, um, the allegations in the in the in Starbucks recent letter, So Starbucks alleges that n l RB agents in certain of the agency's regional offices engaged in in quote, highly improper and systemic conduct that that, according to Starbucks, tipped tip the scales in favor of unions when the agency was administering mail ballot elections. So and we can get to discuss what the implication of the mail ballot election in

a minute. But the allegations more specifically included u n LRB agents coordinating with with unions to arrange for voting to happen in n LRB offices, giving the union but not the employer, confidential information UM in real time as to as to how the votes were coming in. So were they were they were they for the union or for the employer, um, which which then then allows the allows the union to UH to target it's it's its campaign efforts while while voting is underway. So those are

those are They're just allegations at this point. But um, you know, if if true, it would, um, you know it would it would really seriously undermine the n l RB's ability to claim that that it is in fact control, particularly in in is voted, one of the most highly publicized union union efforts in recent history. So, um, you know, in a mail ballot election, Um, well, so the mail ball elections are not the are not the presumptive election. The presumptively appropriate form of n RB election is an

in person election. UM. In an in person election, there are a number of safeguards that the that the n LRB has in place. It's a pretty pretty sterile voting conditions. There are the n LRB sets up sets up voting boosts UM that look a lot like how we how we all vote in state and federal elections come November. Both sides have a few observers there to monitor the process. UH, and the employers and union representatives have to steer clear

of the voting area. There's no electioneering, and campaigning near the voting area is not allowed in a mail ballot election. UM. You know, there is no there's no voting area. UM. Many of those many of those of the safeguards that existed in personal election don't don't apply in an n l RB UM mailbell election. So that that means that there's more opportunities for for both for unions and employers as well as other employees to pressure employees to vote

one way or the other. It's interesting. I think most people were hoping that that we've heard the end of mail in ballots, but apparently that that's not the case here. UM. You know, we've written a bit that automation and refranchising are are two ways that restaurant chains can kind of head off unionization efforts. Is UM, can you maybe talk about these two a little bit and maybe UM tell us what else they can do to to um limit

unionization in their chains. Well, UM, automation is a is a good point, and we talked a bit about how last week, how the fast Act could lead to an

increase in into automation. UM. You know, McDonald's has done a lot on automation historically, it might be ahead ahead of some of the other fast food industries and in adopting that that form of production UM, but you know, automation hasn't hasn't really caught on that much throughout the throughout the restaurant sector, particularly particularly in middle and higher

end and higher end restaurants. So there's there there is a good likelihood that that automation will will increase as a result of what we're what we're seeing now, both in terms of increased unionization UM, rising labor costs related to related to the Fast Act and and just to just rising labor costs in general as a result of inflation and and and other labor shortage and other factors UM.

So that there are a number of things that that restaurants, UM and and other employers can do to try to to try to reduce the likelihood that their employees will turn to a union because, as I mentioned, UM employees site in addition to better wanting better pay and benefits. They cite UM wanting to have a seat at the table UM as as a reason for unionization. So one thing that employers, including restaurants can do is to ensure that upper management has mechanisms in place to learn of

employees concerns UM in real time. And you know, those concerns could be interesting interest in unions, or it could be just complaints about wages, scheduling or or other practice or other practices. Uh. You know, it's important for decision makers to have to know what's going on in the ground uh in order to be able to address address those issues before before they before they metastasize UM in

a similar of make make employees feel heard UM. You know, employers don't need a union to h to give employees a voice. So communicate with employees and and ensure that that employees employees feel comfortable communicating with you. Communication communication really does need to be a two way street, UM, and a lot of that, a lot of that has to do with a lot of responsibility falls on on

frontline managers. So ensuring that front line frontline managers in the restaurants are comfortable talking with employees about sensitive workplace issues like pay for instance, So that so that when other sensitive workplace topics come up, like unions, there there's already a strong relationship in place. Employees feel comfortable talking to talking to their manager about about sensitive topics, and

managers feel comfortable, um, talking with employees about about unions. Um. It's it's important to have that muscle memory already built before there's before there's an active organizing campaign because you know, as I mentioned once, um, once an election, once an election is scheduled, um, the ability to try to change hearts and minds becomes becomes rather limited. I would say for refranchising, Mike, Uh, that's an option, but it's essentially

putting the problem in somebody else's pocket. So uh, some brands are looking at that as a strategy. Uh, not necessarily a bad one, because we're not seeing as much activity at franchise locations. Most of it, at least for now, has been focused on company on locations. So it can shift, uh the issue to a franchise, but it doesn't necessarily solve the able all issue. Yeah, and potentially you know, you might get less for a refranchise store at that point if if the purchaser has the factor in the

potential for unionization. UM. And the point you made John about McDonald's it was a great one. I mean, they've spent a lot of money over the last few years implementing kiosks, UM, implementing back of the house technology that reduces the amount of steps so an intern it reduces the amount of employees you need in the kitchen. And I think we're going to see these things become more ubiquitous U in California and UM. You know what we saw with server handhelds, which now have been rolled out

across the country. UM. You know they allow at a full service restaurant, they allow a server to handle five tables instead of three, so it reduces flate labor on the floor. And you know, five, six, seven years ago, these things were very expensive and when uh you were paying a server just a few dollars in a tipped wage, it didn't make sense. But in Seattle and a l A, in places that had you know, twelve plus minimum wages years ago, that that's where UM, that's where they were

implemented first. But over time the technology gets cheaper UM as wages rise. UM. In all the cities that the r O I starts to make more sense. So, um, it just it just makes sense that automation is going to be probably the most used tool to to kind of um pushing themselves against unionization. Yeah, and Mike a

real life example. I live in the city of Portland, Oregon, which is one of the most challenging markets in the country in which to operate a restaurant one or more expensive, and automation has really taken hold at a number of locations where you'll see you know, toast for example, uh, ordering everything from your phone through a toast system with a very limited staff, no actual table service, just uh,

you know, bringing and buzzing um. And you know, all these efforts to reduce labor uh and utilized technology to maintain profitability. So uh, I think there's the business is

going to evolve to to serve live. I think what we lose from that, though, you know, is the hospitality aspects and jobs and the other things that are so important because the jobs that are being lost here the restaurant industries employee for some of the most important people in the country, those at the bottom of the income levels who really need the jobs more than anyone, and It's an industry that provides a pathway for opportunity to everyone and has for decades, and to see that being

reduced or eliminated by these policies is really hard hard to take. And the team uh, and young adult unemployment rates in the state of California, you know, in Brooking says to study there are significantly higher than anywhere else in the country. You see the same in every state you know that has implemented these policies. With increasing wages and unionization efforts, the doors to opportunity are being closed to a lot of people. And that's we see the

consequence of that. We see people not working, we see you know, more crime, we see more other other issues that all these cities are dealing with. So hopefully come since prevails and you get to a place, you know where restaurants continue to be a path for opportunity for everyone. Yeah, it's it's uh, it definitely is is uh unfortunate in some ways, and there's there's always unintended consequences right to

any um policy pushes, policy changes and things of that nature. Uh. You know, Riley, last time we spoke, you suggested that unions could come for Chipotle next. So don't get a big head, but it was a very prescient call. So is it safe for me to assume that unions are going to prefer to organize that companies that own a majority of the restaurants. We kind of touched on that already. And Uh, I guess what else? What else are they looking for? Uh? In the target? Well, I think it's

it's uh Jonathan mentioned earlier. Uh, you know, the ability to unionize uh, a location they don't want to Unions don't want to spend their time or effort and trying to unionize a location where the emloyees are not going

to be there through the voting process. Uh. It makes much more sense to focus on locations where uh, you know, with a good employer, where employees have been there, where they want to stay there, and get them to rally around the sales pitch that the unions are making to them and those not to say that franchise locations camp because there's a lot of terrific franchised restaurants out there, but focusing on you know, the big names like they

have been Starbucks, ri Pteley, and and we'll be seeing others as well. You know, those are the more likely candidates. And so if they can achieve that, like we talked about in the last episode, there's a two prom approach unionization efforts hitting these company owned locations, the fast act hitting you know, these other aspects of the industry. And then the overall purpose of the union is to have a unionized workforce, you know, throughout the entire country of

all restaurants. And that's not something they've hidden. And so their their approaches strategy is is very smart. Uh. They're very well corded, they're very well funded, and they're they're executing very well right now. And uh, you know, the industry, you know, needs to take steps to really you know, see what's going on here and respond accordingly in our in our opinion, that's good stuff. And I think that's a good place to wrap it up. I know I learned a lot, so I'm sure our our listeners have

as well. Thank you both so much for your time. Uh and before we go, what's the best way for our listeners to contact you? Oh? This Riley loguson uh Riley dot loguson at green at g T law dot com. I'm in the Greenberg Charge website and they wants to reach out, and Jonathan Sack else also in Greenberg. Charg I can be reached at Sack, J. S A c k J at g T law dot com. Stuff. Thanks, Thanks Mike,